IRS approves a spousal rollover after a financial institution mistake

Plain-English summary

An executor and surviving spouse asked the IRS to waive the 60-day deadline for an IRA distribution made to a decedent. The decedent instructed a financial institution to put the funds into an IRA, but the institution opened a standard checking account instead and deposited the funds there. After the decedent died, the surviving spouse transferred the funds into an IRA in the spouse's name. The IRS waived the deadline and treated the contribution as a valid rollover, assuming the spouse would have been eligible to make a spousal rollover election and that the executor's actions complied with state law.

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement for Amount 1 distributed from IRA V and later contributed to IRA Y?
• Outcome: Approved
• Key authorities: IRC §§ 72, 401(a)(9), 408(d)(1), 408(d)(3), 408(d)(3)(A), 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

201411045

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 19 2013

Uniform Issue List: 408.03-00 T:EP:RA:T1

XXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXX

Legend:

Decedent A = XXXXXXXX
Amount 1 = XXXXXXXXX
IRA V = XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
Financial Institution B = XXXXXXXXX
Account W = XXXXXXXXXXXXXXXXXXXXX
Financial Institution C = XXXXXXXXXX
Account X = XXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Financial Institution D = XXXXXXXXXXXX
IRA Y = XXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX
Financial Institution E = XXXXXXXXXXXX

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IRA Z = XXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
Financial Institution F = XXXXXXXXXXXXXXX
Amount 2 = XXXXXXXXXX
Taxpayer G = XXXXXXXXXXXXX
State H = XXXXXXXX

Dear XXXXXXX:

This is in response to your request dated September 5, 2012, as
supplemented by correspondence dated July 12, October 24, two items dated
November 13, November 21, and December 9, 2013, from your authorized
representatives, 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”) with
respect to Decedent A. You are the executor of the estate of Decedent A. You
also are the surviving spouse of Decedent A.

The following facts and representations have been submitted under
penalty of perjury in support of the ruling requested.

You represent that Decedent A received a distribution of Amount 1 from
IRA V maintained with Financial Institution B with the intent to create a rollover
IRA account at Financial Institution C. You assert that his failure to accomplish a
rollover within the 60-day period prescribed by section 408(d)(3) of the Code was
due to a mistake made by Financial Institution C in failing to deposit Amount 1
into a rollover IRA account. You further represent that Amount 1 has not been
used for any other purpose.

Decedent A maintained IRA V with Financial Institution B. On October 7,
2008, Decedent A received a distribution of Amount 1 from IRA V. On October
10, 2008, Decedent A opened Account W at Financial Institution C with
instructions to Financial Institution C to put the funds in an IRA. On November
23, 2009, Decedent A discovered that Financial Institution C had not put the
funds into an IRA as directed. You represent that Decedent A attempted to
resolve the issue, but died on December 9, 2010, without having succeeded in
transferring the funds to an IRA. You represent that Financial Institution C was
acquired by Financial Institution D and that Account W became Account X held
with Financial Institution D.

On January 19, 2012, a representative of Financial Institution D
acknowledged in writing that Financial Institution C, had opened a standard

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checking account rather than the IRA requested by Decedent A and that the
funds intended for the IRA were erroneously deposited into the checking
account. You subsequently transferred Amount 2 from Account X to IRA Y with
Financial Institution E in your name, Taxpayer G, and you then transferred IRA Y
to IRA Z with Financial Institution F in the name of Taxpayer G.

You represent that no one has withdrawn any part of Amount 1 except
with respect to the transfers described above.

Based on the facts and representations, you request a ruling that the
Internal Revenue Service (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.

Section 408(d)(1) of the Code provides that, except as otherwise provided
in section 408(d) of the Code, 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

(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) of the Code).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) of the
Code does not apply to any amount described in section 408(d)(3)(A)(i) of the
Code 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) of the Code from an IRA which was
not includible in gross income because of the application of section 408(d)(3) of
the Code.

Page 4 201411045

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) of the Code do not apply to any amount required to be distributed
under section 408(a)(6) of the Code.

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) 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 you presented and documentation you submitted are
consistent with your assertion that Decedent A’s failure to accomplish a timely
rollover of Amount 1 was caused by a mistake by Financial Institution C, which
resulted in Amount 1 being deposited into Account W, a non-IRA account.

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 V. Provided all other requirements of section 408(d)(3) of the
Code, except the 60-day requirement, were met with respect to such
contribution, the contribution of Amount 1 into an IRA on behalf of Decedent A
would be considered a rollover contribution within the meaning of section
408(d)(3) of the Code. Further provided that Taxpayer G would have been
eligible to make a spousal rollover election with respect to such IRA created on
behalf of Decedent A, the contribution of Amount 1 into IRA Y will be considered
a valid rollover contribution within the meaning of section 408(d)(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.

Finally, the scope of the executor’s powers is a matter of state law. This
ruling assumes that your actions in contributing Amount 1 into IRA Y set up in

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Taxpayer G’s name, were in accordance with the laws of State H and pursuant to
your authority as executor of the estate.

No opinion is expressed as to the tax treatment of the transaction
described in this ruling under the provisions of any other section of either the
Code or regulations which may be applicable.

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
is being sent to your authorized representative.

If you wish to inquire about this ruling, please contact XXXXXXXXXX
XXXXX (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:
Deleted copy of ruling letter
Notice of Intention to Disclose

cc: XXXXXXXXX
XXXXXXXXXXKXKX
XXXXXXXXXKX
XXXXXXKXXKXXKXKKXX