PLR 1331011: IRS waives the 60-day rollover deadline after duplicate IRA payments

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer who received an unintended duplicate IRA payment during a transfer between financial institutions. The taxpayer relied on a financial advisor to move the remaining assets and continue the existing substantially equal periodic payments, but an automatic distribution from the former custodian was not stopped. The IRS found that the advisor's error left the taxpayer unaware of the additional payment and allowed 60 days from the ruling to contribute no more than that amount to the new IRA. The ruling did not decide whether the payments qualified as substantially equal periodic payments under § 72(t)(2)(A)(iv), and it did not authorize a rollover of required minimum distributions.

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement for the unintended duplicate IRA distribution?
• Outcome: Approved, the waiver was granted.
• Key authorities: IRC §§ 408(d)(3), 72(t)(2)(A)(iv), 401(a)(9), and 6110(k)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

201331011

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

TAX EXEMPT AND MAY 07 2013

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

Legend

Taxpayer A =
IRA B =
Annuity C =
IRA D =

IRA E =

IRA F =
Account G =
Amount H =
Amount I =

Financial Institution L =

Financial Institution M =

Financial Institution N =

Financial Advisor O =

Dear

This letter is in response to a request for a letter ruling dated December 22,
2011, as supplemented by correspondence dated July 2, 2012, from your
authorized representative, in which you request a waiver of the 60-day rollover

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requirement contained in section 408(d)(3) of the Internal Revenue Code (the
“Code”).

The following facts and representations were submitted under penalty of perjury
in support of your request for a waiver.

Taxpayer A maintained IRA B, an individual retirement account as defined in
Code section 408(a), with Financial Institution L. Taxpayer A represents that he
was receiving substantially equal periodic payments within the meaning of
section 72(t)(2)(A)(iv) of the Code from IRA B, with each payment equal to
Amount H. He further represents that in March, 20 { he inadvertently received
an additional payment of Amount H from IRA B. Taxpayer A asserts that his
failure to accomplish a rollover of Amount H within the 60-day period prescribed
by section 408(d)(3)(A) was because he was not aware that an error made by his
financial advisor resulted in the additional payment of Amount H to Taxpayer A.

In 20° , Taxpayer A maintained an IRA with Financial Institution L as the
custodian. At this time, Taxpayer A’s financial advisor, Financial Advisor O, was
affiliated with Financial Institution L. In June of 20 \, Financial Advisor O
advised Taxpayer A to purchase a variable deferred annuity contract, Annuity C,
issued by Financial Institution M, with a portion of the assets in his IRA. After the
acquisition of Annuity C, Taxpayer A maintained two separate IRA accounts with
Financial Institution L, IRA B, which held Annuity C, an individual retirement
annuity within the meaning of section 408(b) of the Code, and IRA D, an
individual retirement account within the meaning of section 408(a), the assets of
which were invested in mutual funds.

In August of 20° _\, after consulting with Financial Advisor O, Taxpayer A, then
age 55, began receiving a series of substantially equal periodic payments from
Annuity C through IRA B using the fixed annuitization method. In order for
Financial Institution L to make the distributions, on a monthly basis Financial
Institution M would distribute Amount H to Financial Institution L and Financial
Institution L would transfer Amount I, an amount equal to Amount H less
withholding for state and federal income taxes, to Taxpayer A’s checking
account, Account G. To the best of Taxpayer A’s knowledge, Financial Institution
M transferred Amount H to Financial Institution L one month prior to the transfers
of Amount I by Financial Institution L to Account G. As a result, IRA B always
held a balance equal to Amount H plus any interest accrued on that amount.

In 20__, Financial Advisor O terminated his relationship with Financial Institution
L and became affiliated with Financial Institution N. In December of 20,
Taxpayer A completed the paperwork for transferring IRA D to Financial
Institution N and on January 4, 20 {| the assets in IRA D were transferred to IRA
E maintained by Financial Institution N. Because Financial Institution N did not
serve as a custodian for annuity contracts within an IRA, Financial Institution N

submitted a request to Financial Institution M in February, 20 |, to remove

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Financial Institution L as custodian. In December, 20 ‘and January, 20,
Taxpayer A completed paperwork with Financial Institution M to transfer
ownership of Annuity C directly to Taxpayer A, and have Financial Institution M
make monthly distributions equal to Amount I by electronic transfer to Account G.
On February 24, 20 _, Taxpayer A received a letter from Financial Institution M
acknowledging the transfer of ownership of Annuity C from Financial Institution L
as custodian to Taxpayer A. In the transfer, Annuity C became IRA F, an
individual retirement annuity described in section 408(b) of the Code. The letter
also informed Taxpayer A that his current systematic withdrawals had been
stopped and provided instructions to continue the payments to Taxpayer A. For
February, 20 , Financial Institution L made an electronic payment equal to
Amount I into Account G. Financial Advisor O states, in a letter dated October
24,20 ', and submitted by Taxpayer A, that Financial Institution M did not
distribute Amount H to Financial Institution L in the month of February.

