PLR 1324021: IRS waives an IRA rollover deadline after advisors used a non-IRA account

Plain-English summary

An IRA owner instructed financial advisors to cash out and reinvest retirement funds, understanding that a rollover had to occur within 60 days. The advisors deposited the distribution into a non-IRA account instead of the newly opened IRA, and the taxpayer did not discover the error until after the deadline. The IRS waived the deadline and gave the taxpayer 60 days from the ruling date to contribute the distribution to a rollover IRA. The ruling did not authorize rollover of amounts required to be distributed under section 401(a)(9).

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover deadline after financial advisors deposited the funds into a non-IRA account?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(3)(I), 401(a)(9), and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE 201324021

WASHINGTON, D.C. 20224

TAX EXEMPT AND MAR 21 2013

GOVERNMENT ENTITIES
DIVISION

SE:T:EP:RA:T1

Uniform Issue List: 408.03-00

Legend

Taxpayer A =

IRA B =
IRA C =

Account D =

Financial Institution E =
Amount 1 =
Amount 2 =

Dear :

This is in response to your request dated December 20, 2012, as supplemented
by correspondence received on February 13, 2013, in which you request,
through your authorized representative, 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 B, which was maintained by Financial Institution 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 an error by his financial advisors at Financial Institution
E in mistakenly depositing Amount 1 into Account D, a non-IRA account.

2 201324021

On April , 20 , Taxpayer A sent correspondence to his financial advisors at
Financial Company E explaining that he wanted to change his investments due
to poor performance. Taxpayer A stated that he wanted to cash out and reinvest
his accounts, and that he understood the rollover must occur within 60 days. He
asked his financial advisors for their help and recommendations in accomplishing
his goals.

On May , 20 , Taxpayer A received a check equal to Amount 1 from Financial
Institution E. In May, 20 , Taxpayer A also opened IRA C with Financial
Institution E. On June , 20 , one of his financial advisors deposited Amount 1
into Account D. Taxpayer A represents that he believed that Amount 1 had been
properly rolled over into an IRA account. Taxpayer only discovered that Amount
1 was not held in an IRA when he was contacted by the Service in June, 20 ,
regarding an understatement of income and additional taxes owing due to the
distribution of Amount 1. While not admitting fault, on May , 20 , Financial
Institution E offered to compensate Taxpayer A in an amount equal to Amount 2,
the cost incurred as a result of the error. Amount 1 continues to be held in
Account D.

Based on the above facts and representations, Taxpayer A requests that the
Service waive the 60-day rollover requirement with respect to the distribution of
Amount 1 from IRA B.

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)).

201324021

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 information and documentation submitted by Taxpayer A is consistent with
his assertion that the failure to accomplish a timely rollover of Amount 1 was due
to an error made by his financial advisors at Financial Institution E who
mistakenly deposited Amount 1 into Account D, a non-IRA account. 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 1 from IRA B.
Taxpayer A is granted a period of 60 days from the issuance of this ruling letter
to contribute Amount 1 into a rollover IRA account. Provided all other
requirements of section 408(d)(3), except the 60-day requirement, are met with
respect to such contributions, Amount 1 will be considered a rollover contribution
within the meaning of section 408(d)(3).

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

201324021

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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling
is being sent to your authorized representative.

If you wish to inquire about this ruling, please contact . 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

cc: