IRA rollover waiver granted after adviser-led investment loss

Plain-English summary

Two taxpayers withdrew amounts from three retirement accounts after a financial adviser proposed a short-term investment that was supposed to return principal and interest within the 60-day rollover period. The investment was stolen, became tied up in litigation, and was not returned in time. The IRS accepted that the taxpayers relied on the adviser's assurances, waived the 60-day requirement, and gave each taxpayer 60 days to contribute the respective amounts to rollover IRAs if all other rollover requirements were met.

Ruling snapshot

• Question: Could the taxpayers receive waivers of the 60-day IRA rollover deadline after an adviser-controlled investment was stolen and not returned?
• Outcome: Approved, with 60 days to complete the rollover contributions.
• Key authorities: IRC § 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

MAY 09 2014

Uniform Issue List: 408.03-00

XXX
XXX
XXX

Legend:

Taxpayer A = XXX
Taxpayer B = XXX
Amount 1 = XXX
Amount 2 = XXX
Amount 3 = XXX
Financial Advisor G = XXX
IRA-SEP P = XXX
Roth IRA Q = XXX
IRA R = XXX

Dear XXX:

This is in response to your request submitted on your behalf by your authorized
representative dated December 17, 2012, as supplemented by correspondence dated
April 17, 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.

On May 8, 2008, Taxpayer A requested distributions of Amount 1 from IRA-SEP P
and Amount 2 from Roth IRA Q. That same day, Taxpayer B requested a distribution of
Amount 3 from IRA R. Taxpayers A and B (collectively, “the Taxpayers”) assert that
their failure to accomplish rollovers of Amounts 1, 2 and 3, within the 60-day rollover
period, was due to their reliance on assertions made by Financial Advisor G.

Financial Advisor G approached the Taxpayers about a short-term investment
opportunity, in which the Taxpayers would provide the initial investment, and principal
and interest would be returned to them within the 60-day rollover period. Upon the
advice of Financial Advisor G, the Taxpayers received distributions from their IRAs of
Amounts 1, 2 and 3. They entrusted the distributions with Financial Advisor G, who
used the funds for the investment. The investment was then stolen, held in litigation,
and was not returned to the Taxpayers during the 60-day rollover period. Financial
Advisor G has provided a statement regarding the Taxpayers’ reliance upon his
assertions that the funds would be returned within the 60-day rollover period.

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 Amounts 1, 2 and 3.

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)).

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) 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.

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 the Taxpayers is consistent
with their assertion that their failure to accomplish timely rollovers of Amounts 1, 2 and 3
was caused by their reliance on assertions made by Financial Advisor G, resulting in the
failure to rollover Amounts 1, 2 and 3 into IRAs within 60 days of receiving the
distributions.

Therefore, pursuant to section 408(d)(3)(A) of the Code, the Service hereby waives the
60-day rollover requirement with respect to Amounts 1, 2 and 3. Taxpayer A is granted
a period of 60 days from the issuance of this letter ruling to contribute Amounts 1 and 2
into rollover IRAs. Taxpayer B is granted a period of 60 days from the issuance of this
ruling to contribute Amount 3 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 contributions, Amounts 1, 2 and 3 will be considered rollover contributions 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 408(a)(6) 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.

A copy of this letter ruling has been sent to your authorized representative pursuant to a
power of attorney on file in this office.

If you wish to inquire about this ruling, please contact XXXX at (XXX) XXX-XXXX.
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