PLR 201324021: 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.

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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)).

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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.

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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: