PLR 1317022: IRS waives rollover deadline after IRA funds were misdirected

Plain-English summary

An individual asked to change investments within an IRA, but a financial institution transferred the funds out of the IRA into a non-qualified account instead. The individual did not request a distribution, kept the amount set aside for another IRA, and discovered the error only after the 60-day rollover period had expired. The IRS waived the 60-day requirement under section 408(d)(3)(I) and allowed 60 days from the ruling letter to contribute the amount to an IRA. The ruling does not address other tax treatment and does not waive requirements for amounts that must be distributed.

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement when a financial institution moves IRA funds into a non-qualified account contrary to the taxpayer's instructions?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), and 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

201317022

JAN 29 2013

Uniform Issue List: 408.03-00

T:EP:RA:T2

Legend:
Taxpayer A = ***
IRA X = ******
Financial Institution A = ***
Amount A = ***
Date 1 = **
Date 2 = **
Date 3 = ****

Dear *****:

This is in response to your request dated May 11, 2011, as supplemented by
correspondence dated January 3, 2013, submitted on your behalf by your authorized
representative 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”).

Page 2 201317022

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

Taxpayer A, age , represents that he received a distribution of Amount A from
IRA X. Taxpayer A asserts that he never requested Financial Institution A to make the
distribution, and his failure to accomplish a rollover of Amount A into IRA X within the
60-day period prescribed by section 408(d)(3) of the Code was due to an error made by
a representative from Financial Institution A. Taxpayer A further represents that Amount
A is set aside for deposit into another IRA and has not been used for any purpose.

On Date 1, Taxpayer A contacted Financial Institution A via telephone to request
a change to his investments within IRA X. The type of investment that Taxpayer A
requested his funds to be transferred to was an investment that Financial Institution A
offered within an IRA. The representative from Financial Institution A agreed to change
the investments in the phone call. On Date 2, Financial Institution A changed the
investment; however instead of keeping the investment within IRA X, Financial
Institution A transferred the funds out of IRA X and deposited them into a non-qualified
account. By the time Taxpayer A had discovered this occurrence on Date 3, the 60-day
period had expired in which he could roll over Amount A into another IRA.

Based on the facts and representations, you request a ruling that the Internal
Revenue Service waive the 60-day rollover requirement contained in section 408(d)(3)
of the Code with respect to the distribution of Amount A.

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.

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) of the Code).

Page 3 201317022

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)(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, 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 his assertion that his failure to accomplish a timely rollover was caused
by Financial Institution A transferring IRA X funds into a non-qualified account contrary
to Taxpayer A's instruction.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of Amount A from
IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter
to contribute Amount A into an 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 A will be considered a rollover contribution within the meaning of
section 408(d)(3) of the Code.

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 taxpayer who requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.

Page 4 201317022

If you wish to inquire about this ruling, please contact * * at () -
*. Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Donzell Littlejohn, Manager,
Employee Plans Technical Group 2

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