Postal error excuses a late IRA rollover

Plain-English summary

An IRA owner received a distribution and promptly sent the check by certified mail to an adviser with instructions to deposit it into another IRA. After the 60-day rollover period ended, the envelope came back unopened with no indication that the financial institution had received it. The taxpayer then sent the check to another financial institution, which deposited it into the destination IRA, and the taxpayer never accessed or used the funds. The IRS found that postal error caused the delay and waived the 60-day requirement. It treated the later deposit as a valid rollover, provided all other rollover requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a waiver when a certified-mail envelope containing an IRA rollover check was returned unopened after the deadline?
• Outcome: Approved. The later IRA deposit was treated as a valid rollover, subject to the other statutory requirements.
• Key authorities: IRC §§ 72, 401(a)(9), and 408(d)(3); 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

201421028

FEB 24 2014

Uniform Issue List: 408.03-00

T:EP:RA:T2

Legend:

Taxpayer =

IRA X =

IRA Y =

Financial Institution A =

Financial Institution B =

Amount =

Dear :

This is in response to your request dated June 1, 2012, as supplemented by correspondence dated November 7, 2012, and December 4, 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 represents that she received a distribution from IRA X totaling Amount. Taxpayer asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to postal error. Taxpayer further represents that Amount has not been used for any other purpose.

Taxpayer represents that she received a distribution of Amount from IRA X on February 22, 2012, with the intent to roll it over into IRA Y. Taxpayer asserts that on February 23, 2012, she had placed the distribution check in an envelope with instructions to roll it into IRA Y, and sent it certified mail to her advisor at Financial Institution A for deposit. On May 5, 2012, which was after the 60-day rollover period ended, she had received the certified mail envelope unopened with the check inside and no indication that Financial Institution A had received the check. Taxpayer then forwarded the check to Financial Institution B, who deposited the check into IRA Y on June 1, 2012. Taxpayer asserts that her failure to rollover Amount within the 60-day period was due to postal error. Taxpayer further represents that she never accessed the funds during the relevant time period and that Amount remains in IRA Y and has not been used for any purpose.

Based on the 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.

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

(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) 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) 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), 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 is consistent with her assertion that her failure to accomplish a timely rollover was caused by a postal error.

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 from IRA X. 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 deposit of Amount in IRA Y on June 1, 2012 will be considered a 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 under 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 at . Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Jason E. Levine, Manager,
Employee Plans Technical Group 2

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