Missing notice supports waiver for unexpected plan distribution

Plain-English summary

A retiree believed she had already received and directly rolled over her full plan benefit. The next year, she unexpectedly received an additional distribution that was deposited into a non-IRA account, without the rollover notice required by IRC § 402(f). She did not discover the problem until receiving Form 1099-R after the 60-day deadline. The IRS waived the deadline and gave her 60 days to contribute the additional distribution to a rollover IRA.

Ruling snapshot

• Question: May the retiree receive a waiver for an unexpected additional plan distribution made without the required rollover notice?
• Outcome: Approved, with 60 days from the ruling letter to contribute the distribution to a rollover IRA
• Key authorities: IRC §§ 401(a)(31), 402(c), (e), and (f); Treas. Reg. § 1.401(a)(31)-1; 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

201446031

AUG 18 2014

Uniform Issue List: 402.08-00

SE:T:EP:RA:T1

Legend

Taxpayer A =
Plan B =
Company C =
Financial Institution D =
Financial Institution E =
Account F =
Amount 1 =

Dear :

This is in response to your request dated February 19, 2014, as supplemented by information dated May 31, July 2, July 30, August 4 and 5, 2014, in which you request a waiver of the 60-day rollover requirement contained in section 402(c)(3) of the Internal Revenue Code (the “Code”), regarding the distribution of Amount 1 from Plan B.

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 of Amount 1 from Plan B. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) was due to an error by Company C in failing to follow her instructions and inform Taxpayer A of her ability to roll over Amount 1 to an Individual Retirement Account (IRA) as required by section 402(f) of the Code.

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Taxpayer A represents that she is a retired participant in Plan B, which is sponsored by her former employer, Company C. Taxpayer A represents that she retired from Company C in 2012 and received, what she believed was, a total distribution from Plan B. The 2012 distribution was transferred directly to an IRA with Financial Institution D. On August 28, 2013, Taxpayer A, to her surprise, received an additional distribution of Amount 1 from Plan B. The letter from Plan B indicated that the distribution was made based on Taxpayer A’s instructions. At about this time, Company E stopped self-administering shareholder accounts and transferred their management of these accounts to Financial Institution E. As a result, Taxpayer A was unable to get either a clear explanation of the nature of the funds or information about where they were transferred. Taxpayer A later learned that the funds had been transferred to Account F, an existing non-IRA account with Financial Institution E. The August 28, 2013, letter did not inform Taxpayer A that she had 60 days to rollover the additional distribution as required by section 402(f) of the Code. As a result, Taxpayer A did not rollover the distribution within 60-days. The error was discovered when Taxpayer A received the Form 1099-R after the 60-day rollover period had expired.

Based on the above facts and representations, Taxpayer A requests that the Service waive the 60-day rollover requirement contained in section 402(c)(3) of the Code with respect to the distribution of Amount 1 from Plan B.

Section 402(c) of the Code provides that if any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, and the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent transferred) shall not be includible in gross income for the taxable year in which paid. Section 402(c)(3)(A) states that such rollover must be accomplished within 60 days following the day on which the distributee received the property. An individual retirement account (IRA) constitutes one form of eligible retirement plan.

Section 402(c)(4) of the Code provides that an eligible rollover distribution shall not include any distribution to the extent such distribution is required under section 401(a)(9).

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary may waive the 60-day requirement under section 402(c) 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 402(c)(3)(B) of the Code.

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Section 402(e)(6) of the Code provides that any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includable in gross income for the taxable year of such transfer.

Section 401(a)(31) provides the rules for governing “direct transfers of eligible rollover distributions”.

Section 1.401(a)(31)-1, of the Income Tax Regulations (Regulations) Q&A-15, provides, in relevant part, that an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover is a distribution and rollover, and not a transfer of assets and liabilities.

Section 402(f) of the Code provides for a written explanation to recipients of distributions eligible for rollover treatment. Section 402(f)(1) provides, in pertinent part, that the plan administrator of any plan shall, within a reasonable period of time before making an eligible rollover distribution, provide a written explanation to the recipient of the provisions under which the recipient may have the distribution directly transferred to an eligible retirement plan and of the provisions under which the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the recipient received the distribution.

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 402(c)(3)(B) 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 and documentation submitted by Taxpayer A is consistent with her assertion that the failure to accomplish a timely rollover of Amount 3 was due to the error of Company E in failing to inform Taxpayer A of her ability to roll over Amount 1 to an IRA as required by section 402(f) of the Code.

Therefore, pursuant to section 402(c)(3) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from Plan B. Taxpayer A is granted a period of 60 days from the issuance of this letter ruling to contribute Amount 1 into a rollover IRA. Provided all other requirements of section 402(c)(3) of the Code, except the 60-day requirement, are met with respect to such contribution, the contribution of Amount 1 to an IRA will be

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considered a valid rollover contribution within the meaning of section 402(c)(3) of the Code.

This ruling does not authorize the rollover of any 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.

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:
Notice of Intention to Disclose
Deleted copy of this letter