Bank deposit error qualifies for a late IRA rollover waiver

Plain-English summary

A taxpayer took an IRA distribution by cashier's check and told a bank representative to place the full amount in a rollover IRA invested securely. The bank instead deposited the money into a money market savings account, where it remained until the taxpayer discovered the problem while reviewing a later tax return. The bank then opened a new IRA and deposited the funds into it. The IRS found that the missed deadline resulted from the bank representative's error and waived the 60-day requirement under IRC § 408(d)(3)(I). It treated the contribution to the new IRA as a rollover, assuming the other rollover requirements were satisfied.

Ruling snapshot

• Question: Should the IRS waive the 60-day rollover deadline after the bank placed the funds in a savings account instead of an IRA?
• Outcome: Approved, the later IRA contribution is treated as a rollover
• Key authorities: IRC §§ 401(a)(9) and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201445029

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
AUG 14 2014

U.I.L. 408.03-00
T:EP:RA:T3
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Legend:
Taxpayer A = XXXXXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXXXXX
IRA Y = XXXXXXXXXXXXXXXXX
Bank C = XXXXXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXXXXXX

Dear XXXXXXXXXX:

This letter is in response to your request dated April 7, 2014, as supplemented by correspondence dated June 24, 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 he received a distribution from IRA X totaling Amount D. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to an error committed by a representative of Bank C.

201445029

On March 13, 2013, Taxpayer A received a distribution from IRA X by way of a cashier's check. Taxpayer A represents that he intended to rollover the entire amount into an IRA at Bank C. After receiving the check, Taxpayer A, on the same day, went to Bank C and explained his desire to Bank C’s representative to deposit the entire amount of the check into a rollover IRA, but that the funds were to be invested in a secure investment. Bank C deposited the funds into a money market savings account and not into a rollover IRA. The funds remained in the savings account until June 23, 2014, when IRA Y was opened by Bank C.

Taxpayer A first became aware that the funds were not rolled over into an IRA account on March 27, 2014, when reviewing his tax return with his tax preparer.

Based upon the 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 D.

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 received 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

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such individual received any other amount described in section 408(d)(3)(A)(i) from an IRA which was not included 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 and good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement. Only distributions that occur 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, 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.

The information presented and documentation submitted by Taxpayer A is consistent with his assertion that his failure to accomplish a timely rollover was due to an error committed by a representative of Bank C.

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 D from IRA X. Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, were met with respect to the contribution of Amount D into IRA Y on June 23, 2014, such contribution will be considered a rollover contribution 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 401(a)(9) of the Code.

No opinion is expressed as to the tax treatment of the transactions described

herein under the provisions of any other section of either the Code or regulations, which may be applicable thereto.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited by others as precedent.

If you have any questions concerning this ruling, please contact xxxxxxxxx, at XXXXXXXXXXX. All correspondence should be addressed to SE:T:EP:RA:T3.

Sincerely yours,

Laura B. Warshawsky, Manager

Employee Plans Technical Group 3
Enclosures:

Deleted copy of letter ruling
Notice 437