IRS waives the 60-day deadline after a financial institution misclassified an IRA application

Plain-English summary

An individual asked to move money from one IRA to another IRA at a different financial institution. An agent mistakenly marked the new account application as “nonqualified” instead of “IRA,” even though the taxpayer had directed that the money be rolled over. The IRS concluded that the error caused the missed 60-day deadline and that the amount had not been used for another purpose. It waived the deadline and allowed the taxpayer 60 days from the ruling letter to transfer no more than the distributed amount into a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement after an agent selected the wrong account type?
• Outcome: Approved.
• Key authorities: IRC §§ 72, 3405(c), 408(a), 408(d)(1), 408(d)(3), 408(d)(3)(I), and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 13 2013

201406024

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =
IRA B =
Financial Institution C =
Account D =
Financial Institution E =
Individual F =
Financial Institution G =
Amount 1 =

Dear :

This is in response to your request for a ruling dated July 25, 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 he attempted to transfer Amount 1 from IRA B to a
similar IRA with a different financial institution. Taxpayer A asserts that his
failure to accomplish a transfer of Amount 1 within the 60-day period prescribed
by section 408(d)(3) was due to a mistake made by an employee of Financial
Institution G. Taxpayer A further represents that Amount 1 has not been used for
any purpose.

Page 2

Taxpayer A maintained IRA B, under section 408(a) of the Code, with Financial
Institution C. By letter, dated April 11, 2011, Taxpayer A requested a distribution
of Amount 1 from IRA B. In his letter, he stated he wanted to roll over Amount 1
to another IRA with a different Financial Institution. No federal taxes were
withheld from Amount 1 pursuant to section 3405(c) of the Code. The check was
dated April 14, 2011, and made payable to “Financial Institution E FBO
Taxpayer.” The check was delivered to Individual F, the owner of Financial
Institution G, an independent agent of Financial Institution E. Individual F
prepared Taxpayer A’s new account application with Financial Institution E.

For unknown reasons, he checked “nonqualified” instead of “IRA” on the new
account application in violation of Taxpayer A’s directions. Individual F’s
contemporaneous notes indicate that a rollover was intended. The error was
discovered when Taxpayer A received a Notice CP2000 from the Internal
Revenue Service (Service) on May 20, 2013.

Based on the facts and representations, you request a ruling that the Service
waive the 60-day rollover requirement contained in section 408(d)(3) of the Code
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 of the Code.

Section 408(d)(3) of the Code 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)).

Page 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 and 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) of the Code.

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 his assertion that his failure to accomplish a transfer of
Amount 1 was due to a mistake made by an employee of Financial Institution G.

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 letter ruling to transfer an amount not to exceed Amount 1 into a
rollover IRAs. Provided all other requirements of section 408(d)(3) of the Code,
except the 60-day requirement, are met with respect to such contributions, the
contribution will be considered a rollover contribution within the meaning of
section 408(d)(3) of the Code.

Page 4

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. If you wish to inquire about
this ruling, please contact (I.D. # ), , at ( )

Sincerely yours,

Manager
Employee Plans Technical Group 1

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

cc: