Plan rollover deadline waived after payout paperwork error

Plain-English summary

A taxpayer intended to make direct rollovers from two retirement plans to an IRA. The financial institution prepared the requests as annuity transfer payouts instead, causing the two amounts to be distributed to the taxpayer. After the error was discovered, the custodian accepted the taxpayer's personal checks to reverse the distributions, redeposited the amounts in the plans, and processed the direct rollovers. The IRS found that the missed 60-day deadline resulted from the custodian's error and waived the deadline. It treated the redeposits followed by the direct rollovers as rollover contributions, provided all other requirements were met, but did not authorize rollover of any required minimum distribution.

Ruling snapshot

• Question: Could the taxpayer receive a waiver when erroneous payout paperwork prevented timely direct rollovers from two plans?
• Outcome: Approved, the corrected redeposits and direct rollovers qualify if all other requirements are met.
• Key authorities: IRC §§ 401(a)(9), 401(a)(31), and 402(c)(3); Treas. Reg. § 1.401(a)(31)-1; Rev. Proc. 2003-16

Full text (IRS public release)

201521022

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 2 5 2015

Uniform Issue List: 402.08-00

T:EP:RA:T3

Legend

Taxpayer =
Plan A =
Plan B =
Amount A =
Amount B =
Custodian =
Financial Institution =
Financial Advisor D =
IRA =

Dear

This is in response to a letter dated June 19, 2013, as supplemented by
correspondence dated June 30, 2014, in which you request a waiver of the 60-day
rollover requirement contained in section 402(c)(3)(A) 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.

Page 2 201521022

Taxpayer represents that she received a distribution from Plan A of Amount A
and a distribution from Plan B of Amount B. Taxpayer asserts that her failure to
accomplish a rollover of Amounts A and B within the 60-day period prescribed by
section 402(c)(3) of the Code was due to an error committed by Custodian that was not
discovered until after the 60-day period had expired. Taxpayer further represents that
Amounts A and B have not been used for any other purpose.

On November 11, 2012, Taxpayer requested paperwork from Plans A and B to
directly rollover Amounts A and B from Plans A and B to IRA maintained by Financial
Institution. Taxpayer has provided documentation from Custodian that acknowledges
Taxpayer's request for a transfer payout annuity when Taxpayer's intention was to elect
a rollover distribution option with the proceeds being directed to Financial Institution.
Instead of sending paperwork for a rollover, Financial Institution erroneously prepared
the request as a transfer annuity payout which resulted in the erroneous distribution of
Amounts A and B during year 2012.

After consultations in March 2013, between Taxpayer's financial advisor,
Financial Advisor D, and Custodian, Custodian agreed to receive Taxpayer’s personal
checks written on April 22, 2013, to reverse the erroneous distributions of Amounts A
and B and accept the checks as a redeposit into Plans A and B in May 2013. Custodian
acknowledged receipt of Taxpayer's personal checks and processed the direct rollover
of Amounts A and B with Financial Institution.

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 402(c)(3) of the Code with respect to the distribution from Plan A of Amount A
and the distribution from Plan B of Amount B.

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 constitutes one form of eligible retirement
plan.

Section 402(c)(4) of the Code provides that an eligible rollover distribution shall
not include any distribution to the extent such 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 section 402(c) where the failure to waive such
requirement would be against equity or good conscience, including casualty, disaster, or

Page 3 201521022

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.

Section 401(a)(31) provides the rules governing “direct transfers of eligible
rollover distributions.”

Section 1.401(a)(31)-1, Q&A-15, of the Federal Income Tax Regulations (the
“regulations”), provides in relevant part, that an eligible rollover distribution that is paid
to an eligible retirement plan in a direct rollover is a distribution and rollover, and not a
transfer of assets and liabilities.

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 is
consistent with her assertion that her failure to accomplish a timely rollover of Amount A
from Plan A and Amount B from Plan B was due to an error committed by Custodian
that was not discovered until after the 60-day period had expired.

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 from Plan A of
Amount A and the distribution from Plan B of Amount B. Provided all other requirements
of section 402(c)(3) of the Code, except the 60-day requirement, were met the redeposit
of Amounts A and B to Plans A and B, respectively, followed by the direct rollover to
IRA with Financial Institution C in May 2013 will be considered rollover contributions
within the meaning of section 402(c)(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.

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.

Page 4 201521022

If you have any questions, please contact
Please address all correspondence to

SE:T:EP:RA:T1.

Sincerely yours,

Carlton Watkins, Manager,
Employee Plans Technical Group 1

Enclosures:

Deleted Copy of Ruling Letter
Notice of Intention to Disclose