PLR 1316026: IRS declines to waive rollover deadlines for two taxpayers

Plain-English summary

Two taxpayers transferred distributions from their separate IRAs to non-IRA accounts at the same company to increase their trading power for stock options. They later argued that they did not understand the transfers were distributions and requested waivers of the 60-day rollover requirement. The IRS declined both requests because the taxpayers had completed distribution forms for transfers to non-IRA accounts and the failure to roll the amounts into IRAs remained within their reasonable control. The ruling therefore denied relief for both distributions.

Ruling snapshot

• Question: Whether the IRS should waive the 60-day rollover requirement for two IRA distributions transferred to non-IRA trading accounts.
• Outcome: Denied.
• Key authorities: IRC §§ 408(d)(3), 408(d)(3)(I), and 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

201316026

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JAN 24 2013

T.E.P. R.A.: T1

Uniform Issue List: 408.03-00

XXXXXXXXXXXXK

XXXXXXXXXXKKK

XXXXXXXXXXXXX

Legend

Taxpayer A = XXXXXXXXXXXXX
Taxpayer B = XXXXXXXXXKXXKX
IRA C = XXXXXXXXXXXXX
IRA D = XXXXXXXXXXXXX
Company E = XXXXXXXXKXXXXKX
Amount 1 = XXXXXXXXXKXXK
Amount 2 = XXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

This is in response to your request dated March 22, 2012, as supplemented by
correspondence dated June 28, 2012, in which you request 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 he received a distribution equal to Amount 1 from
IRA C, which was maintained by Company E. Taxpayer A asserts that his failure
to accomplish a rollover within the 60-day period prescribed by 408(d)(3)(A) was
due to his lack of knowledge and confusion concerning the distribution.

Taxpayer B represents that she received a distribution equal to Amount 2 from
IRA D, which was maintained by Company E. Taxpayer B asserts that her failure
to accomplish a rollover within the 60-day period prescribed by 408(d)(3)(A) was
due to her lack of knowledge and confusion concerning the distribution.

Taxpayer A and Taxpayer B (hereafter the “Taxpayers”) maintained IRA C and
IRA D, respectively, with Company E. On August [illegible], 20[illegible], the Taxpayers
completed IRA Distribution Request Forms with Company E requesting a transfer
of Amount 1 and Amount 2, respectively, from IRA C and IRA D to their separate
non-IRA accounts with Company E. The purpose of the transfers was to
increase their trading power for stock options in their non-IRA accounts.

Even though the IRA Distribution Request Forms are clearly completed to
request a “Normal Distribution” and transfer to non-IRA accounts, the Taxpayers
argue that they thought transferring the shares (stocks within the IRAs were
liquidated) would not be considered a distribution. The mistake was discovered
during the preparation of the Taxpayers 2011 tax returns.

Based on the above facts and representations, two rulings are requested: (1)
Taxpayer A requests that the Service waive the 60-day rollover requirement with
respect to the distribution of Amount 1 from IRA Account C, and (2) Taxpayer B
requests that the Service waive the 60-day rollover requirement with respect to
the distribution of Amount 2 from IRA Account D.

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.

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) 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 or 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 of the Treasury may
waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D)
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).

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) of the Code, 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,
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 Service has the authority to waive the 60-day rollover requirement for a
distribution from an IRA where the individual failed to complete a rollover to
another IRA within the 60-day rollover period because of one of the factors
enumerated in Revenue Procedure 2003-16, for example errors committed by a
financial institution, death, hospitalization, postal error, incarceration, and/or
disability. In this instance, the Taxpayers have not presented any evidence to
the Service as to how any of the factors outlined in Rev. Proc. 2003-16 affected
their ability to timely roll over the distributions of Amount 1 and Amount 2. The
facts indicate that the Taxpayers completed IRA Distributions Forms with the
intention of transferring Amount 1 and Amount 2 from their IRAs to their non-IRA
accounts with Company E to increase their trading power within the non-IRA
accounts. The information presented indicates that the inability of the Taxpayers
to roll over Amounts 1 and 2, respectively, into IRAs within the 60-day period
was, at all times, within the reasonable control of the Taxpayers.

Under the circumstances presented in this case, the Service hereby declines to
waive the 60-day rollover requirement contained in section 408(d)(3) of the Code
with respect to the distributions of Amount 1 from IRA B and Amount 2 from IRA
C.

No opinion is expressed as to the tax treatment of the transaction described
herein 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 taxpayers who requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.

If you wish to inquire about this ruling, please contact
(Identification No. XXXXXXX) at (XXX) XXX-XXXX. Please address all
correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Notice of Intention to Disclose
Deleted copy of this letter