IRA rollover waiver granted only for the traceable amount

Plain-English summary

A retiree asked the IRS to waive the 60-day deadline for rolling an IRA distribution into another IRA. The receiving financial institution mistakenly deposited the distribution into her non-IRA trust account, and only part of the money remained there when the error was corrected. The IRS waived the deadline for the remaining amount because the records supported that the institution's error caused the late rollover. It denied relief for the difference because the taxpayer did not document where that money went or show that it was not used personally. The ruling illustrates that an institution error can support relief under IRC § 408(d)(3)(I), but the taxpayer must trace each amount for which relief is requested.

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline for the full distribution mistakenly placed in a non-IRA account?
• Outcome: Mixed, the waiver was granted for the traceable amount and denied for the undocumented difference
• 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

AUG 06 2014

201444044

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

IRA X =

IRA Y =

Financial Institution B =

Amount 1 =

Amount 2 =

Amount 3 =

Financial Institution C =

Account Z =

Dear :

This is in response to your request postmarked October 15, 2013, as
supplemented by correspondence postmarked December 27, 2013, and items
faxed on April 1, April 16, and May 27 (two items), 2014, from you and 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”).

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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 1. 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 mistake
made by Financial Institution C which led to Amount 1 being erroneously
deposited in a non-IRA account. Taxpayer A seeks a waiver of the 60-day period
with respect to Amount 1.

Taxpayer A, a retiree who was widowed in 2005, maintained IRA X at
Financial Institution B. Taxpayer A also maintained IRA Y at Financial Institution
C. In addition, Taxpayer A was trustee of Account Z, a trust account also held
with Financial Institution C.

On June 19, 2012, to obtain a better investment return, Taxpayer A
decided to roll over Amount 1 from IRA X at Financial Institution B to IRA Y at
Financial Institution C. Taxpayer A represents that Financial Institution C
erroneously transferred Amount 1 from IRA X to Account Z, a non-IRA trust
account, instead of IRA Y.

Taxpayer A did not discover the error until 2013, when her 2012 taxes
were being prepared. She asked Financial Institution C to correct the mistake.
However, as of November 18, 2013, Account Z held less than Amount 1, and
only the amount then available in Account Z, Amount 2, was transferred from
Account Z to IRA Y by Financial Institution C. Taxpayer A represents that she
has not used Amount 2 for any other purpose. Taxpayer A’s submitted
documentation was insufficient to show the location and use of Amount 3 on and
after the distribution from IRA X.

Based on the facts and representations, you request a ruling that the
Internal Revenue Service (the “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 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) does not
apply to any amount paid or distributed out of an IRA to the individual for whose
benefit the IRA is maintained if:

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(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) of the Code.

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) 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) 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.

Taxpayer A asserts that Financial Institution C erred in transferring
Amount 1 from IRA X to Account Z instead of IRA Y. However, although Amount
1 was initially deposited into Account Z, only Amount 2 remained and was
transferred to IRA Y in the November 18, 2013, transfer. Taxpayer A represents

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that she had withdrawn money from Account Z prior to the transfer. Amount 3,
the difference between Amount 1 and Amount 2, was not transferred to IRA Y.

With respect to Amount 2, the information presented and documentation
submitted by Taxpayer A are consistent with her assertion that her failure to
accomplish a timely rollover was due to Financial Institution C’s error in
transferring Amount 2 from IRA X to Account Z instead of IRA Y. 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 2 from IRA X.
Provided all other requirements of section 408(d)(3) of the Code, except the 60-
day requirement, were met with respect to the contribution of Amount 2 to IRA Y
on November 18, 2013, such contribution will be considered a rollover
contribution within the meaning of section 408(d)(3) of the Code.

However, with respect to Amount 3, the information presented and
documentation submitted by Taxpayer A are insufficient to show Financial
Institution C’s error was the cause of her failure to accomplish a timely rollover.
The documentation submitted was insufficient to show that Amount 3, upon being
withdrawn from Account Z, was not used for personal use. Therefore, the
Service declines to waive the 60-day rollover requirement with respect to the
distribution of Amount 3 from IRA X.

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 in this ruling under the provisions of any other section of either the
Code or regulations which may be applicable.

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
(ID ) at ( ) - . 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