IRS waives the 60-day rollover deadline after an employer failed to provide rollover information

Plain-English summary

The IRS considered a retired participant who received distributions from her former employer’s qualified plan after the plan failed to provide the written rollover explanation required by IRC § 402(f). She said that she repeatedly asked the employer to keep her balance in the plan, but the plan distributed the balance and did not explain how to complete a tax-free rollover. The IRS waived the 60-day requirement under IRC § 402(c)(3)(B) and gave her 60 days from the ruling letter to contribute up to the specified amount to an IRA, subject to the other rollover requirements. The ruling did not authorize rollovers of amounts required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: Can the IRS waive the 60-day rollover requirement when the plan failed to provide the required rollover information?
• Outcome: Approved, the 60-day requirement was waived subject to the stated conditions
• Key authorities: IRC §§ 402(c), 402(c)(3)(B), 402(f), 401(a)(9), and 401(a)(31); 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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

201410039

DEC 12 2013

Uniform Issue List: 402.00-00

LEGEND:
Taxpayer A =

Plan B =

Company C =

Amount 1 =
Amount 2 =
Amount 3 =
Amount 4 =
Amount 5 =
Amount 6 =
Amount 7 =
Amount 8 =

Dear:

This responds to your request dated July 26, 2013, as supplemented by
correspondence dated September 10, 2013, and October 9, 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”).

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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 Plan B totaling
Amount 1. Taxpayer A asserts that her failure to accomplish a rollover within the
60-day period prescribed by section 402(c)(3) was due to an error by Company C
in failing to inform Taxpayer A of her ability to roll over Amount 1 to an Individual
Retirement Account (IRA) as required by section 402(f) of the Code.

Taxpayer A represents that she is a retired participant in Plan B, which is
sponsored by her former employer, Company C. Taxpayer A represents that
after her retirement from Company C in 1994, she kept her Plan B account
balance in Plan B. Taxpayer A received a notice (Notice 1) from Company C
dated January 4, 2011, indicating that as a separated participant in Plan B,
Taxpayer A would receive distributions of her account balance because she had
reached age 70-1/2. Notice 1 indicated that Taxpayer A would receive two
distributions from Plan B: one payment of a required minimum distribution that
would be made in December 2011, and a second payment of her entire
remaining account balance that would be made by April 1, 2012.

In December 2011, Taxpayer A received a 2nd notice (Notice 2) from Company C
dated December 14, 2011, indicating that she would receive a 2011 required
minimum distribution in Amount 2 within two days of the notice. Taxpayer A
represents that after receiving Notice 2, and at several points thereafter, she
called Company C’s benefits center (Benefits Center) to express that she did not
want her account balance distributed and to request that Company C maintain
her account balance in Plan B. Taxpayer A represents that an employee of the
Benefits Center indicated that Taxpayer A could request to have her account
balance remain in Plan B and that he would send her a form to use to make the
request. Taxpayer A represents that she never received this form as promised.

Taxpayer A represents that she next received a 3rd notice (Notice 3) from Plan B
on January 4, 2012. Notice 3 indicated that Taxpayer A would receive a 2012
required minimum distribution in Amount 3. Upon receiving Notice 3, Taxpayer A
wrote a letter to Company C, dated January 4, 2012, requesting that Company C
maintain her account balance and indicating that she did not need or want her
account balance. Taxpayer A represents that Company C did not respond.

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Although Notice 3 indicated that Taxpayer A would receive a required minimum
distribution for 2012, Company C then sent Taxpayer A a 4th notice (Notice 4), on
January 6, 2012, indicating that Taxpayer A’s entire account balance would be
distributed to her within 60 days of the date of Notice 4.

Taxpayer A represents that the Plan distributed Amount 2 and Amount 3. Her
remaining account balance of Amount 1 was distributed from Plan B on March
29, 2012. Plan B withheld a total of Amount 4 for federal and state withholding
taxes, resulting in a net distribution of Amount 5. Taxpayer A represents she
used a portion of Amount 5 for some personal expenses (Amount 6), but Amount
7 (Amount 6 - Amount 5) has not been used for any other purpose.

Taxpayer A represents that Company C failed to provide her with instructions for
a tax-free rollover to an IRA, or any explanation of the tax consequences of
receiving a lump sum distribution. Taxpayer A represents that once she received
her distribution on March 29, 2012, she contacted the Benefits Center for advice
on how to roll the account balance back into Plan B, but was told by a Benefits
Center representative that she was responsible for her account balance.

Based on the facts and representations, you request a ruling that the Internal
Revenue Service waive the 60-day rollover requirement in section 402(c)(3) of
the Code with respect to a total of Amount 8 (a portion of Amount 1, plus the
amount that was withheld for taxes).

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)(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 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary

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may waive the 60-day requirement under section 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 401(a)(31) of the Code provides the rules for governing “direct transfers
of eligible rollover distributions.”

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and Answer-15,
provides, in relevant part, that an eligible rollover distribution that is paid to an
eligible retirement plan in a direct rollover is a distribution and rollover, and not a
transfer of assets and liabilities.

Section 402(f) of the Code provides for a written explanation to recipients of
distributions eligible for rollover treatment. Section 402(f)(1) provides, in
pertinent part, that the plan administrator of any plan shall, within a reasonable
period of time before making an eligible rollover distribution, provide a written
explanation to the recipient of the provisions under which the recipient may have
the distribution directly transferred to an eligible retirement plan and of the
provisions under which the distribution will not be subject to tax if transferred to
an eligible retirement plan within 60 days after the date on which the recipient
received the distribution.

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 402(c)(3) 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 presented and documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover was
due to the error of Company C in failing to inform Taxpayer A of her ability to roll
over Amount 1 to an IRA as required by section 402(f) of the Code.

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Therefore, pursuant to section 402(c)(3)(B) 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 an amount up to Amount 8 to an IRA. Provided all
other requirements of section 402(c), except the 60-day requirement, are met
with respect to the contribution, the contributed amount will be considered a
rollover contribution within the meaning of section 402(c).

Please note that 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
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.

A copy of this letter is being sent to her authorized representative in accordance
with a Power of Attorney (Form 2848) on file with this office.

If you have any questions, please contact (I.D. # ) by
phone at or fax at . Please address all
correspondence to SE:T:EP:RA:T1.

Sincerely yours,

[illegible signature]

Carlton Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose

Cc: