IRS waives the 60-day IRA rollover requirement after a financial institution error

Plain-English summary

An individual asked the IRS to waive the 60-day deadline for rolling an IRA distribution into another qualified retirement account. The individual intended to keep the money in a tax-qualified self-directed IRA, but the financial institution and its employees treated the investment change as a taxable distribution. The IRS found that the submitted information supported the claim that this error prevented a timely rollover. It waived the 60-day requirement, assuming the other rollover requirements were met, but did not authorize rollovers of amounts required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement for Amount 1 from IRA P?
• 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)

201411047

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00 DEC 16 2013

XXX
XXX
XXX T:EP:RA:T2

Legend:

Taxpayer A = XXX
Amount 1 = XXX
Accountant F = XXX
Financial Advisor G = XXX
Individual H = XXX
Financial Institution A = XXX
Financial Institution B = XXX
IRA P = XXX
Investment R = XXX

Dear XXX:

This is in response to your request dated February 7, 2012, submitted on your behalf by
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”).
Correspondence on May 21, 2012, June 7, 2012, and June 18, 2012, supplemented the
request.

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

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Taxpayer A received a distribution of Amount 1 from IRA P on June 15, 2010. Taxpayer
A asserts that his failure to accomplish a rollover of Amount 1 within the 60-day period
prescribed by section 408(d)(3) of the Code was caused by an error by Financial
Institution A through its employees, Financial Advisor G and Individual H. Taxpayer A
further represents that Amount 1 has not been used for any other purpose.

Taxpayer A owned IRA P, a self-directed IRA held by Financial Institution A. Taxpayer A
decided to change the investment of Amount 1 within self-directed IRA P to Investment
R. Accountant F, Taxpayer A’s accountant, communicated with Financial Institution B
about setting up a new self-directed IRA with a rollover contribution of Amount 1,
invested in Investment R. Financial Institution B approved the investment in Investment
R for a self-directed IRA at Financial Institution B on November 30, 2009.

However, Taxpayer A did not establish a new self-directed IRA at Financial Institution B.
Instead, Taxpayer A told Financial Advisor G at Financial Institution A that he wanted to
change the investment of Amount 1 within self-directed IRA P to Investment R.
Taxpayer A told Financial Advisor G that he intended to maintain Amount 1 within his
tax-qualified self-directed IRA P. Financial Advisor G directed Individual H to assist
Taxpayer A with the transfer of Amount 1 to Investment R within IRA P. Taxpayer A
entrusted the transfer of Amount 1 to Financial Advisor G and Individual H.

Financial Advisor G has acknowledged, in writing, that he understood that it was always
Taxpayer A’s intention to have Amount 1 remain in a tax-qualified account, but to have it
invested in Investment R. Nevertheless, Financial Institution A through its employees,
Financial Advisor G and Individual H, treated Taxpayer A’s investment of Amount 1 in
Investment R as a taxable distribution.

In September 2011, Accountant F, while in the process of preparing Taxpayer A’s 2010
tax returns, discovered that Amount 1 was not invested in self-directed IRA P or any
other tax-qualified account and was reported by Financial Institution A as a taxable
distribution.

Based on the above facts and representations, you request a ruling that the Internal
Revenue Service (“Service”) waive the 60-day rollover requirement contained in section
408(d)(3) of the Code with respect to Amount 1.

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.

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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)).

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.

Revenue Procedure 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 presented and documentation submitted by Taxpayer A is consistent
with his assertion that his failure to accomplish a timely rollover of Amount 1 was
caused by an error by Financial Institution A through its employees, Financial Advisor G

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and Individual H, resulting in the failure to deposit Amount 1 into another qualified
retirement plan within 60 days after being distributed from IRA P.

Therefore, pursuant to section 408(d)(3)(A) of the Code, the Service hereby waives the
60-day rollover requirement with respect to Amount 1 from IRA P. Provided all other
requirements of section 408(d)(3) of the Code except the 60-day requirement are met,
such contribution will be considered a rollover contribution within the meaning of section
408(d)(3) of the Code.

This ruling is based on the assumption that IRA P otherwise satisfies the requirements
of section 408 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.

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.

If you wish to inquire about this ruling, please contact XXX at (XXX) XXX-XXX.
Please address all correspondence to SE:T:EP:RA:T3.

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

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

cc:
XXX
XXX
XXX