Financial institution error supports IRA rollover waiver

Plain-English summary

A taxpayer withdrew funds from one IRA and instructed another financial institution to deposit them into a second IRA. The institution instead placed the money in a non-IRA account, and the error was not discovered until the taxpayer later prepared a tax return. The taxpayer had not used the funds for another purpose, and the institution provided a letter admitting its mistake. The IRS waived the 60-day rollover deadline under IRC § 408(d)(3)(I) and gave the taxpayer 60 days from the ruling date to contribute the amount to a rollover IRA, assuming all other rollover requirements were met.

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline after the receiving institution deposited the funds into the wrong account?
• Outcome: Approved, with 60 days to complete the 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

201503026

OCT 20 2014

Uniform Issue List: 408.03-00

T:EP:RA:T1

Legend:

Taxpayer A =

IRA B =

Financial
Institution C =

IRA D =

Account E =

Financial
Institution F =

Amount 1 =

Dear :

This is in response to a request for a private letter ruling dated August 14, 2014,
as supplemented by correspondence dated September 9, 2014, in which you
request a waiver of the 60-day rollover requirement contained in section
408(d)(3) of the Internal Revenue Code ("Code").

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

Taxpayer A represents that she received a distribution of Amount 1 from IRA B.
Taxpayer A asserts that her failure to accomplish a rollover of Amount 1 within

, the 60-day period prescribed by section 408(d)(3) of the Code was due to a
failure by Financial Institution F to follow her instructions that the distribution be

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deposited into IRA D. Taxpayer A further represents that Amount 1 has not been
used for any other purpose.

Taxpayer A maintained IRA B, an individual retirement annuity (IRA) under
section 408(b) of the Code, with Financial Institution C. In addition, Taxpayer A
maintained IRA D, an IRA under section 408(a) of the Code with Financial
Institution F. On January 29, 2013, Taxpayer A withdrew Amount 1 from IRA B,
with the intention of depositing it into IRA D. The reason for the withdrawal was
IRA B's poor earnings performance. Taxpayer A provided instructions to an
employee of Financial Institution F that Amount 1 was to be withdrawn from IRA
B and be deposited into IRA D. However, the employee instead deposited
Amount 1 into Account E, a non-IRA account. The incorrect deposit was
discovered in April of 2014 when Taxpayer A was preparing her tax return for
20__. The ruling request is accompanied by a letter from Financial Institution F
admitting it erred when depositing Amount 1 into Account E a non-IRA account.

Based on the above facts and representations, you request that the Internal
Revenue Service (“Service”) waive the 60-day rollover requirement contained
in section 408(d)(3) of the Code with respect to Amount 1.

Section 408(d)(1) of the Code provides that, except as otherwise provided in
section 408(d) of the Code, 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 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) of the Code
does not apply to any amount described in section 408(d)(3)(A)(i) of the Code
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) of the Code from an IRA which was not

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includible in gross income because of the application of section 408(d)(3) of the
Code.

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
occurred 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 (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) 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 presented and the documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover of
Amount 1 was due to Financial Institution F’s failure to follow her instructions that
Amount 1 be deposited into her IRA D.

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 1 from IRA B. Taxpayer A is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount 1 into a rollover IRA. Provided
all other requirements of section 408(d)(3) of the Code, except the 60-day
requirement, are met with respect to such contribution, Amount 1 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.

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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 (I.D. #
), SE:T:EP:RA:T1, at .

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437