PLR 1318032: 60-day rollover deadline waived after misleading advice

Plain-English summary

An IRA owner received a distribution and missed the 60-day rollover deadline after relying on an advisor's incorrect information. Part of the money was sent to an escrow agent and used to buy stock in a foreign company, while the remaining amount was later transferred to a SEP-IRA after the deadline. The IRS waived the deadline for the distribution and allowed the taxpayer 60 days from the ruling date to contribute the applicable amount to a rollover IRA. The ruling did not authorize rollovers of amounts that were required to be distributed under section 408(a)(6).

Ruling snapshot

• Question: Should the IRS waive the 60-day rollover requirement for an IRA distribution made after the taxpayer relied on erroneous advice?
• Outcome: Approved. The IRS waived the deadline subject to the ruling's conditions.
• Key authorities: IRC §§ 402(c)(3)(B), 408(d)(1), 408(d)(3), and 408(a)(6); Rev. Proc. 2003-16, 2003-4 I.R.B. 359

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

Legend:

Taxpayer A

IRA B

Financial Institution B

Financial Advisor C

Individual D

Financial Advisor E

Account F

Financial Institution G

Law Firm I

Company J

Country K

IRA L

Financial Institution M

Amount 1

Amount 2

Amount 3

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

201318032

FEB 06 2013

Dear [illegible]:

This letter is in response to a request for a letter ruling, dated September 29,
2011, 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 ("Code").

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

Taxpayer A received a distribution of Amount 1 from IRA B on June 3, 20[illegible].
Taxpayer A asserts that his failure to accomplish a rollover of Amount 1 within
the 60-day period prescribed by section 408(d)(3) was due to his reliance on
erroneous information provided by Individual D.

Taxpayer A maintained IRA B, an individual retirement account under section
408(a) of the Code, through his investment advisor, Financial Advisor C and
custodian, Financial Institution B. Taxpayer A, dissatisfied with the earnings
performance of IRA B, began contemplating other investment opportunities. He
was referred to Individual D, an investment advisor employed by Financial
Advisor E. Taxpayer A intended that his account balance in IRA B would remain
invested in one or more qualified retirement plans. On or around June 2, 20[illegible],
he met with Individual D. Individual D assured Taxpayer A that a distribution
from IRA B could be reinvested without any tax consequences. Individual D did
not discuss any rollover deadline that would apply to a distribution from IRA B.

On June 2, 20[illegible], Taxpayer A executed paperwork to wire transfer Amount 1
from IRA B to Account F, a non-IRA Account with Financial Institution G. The
funds were transferred to Account F on June 3, 20[illegible]. On June 4, 20[illegible],
pursuant to Individual D's instructions, and relying on Individual D's written
statement that he would take care of the transaction for Taxpayer A, Taxpayer A
transferred Amount 2 from Account F to what he believed to be Taxpayer A's
SEP-IRA. Instead, the funds were transferred to Law Firm I as the escrow agent.
Amount 2 was used to purchase stock in Company J which is an overseas
corporation doing business in Country K. Taxpayer A still owns the Company J
stock. During the summer of 20[illegible], another employee of Financial Advisor E
explained to Taxpayer A that the remainder of Amount 1, Amount 3, would have
to be rolled over. Taxpayer A then completed an application to open a new IRA
to be maintained with Financial Institution M. On August 4, 20[illegible], Amount 3 was
wire transferred from Account F to IRA L, a SEP-IRA account with Financial
Institution M. This second transfer of Amount 3 occurred after the expiration of
Taxpayer A's rollover deadline. Amount 3 remains in IRA L and has not been
used for any purpose.

Taxpayer A further represents and documents that numerous clients of Individual
D and Financial Advisor E have initiated both civil and criminal proceedings
against them.

Based on the above facts and representations, you request that the Internal
Revenue Service ("Service") waive the 60-day rollover requirement contained in
section 408(d)(3) of the Code with respect to the distribution of Amount 1.

Section 408(d)(1) of the Code provides that, except as otherwise provided in
section 408(d) of the Code, 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 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).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) of the Code
does not apply to any amount described in section 408(d)(3)(A)(i) of the Code
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) of the Code from an IRA which was not
includible in gross income because of the application of section 408(d)(3) of the
Code.

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 sections 408(d)(3)(I) and 402(c)(3)(B) 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 information presented and the documentation submitted by Taxpayer A is
consistent with his assertion that his failure to accomplish a timely rollover of
Amount 1 was due to his reliance on Individual D and on the misleading and
incorrect information regarding the distribution from IRA B, provided by Individual
D, which resulted in Taxpayer A's failure to complete a rollover of Amount 1
within the 60-day rollover period.

Therefore, pursuant to section 408(d)(3)(I), the Service hereby waives the 60-day
rollover requirement with respect to the distribution of Amount 1 from IRA B.
Taxpayer A is granted a period of 60 days from the issuance of this letter ruling
to contribute Amount 2, or a lesser amount, 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 2, or such lesser
amount, will be considered a rollover contribution within the meaning of section
408(d)(3) of the Code. In addition, provided all other requirements of section
408(d)(3) of the Code, except the 60-day requirement, are met with respect to
the contribution of Amount 3 to IRA L on August 4, 20[illegible], such contribution 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 408(a)(6) 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.

A copy of this letter ruling has been sent to your authorized representative
pursuant to a power of attorney on file in this office.

If you wish to inquire about this ruling, please contact [illegible]
(I.D. # [illegible]), at ([illegible]) [illegible].

Sincerely yours,

Carlton A. Watkins
Manager
Employee Plans Technical Group 1

Enclosures:

Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

CC: