Custodian's LLC transfer instructions justify rollover waiver

Plain-English summary

An IRA owner wanted to invest retirement funds in an LLC and established a second IRA with the custodian. The custodian should have directed a trustee-to-trustee transfer to the second IRA before investing in the LLC, but instead told the taxpayer to transfer the distribution directly into the LLC's business account. As a result, the funds were not rolled into the second IRA within 60 days. The IRS found that the taxpayer's information and documentation supported her claim that the custodian's improper instructions caused the failure. It waived the 60-day deadline, provided all other rollover requirements were met, but did not authorize rollover of any required minimum distribution.

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline when the custodian directed funds into an LLC business account?
• Outcome: Approved, subject to all other rollover requirements
• Key authorities: IRC §§ 401(a)(9) and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

201506014

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 13 2014

Uniform Issue List: 408.03-00 SE:T:EP:RA:T3

Legend:
Taxpayer =
Amount =

IRA X =

IRA Y =
Account =
Custodian =
LLC =
Dear
This is in response to a letter dated September 12, 2013, as
supplemented by correspondence dated March 12, 2014, April 30, 2014, and

June 26, 2014, 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”).

201506014

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

On July 19, 2012, Taxpayer received a distribution of Amount from IRA X.
Taxpayer asserts that her failure to accomplish a rollover of Amount within the
60-day period prescribed by section 408(d)(3) of the Code was due to improper
rollover instructions from Custodian.

Taxpayer wanted to invest in LLC through her IRA. Custodian instructed
Taxpayer to establish IRA Y with Custodian. Taxpayer asserts that Custodian
gave her incorrect instructions regarding transferring Amount to IRA Custodian
should have told Taxpayer to transfer Amount to IRA Y through a trustee-to-
trustee transfer after which Amount would be invested in LLC. Instead,
Custodian instructed Taxpayer to transfer Amount directly to LLC. As a result of
Custodian’s incorrect instructions, Amount was not rolled over to IRA Y, but was
instead placed directly in Account, the business account for LLC.

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

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 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

201506014

regard to section 408(d)(3) of the Code).

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 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.

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 documentation submitted by Taxpayer is
consistent with her assertion that her failure to accomplish a timely rollover was
due to improper rollover instructions from Custodian.

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 from IRA X. Provided all other requirements of section 408(d)(3) of the
Code, except the 60-day requirement, were met with respect to the contribution
of Amount to IRA Y, such contribution will be considered a valid 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 401(a)(9) of the Code.

4 201506014

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.

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, please contact
Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Jason E. Levine, Manager,
Employee Plans Technical Group 2