On March 5, 20 _, pursuant to Financial Institution M’s instructions, Taxpayer A,
with Financial Advisor O’s assistance, formally requested that the monthly
distributions be made electronically to Account G. However, because of a 10-
day waiting period for initial electronic processing, Taxpayer A requested that
Financial Institution M send him the March 8 check by mail and that Financial
Institution M commence electronic transfers to Account G beginning April 8,

20 . Taxpayer A received a check equal to net Amount I which he deposited
into Account G on March 15, 20.» However, on March 8, 20 _ | Financial
Institution L also distributed net Amount I to Account G. Taxpayer A was
unaware that Financial Institution L had deposited net Amount I into Account G
because he believed that the gross distribution of Amount H in February was the
last distribution from Financial Institution L. Financial Advisor O states in his
letter of October 24, 20 |, that he does “not understand how this was allowed.”
However, the March 8, 20 | distribution of net Amount I was made by Financial
Institution L to Account G because Financial Institution L was not notified to stop
automatic distributions from IRA B as a result of the above-referenced change in
ownership of Annuity C.

Taxpayer A has represented that he never intended to receive duplicate
distributions during March, 20 .. Rather, he relied on Financial Advisor O to
transfer all of his retirement assets in IRA D with Financial Institution L to
Financial Institution N, and all of Taxpayer A's assets in IRA B with Financial
Institution L to IRA F with Financial Institution M, without affecting the series of
substantially equal periodic payments begun by Taxpayer A during the year 20;
from IRA B. Thus, Financial Advisor O's failure to advise Taxpayer A to transfer
the remaining assets of IRA B from Financial Institution L to Financial Institution
M constituted an error that resulted in Taxpayer A receiving duplicate
distributions of Amount H during March, 20 |.

From April 20’ | through the present, Taxpayer A received monthly distributions
equal to Amount I from IRA F with Financial Institution M via electronic transfer to

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Account G. In early 20°, when Taxpayer A met with his accountant to prepare
his federal income tax return for 20 _\ he was informed that 13 checks, each
equal to Amount H, were distributed to Taxpayer A in 20°

Based on the above facts and representations, you request that the Service
waive the 60-day rollover requirement with respect to the distribution of Amount
H made to Taxpayer A by Financial Institution L in March, 20.

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) 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)).

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).

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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 (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).

Revenue Procedure 2003-16, 2003-4 I.R.B. 359, 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 supports his
assertion that the failure to timely roll over Amount H into IRA F was because he
was not aware that an error had been made by Financial Advisor O resulting in
the distribution to Taxpayer A of an additional Amount H in March, 20 \

Taxpayer A had relied on Financial Advisor O to oversee the transition from
Financial Institution L to Financial Institution N, and to ensure that he continued
to receive the correct amount of monthly substantially equal periodic payments.
While Taxpayer A received from Financial Advisor O the proper paperwork to
transfer IRA D from Financial Institution L to IRA E maintained by
Financial Institution N, and to transfer ownership of Annuity C directly to Taxpayer A, to
become IRA F, Taxpayer A did not receive any paperwork to transfer the
remaining assets of IRA B from Financial Institution L to IRA F maintained by

Financial Institution M.

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
H from IRA B in March of 20: . Taxpayer A is granted a period of 60 days from
the issuance of this letter ruling to contribute not more than Amount H into IRA F.
Provided all other requirements of section 408(d)(3), except the 60-day rollover
requirement, are met with respect to such contribution, the contribution will be
considered a rollover contribution within the meaning of section 408(d)(3).

Please note that, pursuant to section 408(d)(3)(E) of the Code, this ruling does
not authorize the rollover of section 401(a)(9) minimum required distributions.

This ruling is limited to a request for a waiver of the 60-day rollover period. No
opinion is expressed as to whether the payments from IRA B and IRA F to .

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Taxpayer A constitute a series of substantially equal periodic payments within the
meaning of section 72(t)(2)(A)(iv) of the Code.

Further, 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 that may be applicable hereto.

This letter ruling is directed solely 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 have any questions regarding this ruling, you may contact

Sincerely yours,

[illegible signature]

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

cc: