IRS waives the 60-day IRA rollover deadline after an advisor's mistake

Plain-English summary

The IRS considered a taxpayer who received an IRA distribution and did not complete a partial rollover within 60 days. The taxpayer’s advisor mistakenly believed that the IRA annuity was a non-IRA annuity and advised the taxpayer that the distribution would not create adverse financial consequences. The IRS waived the 60-day requirement for the portion of the distribution that remained available for rollover and gave the taxpayer 60 days from the ruling letter to contribute that amount to a rollover IRA account. 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 IRA rollover requirement when an advisor’s mistake caused a missed partial rollover?
• Outcome: Approved, the 60-day requirement was waived subject to the stated conditions
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), 408(d)(3)(I), 72, and 401(a)(9); 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

DEC 12 2013

201410040

Uniform Issue List: 408.03-00

Legend

Taxpayer A =

IRA B =

Account C =

Account D =

Financial Institution E =

Financial Institution F =

Financial Institution G =

Tax Advisor H =

Amount 1 =

Amount 2 =

Amount 3 =

Dear:

This is in response to your request dated May 15, 2013, as supplemented by
correspondence dated November 19, 2013, in which you request, through your
authorized representative, 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.

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201410040

Taxpayer A represents that he received a total distribution equal to Amount 1
from IRA B, which was maintained by Financial Institution E. Taxpayer A asserts
that his failure to accomplish a partial rollover of Amount 3 (Amount 1 less
Amount 2) within the 60-day period prescribed by 408(d)(3)(A) was due to a
mistake made by Tax Advisor H.

In late September or early October of 2012, Taxpayer A contacted Tax Advisor
H, a Certified Public Accountant, to discuss the tax consequences of terminating
IRA B, an IRA annuity with Financial Institution E. Tax Advisor H was out of town
without access to Taxpayer A’s files. Incorrectly believing that IRA B was a non-
IRA annuity and that Taxpayer A had basis in the majority of the funds in the
annuity, Tax Advisor H confirmed with Taxpayer A that a distribution from IRA B
would not result in any adverse financial consequences. On October 9, 2012,
Amount 1, less a transaction fee, was wired to Financial Institution F and placed
in non-IRA Account C. On October 15, 2012, Taxpayer A again spoke with Tax
Advisor H who advised him to establish an account with Financial Institution G.
Tax Advisor H contacted Financial Institution G to explain Taxpayer A’s financial
situation but did not tell Financial Institution G that the distribution was from an
IRA. On October 19, 2012, within 60 days of the distribution from IRA B,
Taxpayer A established brokerage Account D with Amount 1, less Amount 2,
which Taxpayer A needed for living expenses.

On February 4, 2013, when Tax Advisor H was preparing Taxpayer A’s 2012
federal Income Tax Return and reviewing the Form 1099-R for that year, she
discovered her mistake and realized that the distribution of Amount 1 was from
an IRA annuity. Taxpayer A submitted a letter from Tax Advisor H supporting the
above representations.

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 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.

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) 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 or 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).

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201410040

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 of the Treasury may
waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D)
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).

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 provided by Taxpayer A are consistent with
his assertion that the failure to accomplish a rollover of Amount 3 within the 60-
day period prescribed by section 408(d)(3)(A) of the Code was due to Tax
Advisor H’s mistaken belief that the distribution from IRA B was from a non-IRA
annuity.

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201410040

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
3 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of
this ruling letter to contribute Amount 3 into a rollover IRA account. Provided all
other requirements of section 408(d)(3), except the 60-day requirement, are met
with respect to such contribution, such contribution will be considered a rollover
contribution within the meaning of section 408(d)(3).

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

Sincerely yours,

[illegible signature]

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

cc: