Bank error earns IRA rollover deadline waiver

Plain-English summary

A taxpayer directed a bank to roll a matured IRA certificate of deposit into a new IRA certificate. The bank instead placed the distribution in a non-IRA certificate and sent no written communications that alerted the taxpayer to the error. The taxpayer learned of the failed rollover only after receiving an IRS notice and represented that the funds had not been used for any other purpose. The IRS found the documentation consistent with financial institution error and waived the original 60-day rollover deadline under IRC § 408(d)(3)(I). It granted a new 60-day period from the ruling date to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: May the taxpayer complete an IRA rollover late after the receiving bank placed the funds in a non-IRA account?
• Outcome: Approved, with a new 60-day rollover period
• 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

JUL 0 2 2014

Uniform Issue List: 408.03-00

Legend:
Taxpayer A =
Amount B =

Financial Institution C =

Financial Institution D =
IRA X =

Account Y =

Dear

This is in response to your request submitted on February 10, 2014, as supplemented by correspondence dated May 30, 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 from IRA X totaling Amount B. 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 an error by Financial Institution D.

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Taxpayer A invested IRA X in a certificate of deposit (CD) at Financial Institution C, which matured on August 18, 2011. Taxpayer A met with a branch manager at Financial Institution D and discussed her intention to rollover the distribution of Amount B from IRA X into another individual retirement account (IRA) at Financial Institution D. At the maturation of the certificate of deposit, Financial Institution C distributed Amount B from IRA X to Taxpayer A. Taxpayer A instructed Financial Institution D to deposit Amount B into another IRA CD at Financial Institution D. However, Financial Institution D instead erroneously deposited Amount B into Account Y, a non-IRA CD.

Taxpayer A further represents that Financial Institution D sent no written communications to her concerning Account Y and that she was unaware that Amount B had not been deposited into an IRA CD. Taxpayer A asserts that she became aware that the distribution of Amount B from IRA X was not successfully rolled over into another tax-qualified account when she received a notice from the Internal Revenue Service dated April 23, 2013. Taxpayer A asserts that Amount B has not been used for any purpose.

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 the distribution of Amount B from IRA X.

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

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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 her assertion that her failure to accomplish a timely rollover of Amount B was due to an error by Financial Institution D, which resulted in the deposit of Amount B into Account Y, a non-IRA CD.

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 B from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this letter ruling to contribute Amount B 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 the contribution of Amount B, such contribution will be considered a rollover contribution within the meaning of section 408(d)(3) 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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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 at( ) - . 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