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”).

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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

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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.

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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:
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