Bank miscommunication supported an IRA rollover waiver

Plain-English summary

A taxpayer took a full distribution from an IRA and brought the check to a bank intending to keep the funds in an IRA certificate of deposit. She told the bank representative that she wanted a CD and assumed it would retain IRA status, but the check did not identify its IRA source and the representative opened a non-IRA account. The taxpayer did not discover the mistake until a later Form 1099-R reported a taxable distribution, and she represented that the funds had not been used for another purpose. The IRS found that the bank miscommunication caused the rollover failure. It granted the taxpayer 60 days from the ruling date to contribute the amount to a rollover IRA.

Ruling snapshot

• Question: Should the IRS waive the 60-day deadline when a bank opened a non-IRA CD despite the taxpayer’s intent to preserve IRA status?
• Outcome: Approved.
• Key authorities: IRC §§ 408(d)(3)(A), 408(d)(3)(D), and 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
201428013

WASHINGTON, D.C. 20224

TAX EXEMPT AND
APR 17 2014

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Legend:
Taxpayer A = XXXXXXXXXXXXXX

IRA B = XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

Insurance Company C = XXXXXXXXXXXXXX

Account D = XXXXXXXXXXXXXX
Bank E = XXXXXXXXXXXXXXXX
Amount 1 = XXXXXXXXXXXXXX
Dear XXXXXXXXXXXXXX:

This is in response to a request for a letter ruling dated September 30, 2013, as supplemented by correspondence dated February 4, 2014, 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 A represents that she received a distribution totaling Amount 1 from IRA B maintained by Insurance Company C. Taxpayer A 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 a miscommunication with a representative of Bank E which led to Amount 1 being placed in a non-IRA account. Taxpayer A further represents that Amount 1 has not been used for any other purpose.

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Taxpayer A represents that she had been suffering losses in her account and requested a distribution from IRA B. On February 6, 2012, she received a distribution check representing a full distribution from IRA B. On February 17, 2012, Taxpayer A took the distribution check to Bank E intending for the funds to remain in an IRA. Taxpayer A represents she told the representative that she wished to set up a CD account with Bank E and assumed that the CD would be an IRA. However, based on these instructions, and the fact that the distribution check did not indicate it was from an IRA, the representative of Bank E created a non-IRA account. Taxpayer A did not discover the miscommunication error until early 2013, when she received a 1099-R indicating the taxable distribution.

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 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 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) 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.

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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) 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 presented and documentation submitted by Taxpayer A are consistent with her assertion that her failure to accomplish a timely rollover of Amount 1 was caused by a miscommunication with a representative of Bank E which led to Amount 1 to be deposited into a non-IRA account. Therefore, Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount 1 into a rollover IRA. 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 contribution of Amount 1 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.

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If you wish to inquire about this ruling, please contact XXXXXXXXXXX (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