IRS waives the 60-day IRA rollover requirement after an investment processing error

Plain-English summary

The IRS waived the 60-day deadline for a taxpayer who intended to move IRA funds into a new rollover IRA that would invest in a limited partnership. The taxpayer completed the subscription materials as an IRA investment, separately identified the retirement funds, and wired them to the partnership. The administrator instead invested the funds directly in the partnership, although the records identified the investment as belonging to the taxpayer's IRA, so the taxpayer believed a rollover IRA had been established. The IRS granted relief under IRC § 408(d)(3)(I) and gave the taxpayer 60 days from the ruling letter to contribute the amount to a rollover IRA.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day deadline for rolling the distribution into a rollover IRA?
• Outcome: Approved, the 60-day rollover requirement was waived
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), 408(d)(3)(I), 401(a)(9), 72, and 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

201409015

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
DEC 03 2013

Uniform Issue List: 408.03-00

Control No. ***

Legend:
Taxpayer A - **
Employer B - *****
Partnership C - ********

Administrator D - ***
Date E - *
IRA X - ******
Amount Y - ****

Dear ****:

This is in response to your request dated January 25, 2013, 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 withdrew Amount Y from IRA X on Date E. Taxpayer A
asserts that his failure to complete a rollover of Amount Y was a result of errors
committed by Employer B, Partnership C, and Administrator D. Taxpayer A

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intended to rollover the amount withdrawn from IRA X into a new rollover IRA
that would invest in Partnership C, and erroneously believed that the investment
in Partnership C had been made through a new IRA established in his name.

Taxpayer A is employed by Employer B. In late 2010, Taxpayer A was
informed by Employer B that he could invest retirement assets with a limited
partnership fund (Partnership C) for which Employer B was the investment
manager. The general partner of Partnership C is an entity related to Employer
B. Taxpayer A had previously invested some non-retirement funds in
Partnership C.

Taxpayer A had previously established IRA X with another financial
institution. When Taxpayer A asked Employer B how to go about making an IRA
investment in Partnership C, he was given a new subscription agreement and
was told to fill it out in a manner indicating the IRA nature of the new investment,
and to submit it to the administrator of Partnership C, Administrator D. Taxpayer
A was further told to wire the IRA funds to Administrator D upon submitting the
completed subscription agreement, and that Administrator D would then take the
necessary steps to set up the new IRA investment.

Taxpayer A decided to invest Amount Y in Partnership C as an IRA
investment. Prior to wiring funds to Partnership C, Taxpayer A completed,
signed, and delivered to Administrator D a subscription agreement to invest
Amount Y in Partnership C as an IRA investment. At relevant places in the
subscription agreement, Taxpayer A clearly indicated that the investment of
Amount Y was an IRA investment. Taxpayer A indicated in at least 4 separate
places in the subscription agreement that the investment in Partnership C was to
be held as part of an IRA.

In addition, several e-mails sent between Taxpayer A, Employer B, and
Administrator D around this time also show that Taxpayer A intended the
investment of Amount Y to be an IRA investment, and that Employer B and
Administrator D both understood that the investment was intended to be an IRA
investment. One of these e-mails specifically indicates that Amount Y was to be
a separate subscription for the IRA, separate from additional non-retirement
funds that were to be added to Taxpayer A’s existing investment in Partnership
C. An e-mail sent from Employer B to Administrator D the day before funds
were wired specifically mentioned the IRA investment and asked whether the
documents were sufficient as completed.

On Date E, Taxpayer A withdrew Amount Y from IRA X, and wired those
funds to an account owned by Partnership C. In addition, Taxpayer A separately
wired additional non-retirement funds to supplement his existing non-retirement
account with Partnership C. It was Taxpayer A's understanding that
Administrator D would establish a rollover IRA account to hold Amount Y, and
that this account would then be invested in Partnership C.

However, no new IRA was in fact established. Rather, Amount Y was
invested directly in Partnership C, with “Taxpayer A IRA” listed as the investor.
While the subscription form provided for investments by IRAs and contained
places for signature by the IRA custodian, Administrator D processed the
subscription form as an IRA investment without such signature. In addition,
Administrator D used Taxpayer A’s social security number as the taxpayer
identification number for the IRA, despite the fact that an individual cannot be an
IRA custodian.

Taxpayer A subsequently received confirmation that “Taxpayer A IRA” had
a subscription amount in Partnership C equal to Amount Y. Taxpayer A also
received Form K-1s from Partnership C indicating separate investments in
Partnership C, one for “Taxpayer A IRA,” and one for “Taxpayer A.” Taxpayer A
accordingly believed that Administrator D had timely established a rollover IRA
account on his behalf, and that such account was the investor in Partnership C
with respect to Amount Y.

Taxpayer A did not learn until June 2012 that the amount transferred to
Partnership C from IRA X had not been deposited in a rollover IRA as he had
instructed.

Taxpayer A had not made any rollover from an IRA owned by Taxpayer A
during the one-year period ending on Date E.

Based on these facts and representations, you request a ruling that the
Internal Revenue Service waive the 60 day rollover requirement contained in
section 408(d)(3) of the Code with respect to the distribution of Amount Y from
IRA X on Date E.

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

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(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 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 complete a rollover of Amount Y
was a result of errors committed by Employer B, Partnership C, and
Administrator D. Taxpayer A intended to rollover the amount withdrawn from IRA
X into a new rollover IRA that would invest in Partnership C, and he believed that

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the investment in Partnership C had been made through a new IRA established
in his name. The documentation also demonstrates that Administrator D’s
processing of the investment in Partnership C as an investment by an IRA
despite the lack of signatures by an IRA custodian, and using a taxpayer
identification number that could not legally be that of an IRA custodian, led
Taxpayer A to erroneously believe that no further steps were needed to ensure
that the investment was held through an IRA.

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 Y from IRA X. Taxpayer A is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount Y 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 of
Amount Y will be considered a rollover contribution within the meaning of section
408(d)(3) of the Code.

As agreed in your representative's letter dated November 22, 2013, the
Service will not rule on the remaining ruling requests listed in your January 25,
2013 letter.

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.

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 ** (ID
*) at (202) -****. Please address all correspondence to
SE:T:EP:RA:T3.

Sincerely yours,

Laura B. Warshawsky, Manager,
Employee Plans Technical Group 3

201409015

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

cc: ****