Incorrect Roth information supports rollover deadline waiver

Plain-English summary

A retirement-plan participant received a distribution and timely rolled part of it into an IRA. A financial institution incorrectly reported another portion as nontaxable Roth contributions, so she placed that amount in a non-IRA account. Nearly two years later, the plan company told her that the tax reporting was wrong and that part of the amount was taxable. The IRS found that her missed rollover deadline resulted from reliance on the misinformation and waived the 60-day requirement under IRC § 402(c)(3)(B). It allowed 60 days from the ruling date to contribute the taxable amount to a rollover account.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day rollover deadline after incorrect Roth contribution information caused her to use a non-IRA account?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover
• Key authorities: IRC §§ 401(a)(9) and 402(c); 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

NOV 06 2014

Uniform Issue List: 402.03-00

T:EP:RA:T1

Legend:
Taxpayer A =
Plan B =
Company C =
Account D =
Account E =
Financial Institution F =
Bank G =
Amount 1 =
Amount 2 =
Amount 3 =
Amount 4 =

Dear:

This is in response to your request dated April 10, 2014 and supplemented by
correspondence dated October 31, 2014 and November 3, 2014, in which you request a
waiver of the 60-day rollover requirement contained in section 402(c)(3) of the Internal
Revenue Code (“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 she received a distribution on December 19, 2011 from Plan
B totaling Amount 1. Taxpayer A asserts that her failure to accomplish a rollover of
Amount 4, the taxable portion of Amount 1, within the 60-day period prescribed by
section 402(c)(3), was due to an error by Financial Institution F. Taxpayer A further
represents that Amount 4 has not been used for any other purpose.

Taxpayer A represents that she completed a timely rollover of Amount 2 into an IRA
account. In addition to the distribution of Amount 1, Taxpayer also received Amount 3,
which was designated by Financial Institution F as nontaxable Roth contributions.
Based on that information, Taxpayer A deposited Amount 3 into a non-IRA account
where it remains. On December 12, 2013, Taxpayer A received a letter from Company
C stating the 2011 Form 1099-R indicating Amount 3 as a nontaxable Roth contribution
was incorrect. The letter informed Taxpayer A that the correct total of nontaxable Roth
contributions was Amount 4.

Taxpayer A states that the error dates back to the December 2006 rollover of Plan D to
Plan E which was subsequently transitioned into Plan B. Financial Institution F, which
maintained both Plan D and Plan E, incorrectly recorded the portion of Taxpayer A’s
account attributable to after-tax contributions. To correct this error, in 2011, Bank G, as
trustee of Plan B, issued a corrected Form 1099-R to Taxpayer A.

Based on the facts and representations, a ruling has been requested that the Internal
Revenue Service waive the 60 day rollover requirement contained in section 402(c)(3)
of the Code with respect to the distribution of Amount 4.

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.

Code Section 402(c)(4) defines "eligible rollover distribution" as any distribution to an
employee of all or any portion of the balance to the credit of an employee in a qualified
trust except the following distributions:

A) any distribution which is one of a series of substantially equal periodic
payments (not less frequently than annually) made --

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i) for the life (or life expectancy) of the employee or the joint lives (or
joint life expectancies) of the employee and the employee's
designated beneficiary, or

ii) for a specified period of 10 years or more, and

B) any distribution to the extent the distribution is required under section
401(a)(9).

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary may
waive the 60-day requirement under sections 402(c) 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 402(c)(3)(B) 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
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.

The information presented and documentation submitted by Taxpayer A is consistent
with her assertion that her failure to accomplish a timely rollover was caused by her and
reliance on the misinformation provided by Company C which resulted in Amount 4
being deposited into a non-IRA account.

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 4, the taxable
portion of Amount 1, from Plan B. Taxpayer A is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount 4 back into a rollover account.
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 4 will be considered a
rollover contribution within the meaning of section 402(c)(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 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.

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

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If you wish to inquire about this ruling, please contact (Identification No.
) at ( ) . Please address all correspondence to SE:T:EP:RA:T1.

Sincerely,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

CC: