Rejected starter check justified late IRA rollover

Plain-English summary

An IRA owner sought to consolidate retirement savings in an employer plan. Within the 60-day rollover period, she sent the plan administrator a check for the full distribution, but the administrator returned it because it did not accept “starter checks.” She promptly sent another check, which cleared after the deadline, and the money remained in the plan. Documentation confirmed the attempted timely rollover. The IRS waived the deadline and treated the March 7, 2013 deposit as a valid rollover contribution, provided the other statutory requirements were met.

Ruling snapshot

• Question: Should the IRS waive the 60-day rollover deadline when a plan administrator rejected a timely submitted starter check?
• Outcome: Approved
• 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

MAR 10 2015

U.I.L. 408.03-00
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

T:EP:RA:T3

Legend:
Taxpayer A = XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXX
Plan Y = XXXXXXXXXXXXXX
Bank B = XXXXXXXXXXXXX
Organization F = XXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXX
Company E = XXXXXXXXXXXXX

Dear XXXXXXXXXX:

This is in response to your request dated October 7, 2014, as supplemented by
correspondence dated January 15, 2015, January 23, 2015, January 27, 2015, and
February 9, 2015, submitted by you, 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.

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On December 5, 2012, Taxpayer A received a distribution of Amount D from IRA X.
Taxpayer A asserts that her failure to accomplish a rollover of Amount D within the 60-
day period prescribed by section 408(d)(3) of the Code was due to an administrative
procedure of Organization F which resulted in Amount D not being rolled over into
another retirement account within the 60-day period.

Taxpayer A had IRA X with Company E. On December 5, 2012, Taxpayer A withdrew
Amount D from IRA X with the intent to consolidate and rollover Amount D into Plan Y.
On February 1, 2013, within the 60-day period, Taxpayer A issued a check payable to
Organization F to rollover Amount D into Plan Y. However, on February 26, 2013, the
check was returned by Organization F along with a letter stating that Organization F did
not accept “starter checks”.

Taxpayer A, in order to avoid the “starter check” problem, sent another check drawn on
Bank B totaling Amount D to Organization F which was cleared on March 7, 2013, and
was deposited into Plan Y. Taxpayer A represents that Amount D has not been used for
any other purpose and remains in Plan Y.

Documentation submitted and a copy of the returned check that Taxpayer A made
payable to Organization F on February 1, 2013, and was returned by Organization F on
February 26, 2013, shows that the check was to rollover Amount D into Plan Y.

Based on the foregoing facts and representations, you request 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 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

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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) 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.

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 her assertion that her failure to accomplish a timely rollover was due to
Organization F’s administrative procedures of not accepting “starter checks” which
resulted in Amount D not being rolled over into another retirement account, Plan Y,
within the 60-day period.

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.
Provided all other requirements of section 408(d)(3) of the Code, except the 60-day
requirement, are met with respect to such contribution, the contribution of Amount D into
Plan Y, on March 7, 2013, 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 transactions 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 have any questions concerning this ruling, please contact XXXXXXXX, XXXXXXXX, at
XXXXXXXXXXXX. All correspondence should be addressed to SE:T:EP:RA:T.

Sincerely yours,

Sherri M. Edelman, Manager
Employee Plans Technical

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