IRS waives the rollover deadline after a bankruptcy disrupted a direct rollover

Plain-English summary

An individual requested a direct rollover from a retirement plan to another plan after the employer sponsoring the original plan went bankrupt. The direct rollover was not completed, and a distribution check was mailed to the individual but never received or cashed. After learning about the distribution from a Form 1099-R, the individual obtained a replacement check, which also remained uncashed. The IRS waived the 60-day rollover requirement and allowed 60 days from the ruling letter to contribute the distributed amount to a qualified retirement account, subject to the other rollover rules.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement when a bankruptcy disrupted a direct rollover and the distribution checks were not cashed?
• Outcome: Approved.
• Key authorities: IRC §§ 401(a)(9), 401(a)(31), 402(c), 402(c)(3), 402(c)(3)(B), 402(c)(4), and 6110; Treas. Reg. § 1.401(a)(31)-1; Rev. Proc. 2003-16

Full text (IRS public release)

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

201406022

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 14 2013

Uniform Issue List: 402.03-00

XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

Legend

Taxpayer A = XXXXXXXXXXXXXX
Plan B = XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Plan C = XXXXXXXXXXXXXX
Company D = XXXXXXXXXXXXXX
Financial Institution E = XXXXXXXXXXXXXX
Amount 1 = XXXXXXXXXXXXXX
Amount 2 = XXXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

This is in response to your request dated July 16, 2013, in which you request a
waiver of the 60-day rollover requirement contained in section 402(c)(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
Plan B, which was maintained by Company D. Taxpayer A asserts that his
failure to accomplish a rollover within the 60-day period prescribed by 402(c)(3)
was due to the fact that his request for a direct rollover was not completed and
the initial distribution check was not received. Taxpayer A further represents that
Amount 1 has not been used for any other purpose.

*201406022

Taxpayer A participated in Plan B with Company D. In August 2012, due to the
bankruptcy of Company D in December 2010, Taxpayer A requested a rollover of
Amount 1 from Plan B to Plan C. The request for a rollover was not completed
because Financial Institution E could not reach any of Company D’s contacts. As
a result of this, a distribution check was mailed to Taxpayer A from Financial
Institution E in December 2012, totaling Amount 1 less income tax withholding of
Amount 2. Taxpayer A represents he never received the distribution check and
the check was never cashed. Taxpayer A had no knowledge of the check even
being mailed to him until he received a 1099R for Tax Year 2012 from Financial
Institution E. Taxpayer A contacted Financial Institution E and requested a new
distribution check and a corrected 1099R. Financial Institution E refused to issue
a corrected 1099R but did issue a new distribution check to Taxpayer A dated
March 29, 2013. The check remains uncashed.

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 Plan B.

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.

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.

Section 402(c)(4) of the Code provides that an eligible rollover distribution shall
not include any distribution to the extent such distribution is required under
section 401(a)(9).

Section 401(a)(31) provides the rules for governing “direct transfers of eligible
rollover distributions”.

Section 1.401(a)(31)-1, of the Income Tax Regulations (Regulations) Q&A-15,
provides, in relevant part, that an eligible rollover distribution that is paid to an

201406022

eligible retirement plan in a direct rollover is a distribution and rollover, and not a
transfer of assets and liabilities.

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 the bankruptcy of Company D and resulting incomplete rollover attempt of the
distribution of Amount 1 from IRA B compounded by the mishandling of the
distribution check mailed to Taxpayer A. Therefore, pursuant to section 402(c)(3)
of the Code, the Service hereby waives the 60-day rollover requirement with
respect to the distribution of Amount 1 from Plan B. Taxpayer A is granted a
period of 60 days from the issuance of this ruling letter to contribute Amount 1 to
a qualified retirement account. Provided all other requirements of section
402(c)(3) of the Code, except the 60-day requirement, are met with respect to
such contribution, Amount 1 will be considered a valid rollover contribution within
the meaning of section 402(c)(3) of the Code.

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

201406022

If you wish to inquire about this ruling, please contact XXXXXXXXXXXXX
(ID XXXXXXXX) at (XXX) XXX-XXXX. 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