PLR 1323040: IRS waives the rollover deadline after incorrect tax advice

Plain-English summary

The IRS considered a taxpayer who received a distribution from a 403(b) annuity and did not timely roll over part of it after receiving incorrect information from the annuity company. The taxpayer deposited the amount into a non-IRA account and later contributed it to an IRA after learning that the distribution was taxable. The IRS waived the 60-day requirement because the taxpayer and her financial advisor relied on the misinformation. The later contribution was treated as a rollover for purposes of IRC §§ 402(c)(3) and 403(b)(8), assuming the other requirements were met.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement for part of a 403(b) annuity distribution after incorrect information from the financial institution?
• Outcome: Approved.
• Key authorities: IRC §§ 402(c)(3) and 403(b)(8); 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

MAR 14 2013

Uniform Issue List: 402.08-00, 403.05-00

Legend:

Taxpayer A =
403(b) Annuity B =
Company C =
IRA D =
Company E =
Firm F =
Amount 1 =
Amount 2 =

Dear [illegible]:

This is in response to your request dated March 5, 2012, as supplemented by
correspondence dated August 21, 2012 and February 16, 2013, in which you requested
a waiver of the 60-day rollover requirement contained in section 402(c)(3) of the Internal
Revenue Code ("Code"), as applicable to an annuity described in Code sections 403(b).

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

Taxpayer A represents that she received a distribution of 403(b) Annuity B totaling
Amount 1. Taxpayer A asserts that her failure to accomplish a rollover of Amount 2, a
portion of Amount 1, within the 60-day period prescribed by section 402(c)(3), and made
applicable to her situation pursuant to Code section 403(b)(8), was due to her reliance
on the misinformation provided by Company C. Taxpayer A further represents that
Amount 2 has not been used for any other purpose.

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Taxpayer A maintained 403(b) Annuity B, a qualified retirement annuity with Company
C. This annuity was established in 1995 when Taxpayer A left her job as a teacher. In
late 2008, Taxpayer A began planning for retirement and a consolidation of her
retirement accounts. Taxpayer A requested a surrender of the policy with Company C
and sought to rollover 403(b) Annuity B into IRA D with Company E. Taxpayer A
opened IRA D, an individual retirement account, with Company E and completed
paperwork for a direct rollover but Company E requested proof that the funds were from
a qualified plan. At that time, Taxpayer A did not remember the source of the funds in
403(b) Annuity B and sought assistance from a representative with Company C.
Company C was in a bankruptcy protection program at that time and because of
inconsistent information from Company C, Taxpayer A sought the assistance of her
financial advisor with Firm F. Taxpayer A and her financial advisor had numerous
conversations with representatives of Company C during the first half of 2009. In June
2009, after the unexpected distribution Amount 1 from Company C, a representative of
Company C was told that proof of tax qualification of the funds was needed to complete
a rollover. The representative told Taxpayer A and her financial advisor that the funds
did not need to be rolled into an IRA as the funds were not taxable upon distribution.
Taxpayer A's financial advisor specifically asked how the 2009 1099-R would be coded
and was told the proceeds would not be taxable. Taxpayer A also received a letter from
Company C indicating that the cost basis in the policy was more than the surrender
amount and therefore, there was no gain at the time of surrender. Based on this
information, Taxpayer A's financial advisor with Firm F advised her she did not need to
rollover any of the distribution. Taxpayer A and her financial advisor were not aware
that this determination was incorrect until she received a 1099-R totaling Amount 2 in
early 2010. On June 14, 2010, Taxpayer A, after receiving inconsistent information
from Company C on why the 1099-R amount was different from the distribution amount,
transferred Amount 2 into IRA D with Company E.

Based on the facts and representations, a ruling has been requested that the Internal
Revenue Service waive the 60-day rollover requirement contained in section 402(c)(3)
of the Code with respect to the distribution of Amount 2.

Section 403(a)(5) of the Code provides that the rules of section 402(c)(2) through (7)
shall apply for the purposes of section 403(b)(8).

Section 402(c) of the Code provides that if any portion of the balance to the credit of an
employee in a qualified trust is paid to the employee in an eligible rollover distribution,
and the distributee transfers any portion of the property received in such distribution to
an eligible retirement plan, and in the case of a distribution of property other than
money, the amount so transferred consists of the property distributed, then such
distribution (to the extent transferred) shall not be includible in gross income for the
taxable year in which paid. Section 402(c)(3)(A) states that such rollover must be
accomplished within 60 days following the day on which the distributee received the
property. An individual retirement account (IRA) constitutes one form of eligible
retirement plan.

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Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary may
waive the 60-day requirement under sections 402(c) 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 402(c)(3)(B) 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
402(c)(3) 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 documentation submitted by Taxpayer A is consistent
with her assertion that her failure to accomplish a timely rollover was caused by her and
her financial advisor's reliance on the misinformation provided by a representative of
Company C which resulted in Amount 1 being deposited into a non-IRA account.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby waives the
60-day rollover requirement with respect to the distribution of Amount 2, a portion of
Amount 1, from 403(b) Annuity B. Provided all other requirements of section 402(c)(3)
of the Code, except the 60-day requirement, were met with respect to Taxpayer A's
contribution of Amount 2 into IRA D on June 14, 2010, such contribution will be
considered a rollover contribution for purposes of sections 402(c)(3) and 403(b)(8) 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.

If you wish to inquire about this ruling, please contact [illegible]. Please address all correspondence to
SE:T:EP:RA:T1.

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

CC:

Sincerely,

[signature illegible]

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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