Adviser error qualifies for a late IRA rollover waiver

Plain-English summary

A surviving spouse inherited an IRA that held an annuity and asked a financial adviser to move the proceeds into her own IRA. The adviser mistakenly caused the proceeds to be placed in a non-IRA account and did not discover the error until after the normal 60-day rollover period had expired. The taxpayer had not used the funds for another purpose, and the adviser provided a written statement admitting the error. The IRS waived the 60-day deadline under IRC § 408(d)(3)(I) and gave the taxpayer 60 days from the ruling letter to contribute the amount to a rollover IRA. The waiver did not apply to any amount required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline after the financial adviser's error?
• Outcome: Approved, with 60 days from the ruling to complete the rollover
• Key authorities: IRC §§ 401(a)(9) and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201445032

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 19 2014

T:EP:RA:T3

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

Decedent B =

Individual C =

IRA X =
IRA Y =

Amount A =
Financial Institution A =
Company B =
Dear:

This is in response to your request dated August 5, 2013, supplemented
by correspondence dated October 15, 2013, and July 9, 2014, submitted on your
behalf by 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”).

The following facts and representations have been submitted under
penalty of perjury in support of the ruling requested:

201445032

Taxpayer A represents that she received a distribution from IRA X totaling
Amount A. Taxpayer A asserts that her failure to accomplish a rollover within the
60-day period prescribed by section 408(d)(3) was due to an error by Individual C
of Financial Institution A.

Taxpayer A’s deceased husband, Decedent B, prior to his death,
established IRA X with Financial Institution A. An asset of IRA X was an annuity
issued by Company B. Decedent B died in May 2012. Taxpayer A was the sole
beneficiary of IRA X.

On January 18, 2013, Taxpayer A met with Individual C, a financial
adviser employed by Financial Institution A, to seek guidance in filing a claim as
beneficiary of IRA X. Individual C had never before assisted a client with a death
claim. Upon review of materials provided by Company B, Individual C
recommended that the annuity held in IRA X be liquidated and the proceeds
rolled over into Taxpayer A’s IRA Y. It was Individual C’s understanding that the
proceeds from the annuity, Amount A, would remain in IRA X, prior to being
rolled over to IRA Y.

On April 16, 2013, Taxpayer A met with Individual C to discuss investing
Amount A. At that time, Individual C discovered that Amount A was not retained
in IRA X, but transferred into a non-IRA account with Company B. Taxpayer A
has not used Amount A for any other purpose.

Submitted documentation shows that Individual C was instructed by
Taxpayer A to take the necessary steps to liquidate the annuity held in IRA X.
Taxpayer A also submitted a written statement from Individual C that Individual
C’s understanding was that upon liquidation of the annuity the proceeds, Amount
A, could remain in the IRA X and subsequently be transferred to IRA Y.

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 A.

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.

201445032

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)(d)(3)(E) of the Code provides that the rollover provisions of
408(d) do not apply to any amount required to be distributed under section
401(a)(9) 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.

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.

201445032

The information presented and documentation submitted by Taxpayer A,
including a written statement from Individual C admitting her error, is consistent
with Taxpayer A’s assertion that her failure to accomplish a timely rollover was
due to an error by Individual C of Financial Institution A.

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 A from IRA X. Taxpayer A is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount A, 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 contribution, Amount A, 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 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.

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

If you wish to inquire about this ruling, please contact *. Please
address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Jasmin E. Levine, Manager,
Employee Plans Technical Group 2
Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

cc.