Agent error supports waiver for self-directed IRA rollover

Plain-English summary

A taxpayer asked an agent to roll two IRA funds into a self-directed IRA for investment in a company. The agent instead prepared a form making the distribution checks payable to the company, which was not eligible to serve as an IRA custodian, and the taxpayer did not learn of the problem until receiving an IRS tax notice. The taxpayer later established a valid self-directed IRA, had the company wire the full amount to it, and never had physical custody of the funds. The IRS waived the 60-day deadline and treated the contribution made on the stated date as a rollover, assuming all other IRC § 408(d)(3) requirements were met.

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline after an agent directed the funds to a company that could not serve as an IRA custodian?
• Outcome: Approved, and the completed contribution was treated as a rollover
• Key authorities: IRC § 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

201503025

OCT 22 2014

U.I.L. 408.03-00

T:EP:RA:T3

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Legend:
Taxpayer A = XXXXXXXXXXXXX
Individual B = XXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXX
Company C = XXXXXXXXXXXXX
IRA Y = XXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXX
Company E = XXXXXXXXXXXXX
Company F = XXXXXXXXXXXXX

Dear xxxxxxxxt:

This is in response to your request dated July 3, 2014, as supplemented by
correspondence dated August 25, 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”).

2 201503025

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 which he intended to rollover into a self-directed IRA. 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 Individual B, an agent
for Company E.

In early xxxxxx Taxpayer A contacted Individual B and requested that Individual
B prepare a distribution request that would rollover two funds in IRA X into a self-
directed IRA that would then be invested in Company C. On xxxxxxxxxxxx,
Taxpayer A signed the distribution form completed by Individual B. The
distribution form incorrectly provided that the distribution check be made payable
to Company C for the benefit of Taxpayer A. Company E mailed the checks
totaling Amount D directly to Company C. However, Company C is not a financial
institution eligible to be a custodian for IRAs.

Taxpayer A learned for the first time that the intended rollover had not been
completed when he received a notice from the Internal Revenue Service
(Service) in xxxxxxxxxxxx, that he owed tax for the taxable year.

During xxxxxxxxxxx, Taxpayer A established a self-directed IRA, IRA Y, with
Company F and requested Company C to wire Amount D into IRA Y. On
XXXXXXXXXXXX, Company C wired Amount D into IRA Y. Taxpayer A at no time
had physical custody of Amount D.

Based upon the above facts and representations, you request a ruling that the
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

3 201503025

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
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 or 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 by Individual B.

4 201503025

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. Provided all other requirements of Code section 408(d)(3), except the 60-day
requirement, were met with respect to such contribution, the contribution of
Amount D into IRA Y on May 17, 2014, 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 408(a)(6) 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.

A copy of this letter is being sent to your authorized representative pursuant to a
power of attorney on file in this office.

If you have any questions concerning this ruling, please contact xxxxxxxxxxx, at
XXXXXxx. 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

cc:
XXXXXXXXXXXX