PLR 1338058: IRS waives 60-day rollover deadline after financial institution error

Plain-English summary

An individual received an IRA distribution and asked the IRS to waive the 60-day rollover deadline for part of the amount. A financial institution employee advised the individual to divide the proceeds among accounts and mistakenly deposited the portion intended for retirement savings into a non-IRA account. The IRS found that the mistake caused the untimely rollover and waived the deadline, giving the individual 60 days from the ruling’s issuance to contribute no more than the specified amount to a rollover IRA. The waiver was subject to the other requirements of section 408(d)(3), and it did not authorize a rollover of amounts required to be distributed under section 408(a)(6).

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement when a financial institution employee caused the intended rollover amount to be deposited into a non-IRA account?
• Outcome: Approved. The IRS waived the requirement for the specified amount.
• Key authorities: IRC §§ 72, 408(d)(3)(I), 408(a)(6); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

201338058

TAX EXEMPT AND JUN 27 2013

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00 T:EP:RA:T1

Legend:
Taxpayer A =

IRA B =

Financial Institution C =
Amount D =
Amount E =
Amount F =
Amount G =
Amount H =
Individual J =
Account K =
Account L =

Account M =

Page 2 201338058

Dear

This is in response to your request for a ruling dated March 20, 2013, as
supplemented by correspondence dated April 1, 2013, from 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 (the “Code”).

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 from IRA B totaling
Amount D. Taxpayer A asserts that her failure to accomplish a rollover of
Amount F within the 60-day period prescribed by section 408(d)(3) was due to a
mistake made by an employee of Financial Institution C.

Taxpayer A maintained IRA B, an individual retirement account under section
408(a) of the Code, with Financial Institution C. On March 27, 20 [illegible], Taxpayer A
visited Financial Institution C to secure a loan of Amount E to be used for a home
improvement project. Taxpayer A asked Individual J, an employee of Financial
Institution C, whether IRA B could be used as collateral for the loan. Individual J
recommended that because IRA B had reached maturity, it could be closed and
the proceeds used to open two savings accounts (Accounts K and L) with
Financial Institution C and one checking account (Account M) with Financial
Institution C. From Amount D in IRA B, Amount F was deposited into Account K,
Amount G was deposited into Account L and Amount H was deposited into
Account M. All three deposits totaling the amount of IRA B (Amount D) were
made by electronic transfers. Amount G was specifically designated as collateral
for Taxpayer A’s personal loan of Amount E.

Before the above transactions were executed, Individual J instructed Taxpayer A
that Amount G, the collateral for her loan, would have to remain in Account L until
her loan (Amount E) was paid off. Taxpayer A agreed and then stated to
Individual J that she wanted Amount F to remain in a retirement account.
Individual J completed the deposit slip that was used to transfer Amount F into
Account K. However, Account K was a non-IRA account. Neither Amounts F nor
G have been used for any purpose subsequent to their transfer to Accounts K
and L, respectively.

In late January, 20__, Taxpayer A received a Form 1099-R reporting a taxable
distribution of Amount D from IRA B. Taxpayer A immediately contacted
Individual J who acknowledged he had provided misleading advice to Taxpayer
A. The ruling request is accompanied by a letter prepared by Individual J in
which he admits his actions caused Amount F to be deposited in a non-IRA
account in error, when Taxpayer A had intended that Amount F be rolled over
into an IRA account.

Page 3 201338058

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

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) 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)).

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 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

201338058

occurred after December 31, 2001, are eligible for the waiver under section
408(d)(3)(I) of the Code.

Page 4

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), 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 of Amount F was due to the mistake made by an employee of
Financial Institution C.

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 F from IRA B. Taxpayer A is granted a period of 60 days from the
issuance of this letter ruling to contribute an amount not to exceed Amount F 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, the
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.

Page 5 201338058

If you wish to inquire about this ruling, please contact

(I.D. # ); ,at( ) -
Sincerely yours,
[illegible signature]
Manager
Employee Plans Technical Group 1
Enclosures:

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

cc: