Misrouted IRA transfer receives rollover waiver

Plain-English summary

A taxpayer asked to transfer his IRA between financial institutions. The first institution issued the distribution check to him rather than the receiving institution, and his financial advisor then mistakenly deposited it into a non-IRA account. The taxpayer represented that the money had not been used for another purpose, and the advisor documented its error. The IRS found that financial institution error caused the missed deadline and waived the 60-day requirement under IRC § 408(d)(3)(I). It gave the taxpayer 60 days from the ruling date to contribute the amount to an IRA, subject to all other rollover requirements.

Ruling snapshot

• Question: Could the taxpayer receive a waiver after an IRA transfer check was issued to him and then deposited in a non-IRA account?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover
• Key authorities: IRC §§ 72 and 408(d)(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

OCT 01 2014

Uniform Issue List: 408.03-00

Legend:
Taxpayer =

IRA =

Financial Institution A =
Financial Institution B =
Financial Advisor =

Amount =

Dear

This is in response to your letter dated May 17, 2013, as supplemented by correspondence dated May 12, 2014, and August 20, 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:

Taxpayer represents that he received a distribution from IRA totaling Amount, and that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to financial institution error. Taxpayer

further represents that Amount has not been used for any other purpose.

Taxpayer requested a transfer of assets held in IRA at Financial Institution A to an IRA account with Financial Institution B. On July 25, 2011, a representative of Financial Institution A issued a check of Amount made payable to Taxpayer instead of Financial Institution B.

In addition, you have included correspondence in which Financial Advisor explained that on July 26, 2011, it received the check in Amount from Taxpayer and erroneously placed the check into a non-IRA account instead of the appropriate IRA account.

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.

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.

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.

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.

The information presented and documentation submitted by Taxpayer, including documentation from Financial Advisor admitting its error, is consistent with his assertion that the failure to accomplish a rollover of Amount within the 60-day period prescribed by section 408(d)(3) of the Code was due to financial institution error.

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 from IRA. Pursuant to this ruling letter, Taxpayer is granted a period of 60 days from the issuance of this ruling letter to contribute Amount to an IRA. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, Amount will be considered a valid rollover contribution within the meaning of section 408(d)(3) 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.

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.

A copy of this letter has been sent to your authorized representative in accordance with a power of attorney on file in this office.

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

CC: