IRA rollover waiver denied for unsupported account error

Plain-English summary

A taxpayer withdrew an IRA certificate of deposit and placed the proceeds with another financial institution, which opened a non-IRA certificate account. She said she had told a representative that the money came from an IRA, but provided no evidence that she instructed the institution to open a rollover IRA. Later statements did not identify the account as an IRA, reported no IRA dividends, and the taxpayer took no required minimum distributions. She also converted the account to joint ownership with her daughter, which was inconsistent with individual IRA ownership. The IRS found insufficient evidence of a financial-institution error and denied a waiver of the 60-day rollover deadline.

Ruling snapshot

• Question: Should the 60-day IRA rollover deadline be waived because the receiving institution allegedly opened the wrong type of account?
• Outcome: Denied.
• Key authorities: IRC § 408(a), 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201444045

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND AUG 0 4 2014

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

Legend:
Taxpayer A =

IRA X =

Amount 1 =

Financial Institution B =

Financial Institution C =

Account Y =

Individual D =
Dear :

This is in response to your request signed on April 29, 2014, as supplemented by
correspondence dated June 25 and July 3, 2014, from 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 penalties 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 of Amount 1
within the 60-day period prescribed by section 408(d)(3) of the Code, was due to error
by Financial Institution C in depositing Amount 1 into a non-IRA account instead of an
IRA. Taxpayer A further represents that Amount 1 has not been used for any other
purpose.

Taxpayer A maintained IRA X at Financial Institution B. IRA X was invested in a
Certificate of Deposit (“CD”).

Taxpayer A also maintained non-IRA CDs at Financial Institution C. Taxpayer A
wanted to have all of her CDs with one financial institution. Upon maturity of the IRA X
CD on June 15, 2012, Taxpayer A took a complete distribution in the form of a cashier's
check from Financial Institution B and closed the IRA X account. The cashier’s check
did not indicate that it was a distribution from an IRA. Taxpayer A represents that, on
June 21, 2012, she gave the check to a Financial Institution C representative, told the
representative that the funds were from an individual IRA, and then discussed
investment of the funds. Taxpayer A does not recall signing paperwork creating
Account Y. Taxpayer A assumed that the money would be invested in a similar
retirement account, but Financial Institution C set up a non-IRA account, Account Y, and
invested the funds in a 36-month CD, issued June 21, 2012, held in the name of
Taxpayer A.

Taxpayer A received regular statements from Financial Institution C listing
Account Y and several other CDs. Account Y was not identified in the statements as an
IRA. Additionally, the statement included year-to-date tax summary information that
separately listed “IRA YTD Dividends” and “Other YTD Dividends.” Although Account Y
had dividends, Taxpayer A’s statement showed zero dividends under “IRA YTD
Dividends.”

After establishing Account Y, Taxpayer A asked Financial Institution C to change
Account Y to a joint account with her daughter, Individual D, similar to other CDs
Taxpayer A held jointly with Individual D at Financial Institution C. The April 1, 2014,
statement lists Individual D as joint owner of Account Y.

Taxpayer A represents that she took required minimum distributions from IRA X
while it was at Financial Institution B. Taxpayer A took no distributions from Account Y.

Taxpayer A represents that she was not aware that Account Y was not an IRA
until she received a tax notice dated February 24, 2014. Taxpayer A represents that if

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she had known about the tax consequences, she would not have transferred the funds
from IRA X to Account Y.

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 X.

Section 408(a) of the Code provides that an “individual retirement account” is for
the exclusive benefit of an individual or his beneficiaries.

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.

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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) 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.

Taxpayer A has not presented sufficient evidence showing that Financial
Institution C erred in setting up non-IRA Account Y. Upon approaching Financial
Institution C with the cashier’s check from IRA X, Taxpayer A had the option of
requesting a rollover IRA or a non-IRA account. Taxpayer A has not provided evidence
that she instructed Financial Institution C to set up an IRA account for the deposit of
Amount 1 from IRA X. Additionally, Taxpayer A’s transactions after the transfer were
consistent with maintaining a non-IRA account. After establishing Account Y, Taxpayer
A received statements that not only did not list Account Y as an IRA, but also reported
zero IRA YTD Dividends which was inconsistent with Account Y’s actual earnings. Even
though Taxpayer A had been receiving required minimum distributions from IRA X,
Taxpayer A did not take any required minimum distributions from Account Y. Further,
Taxpayer A instructed Financial Institution C to convert Account Y to joint ownership. A
request for joint ownership is inconsistent with maintaining an IRA since, under section
408(a) of the Code, an IRA can be established and owned by only one individual and
maintained for the exclusive benefit of that individual or his or her beneficiaries.
Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service declines to waive
the 60-day rollover requirement with respect to the June 15, 2012, distribution of
Amount 1 from IRA X.

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.

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Pursuant to a power of attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

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

cc: