Bank error supports waiver of IRA rollover deadline

Plain-English summary

An IRA owner asked a bank branch manager to move an IRA certificate of deposit into a new IRA with a higher interest rate. The manager instead deposited the distribution into the owner's personal savings account, and the owner did not discover the error until preparing the next year's tax return. The bank acknowledged its processing error. The IRS waived the 60-day rollover deadline under IRC § 408(d)(3)(I) and allowed 60 days from the ruling date to contribute the eligible amount to a rollover IRA. The waiver did not cover the required minimum distribution portion.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day IRA rollover deadline after the bank deposited the funds into a personal account by mistake?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover
• Key authorities: IRC §§ 408(a)(6) 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

NOV 04 2014
U.I.L. 408.03-00
XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX

T:EP:RA:T3

Legend:
Taxpayer A = XXXXXXXXXXXXXXX.
IRA X = XXXXXXXXXXXXXXX
Bank C = XXXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXXX
Amount E = XXXXXXXXXXXXXX
Amount F = XXXXXXXXXXXXXX

Dear XXXXXXXXXXXX:

This is in response to your request dated July 9, 2014, as supplemented by
correspondence dated October 2, 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.

On April 17, 2013, Taxpayer A received a distribution of Amount E from IRA X
with the intent to rollover the funds into another IRA. Taxpayer A asserts that his
failure to accomplish a rollover of Amount D (Amount E minus Amount F required
minimum distribution amount) within the 60-day period prescribed by section
408(d)(3) of the Code was due to an error committed by the Branch Manager of
Bank C (Branch Manager).

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IRA X was invested in a Certificate of Deposit (CD) with Bank C. On April 17,
2013, Taxpayer A met with the Branch Manager and discussed his interest to
invest IRA X in a new IRA CD so that he could receive a higher rate of interest.
The Branch Manager completed the distribution form and presented it to
Taxpayer A for signature. Taxpayer A signed the form not knowing that the
distribution would be deposited into his personal savings account, instead of an
IRA account as he intended.

On the following day, on April 18, 2013, at the advice of the Branch Manager,
Amount F was withdrawn from Taxpayer A’s savings account and was paid to
Taxpayer A as his required minimum distribution for tax year 2013.

During March 2014, Taxpayer A learned for the first time that the funds in IRA X
were not rolled over into another IRA when he went to his tax preparer for the
preparation of his tax return for the 2013 taxable year.

Documentation submitted by Bank C acknowledged that an error occurred when
the transaction was processed as a distribution to Taxpayer A’s personal savings
account.

Based on the foregoing 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 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
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

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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
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, 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
caused by an error committed by the Branch Manager of Bank C.

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

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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.

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

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 have any questions concerning this ruling, please contact xxxxxxxxx,xxxx,
at xxxxxxxxxx. 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 of Intention to Disclose

cc:
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