PLR 1314057: IRS waives 60-day IRA rollover deadline after financial-institution error

Plain-English summary

The IRS considered an elderly taxpayer's missed rollovers from two individual retirement accounts. The taxpayer relied on financial-institution personnel to transfer the distributed amounts, but the transfers were not completed within the 60-day period. The IRS found that the failure was caused by an error by personnel of a financial institution and waived the 60-day requirement under IRC § 408(d)(3)(I). The taxpayer received 60 days from the ruling date to contribute the eligible amount to a rollover IRA, subject to the other rollover requirements. The ruling did not authorize rolling over amounts that were required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover requirement after financial-institution personnel failed to complete the rollover?
• Outcome: Approved, the 60-day requirement was waived for the specified distributions, subject to the ruling's conditions.
• Key authorities: IRC §§ 408(d)(3), 408(d)(3)(I), 401(a)(9), and 6110(k)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

Transcriber's note: This is a scanned IRS release. Obvious OCR errors in the document number, section references, punctuation, and individual words were corrected by comparison with the scanned pages. Redacted placeholders and source wording are otherwise preserved.

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE 201314057

WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

• JAN 11 2013
  UIL:408.03.00 —T EP: PAS TS

Legend:

Taxpayer A =
Individual B =
Individual C =
IRA X =
IRA Y =
IRA Z =
Amount A =
Amount B =
Amount C =
Amount D =
Amount E =

Amount F =

Financial Institution A

Financial Institution B =

Financial Institution C =

" Page 2 201314057

Dear ;

This is in response to your request dated October 11, 2012, in which your
authorized representatives, on your behalf, requested a waiver of the 60-day
rollover requirement contained in section 408(d)(3) of the Internal Revenue Code
(the “Code”.

The following facts and representations have been submitted under
penalty of perjury in support of the ruling requested:

Taxpayer A represents that she received distributions from Financial
Institution A of Amount A and Amount B. Taxpayer A asserts that her failure to
accomplish rollovers within the 60-day period prescribed by section 408(d)(3)
was due to an error made by Individual C, an employee of Financial Institution B.
Taxpayer A further represents that the amount distributed has not been used for
any other purpose.

Taxpayer A maintained two Individual Retirement Accounts, IRA X and
IRA Y (a rollover IRA) with Financial Institution A. She also maintained other non-
qualified accounts at Financial Institution A. Taxpayer A, an elderly, retired,
woman, has always been dyslexic. As such she typically relies on others to
describe the contents of documents to her. Over the years Taxpayer A
developed a relationship with Individual B, an employee of Financial Institution A.
He was her primary contact with Financial Institution A.

In May 20 __, Individual B left Financial Institution A to go into business
with Individual C who worked as a registered representative with Financial
Institution B. Upon doing so, Individual B requested that Taxpayer A move her
assets at Financial Institution A, including IRA X and IRA Y, to Financial
Institution B. At a meeting with Individual B and Individual C in early May 20,
Taxpayer A agreed to do this. She then signed opening documents for two
accounts; IRA Z, and a brokerage account. The contents of the opening
documents were explained to Taxpayer A by Individual B and Individual C as she
had difficulty comprehending them because of her dyslexia.

By letter to Taxpayer A, dated May, 20 _, Financial Institution B
acknowledged the opening of IRA Z and thanked Taxpayer A for establishing the
account. On June ,20 Taxpayer A and Individual C signed documents for
Financial Institution B updating information for IRA Z and designating two
beneficiaries.

On May, 20 __, upon Individual C’s instruction, Taxpayer A submitted
withdrawal slips to Financial Institution A, directing that IRA X and IRA Y be

“oge’ 201314057

closed and the proceeds deposited to the checking account she maintained at
Financial Institution A. On June ,20 , Amount A and Amount B, the balances
in IRA X and IRA Y, were deposited to her checking account. Individual C also
instructed Taxpayer A to liquidate a bond fund which she maintained and have
these funds deposited to the checking account at Financial Institution A. These
funds were deposited on June ,20 . OnJune ,20 TaxpayerAdrewa
check for Amount C which was deposited to the brokerage account at Financial
Institution B. Amount C was in excess of the combined balances of IRA X and
IRA Y. Individual C should then have transferred to IRA Z, Amount D, an amount
equal to Amount A and Amount B, less Amount E, Taxpayer A’s required
minimum distribution for 20. Individual C did not do so; rather two CDs were
purchased for the brokerage account and the remaining cash was also kept in
the brokerage account.

In November 20 _ , Individual C ceased working with Financial Institution
B and became affiliated with Financial Institution C. At the direction of Individual
C, Taxpayer signed documents to close her accounts at Financial Institution B
and to transfer the assets to Financial Institution C. The two CD’s and cash were
transferred to Financial Institution C.

Given taxpayer’s dyslexia, and her relationship with Individual B and
Individual C, she relied on them to monitor and describe the contents of her
various financial accounts. Because of this reliance it was not until she saw her
accountant in February 20 _ that she realized that her IRA accounts had not
been properly rolled over. .

Taxpayer A then contacted Individual C in an attempt to remedy the
situation. Individual C told her to sell her two CDs and transfer back to her
checking account at Financial Institution A, Amount F, an amount, calculated by
him, representing the amounts distributed from IRA X and IRA Y, less the
required minimum distribution for 20 . This amount differed from Amount D by
a couple of hundred dollars. On March 9, 2012 Taxpayer A instructed Financial
Institution C to sell the two CDs and on March ,20 deposited to her
checking account at Financial Institution A, Amount F.

Individual C then informed Taxpayer A that he would not provide her with
a letter explaining his error unless she gave him Amount F to invest. No longer
trusting Individual C, and having continued to maintain her brokerage account at
Financial Institution B, Taxpayer A requested Financial Institution B to assign a
new account representative to her.

Section 408(d)(1) of the Code provides that, except as otherwise provided
in section 408(d), any amount paid or distributed out of an IRA shall be included
in gross income by the payee or distributee, as the case may be, in the manner
provided under section 72 of the Code.

201314057

Section 408(d)(3) of the Code defines, and provides the rules applicable to
IRA rollovers. |

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) of the
Code does not apply to any amount paid or distributed out of an IRA to the
individual for whose benefit the IRA is maintained if

(i) the entire amount received (including money and any other property) is
paid into an IRA for the benefit of such individual not later than the 60th day after
the day on which the individual receives the payment or distribution; or

(ii) the entire amount received (including money and any other property) is
paid into an eligible retirement plan (other than an IRA) for the benefit of such
individual not later than the 60th day after the date on which the payment or
distribution is received, except that the maximum amount which may be paid into
such plan may not exceed the portion of the amount received which is includible
in gross income (determined without regard to section 408(d)(3)).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) does not
apply to any amount described in section 408(d)(3)(A)(i) received by an individual
from an IRA if at any time during the 1-year period ending on the day of such
receipt such individual received any other amount described in section
408(d)(3)(A)(i) from an IRA which was not includible in gross income because of
the application of section 408(d)(3).

Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period
for partial rollovers.

Section 408(d)(3)(E) of the Code provides that the rollover provisions of
section 408(d) do not apply to any amount required to be distributed under
section 408(a)(6).

Section 408(d)(3)(I) of the Code provides that the Secretary may waive
the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) of the
Code where the failure to waive such requirement would be against equity or
good conscience, including casualty, disaster, or other events beyond the
reasonable control of the individual subject to such requirement. Only
distributions that occurred after December 31, 2001, are eligible for the waiver
under section 408(d)(3)(I) of the Code.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359 (January 27, 2003) provides that in
determining whether to grant a waiver of the 60-day rollover requirement
pursuant to section 408(d)(3)(I), the Service will consider all relevant facts and
circumstances, including: (1) errors committed by a financial institution; (2)
inability to complete a rollover due to death, disability, hospitalization,

“ Page 5

2013140572

incarceration, restrictions imposed by a foreign country or postal error, (3) the
use of the amount distributed (for example, in the case of payment by check,
whether the check was cashed); and (4) the time elapsed since the distribution
occurred.

The information presented and documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover was
caused by an error on the part of Individual B and Individual C in their capacity as
employees of Financial Institution B.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service
thereby waives the 60-day rollover requirement with respect to the distribution of
Amount A from IRA X and Amount B from IRA Y. Taxpayer A is granted a period
of 60 days from the issuance of this ruling letter to contribute Amount D into a
Rollover IRA. Provided all other requirements of section 408(d)(3) of the Code,
except the 60-day requirement, are met with respect to such contribution,
Amount D will be considered a rollover contribution within the meaning of section
408(d)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to
be distributed by section 401(a)(9) of the Code

No opinion is expressed as to the tax treatment of the transaction
described therein under the provisions of any other section of either the Code or
regulations which may be applicable thereto.

This letter is directed only to the Taxpayer A who requested it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.

A copy of this letter has been sent to your authorized representatives in
accordance with a power of attorney on file with this office.

201314057

If you wish to inquire about this ruling, please contact (ID
)at . Please address all correspondence to
SE:T:EP:RA:T3.

Sincerely yours,
Laura B. Warshawsky, Manager,
Employee Plans Technical Group 3

Enclosures: ;
Deleted copy of ruling letter
Notice of Intention to Disclose