Financial institution's deposit error justifies late rollover

Plain-English summary

A taxpayer directed a financial institution to place a plan distribution into a rollover IRA. The institution instead deposited the funds into a non-IRA certificate of deposit, and the taxpayer did not discover the mistake until receiving a tax form about a year later. The institution provided a letter admitting that it had misapplied the funds. The IRS waived the 60-day rollover deadline under IRC § 402(c)(3)(B) and gave the taxpayer 60 days from the ruling letter to contribute the amount to an IRA or another eligible retirement plan.

Ruling snapshot

• Question: Could a financial institution's erroneous deposit into a non-IRA account excuse a missed rollover deadline?
• Outcome: Approved, with 60 days from the ruling letter to complete the rollover
• Key authorities: IRC § 402(c)(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

201447050

SEP 11 2014

Uniform Issue List: 402.00-00

T:EP:RA:T3

Legend

Taxpayer =

Plan =

Amount =

Financial Institution =

IRA =

Dear

This is in response to a letter postmarked August 14, 2013, as supplemented by
letters dated May 28, 2014, and August 5, 2014, submitted on your behalf by your
authorized representative, 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”).

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

Taxpayer received a distribution from Plan of Amount. Taxpayer asserts that his
failure to accomplish a rollover of Amount within the 60-day period prescribed by section
402(c)(3) of the Code was due to the erroneous transfer of funds by Financial
Institution. Taxpayer further represents that Amount has not been used for any other
purpose.

Page 2 201447050

On January 24, 2012, Plan issued a check payable to Financial Institution for the
benefit of Taxpayer for Amount. On January 30, 2012, Taxpayer attempted to open a
rollover IRA at Financial Institution by completing an IRA account application with
instructions to deposit Amount into a rollover IRA. However, on January 30, 2012,
Amount was erroneously deposited into a non-IRA certificate of deposit by Financial
Institution. Taxpayer was unaware of the error until he received a Form 1099- DIV from
Financial Institution on January 31, 2013. Taxpayer submitted a letter from Financial
Institution admitting the error and misapplication of the intended rollover funds into a
non-IRA account.

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 402(c)(3) of the Code with respect to the distribution of Amount from Plan.

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) of the Code.

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)(3)(A) 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 402(c)(3) 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.

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The information presented and documentation submitted by Taxpayer, including a
written statement from an employee of Financial Institution admitting its error, is
consistent with his assertion that his failure to accomplish a timely rollover was due to
an error made by Financial Institution.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby waives
the 60-day rollover requirement with respect to the distribution of Amount from Plan.
Taxpayer is granted a period of 60 days from the issuance of this ruling letter to
contribute Amount into an IRA or other eligible retirement plan. Provided all other
requirements of section 402(c)(3) of the Code, except the 60-day requirement, are met
with respect to such contribution, Amount will be considered a rollover contribution
within the meaning of section 402(c)(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 letter ruling is
being sent to your authorized representative.

If you have any questions, please contact
Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Jason E. Levine, Manager
Employee Plans Technical Group 2

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose