Bank processing error justified IRA rollover waiver

Plain-English summary

A surviving spouse instructed a bank employee to roll distributions from two inherited IRAs into another IRA. The transfer failed because the bank employee did not provide a required letter of acceptance to the institution holding the original accounts, and the spouse learned of the problem only after receiving a Form 1099-R. The bank employee acknowledged the processing error, and the spouse represented that the funds remained unused in her checking account. The IRS waived the 60-day deadline under section 408(d)(3)(I) and gave her 60 days from the ruling’s issuance to contribute the amount to a rollover IRA.

Ruling snapshot

• Question: Could the surviving spouse receive a rollover waiver after a bank employee failed to provide a required acceptance letter?
• Outcome: Approved, with 60 days to complete the rollover
• Key authorities: IRC §§ 72, 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

201524028

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAR 16 2015

SE:T:EP:RA:T:3

U.I.L. 408.03-00

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Legend:

Taxpayer A = xxxxxxxxxxxxx
Individual B = xxxxxxxxxxxxx
IRA X = xxxxxxxxxxxxx
IRA Y = xxxxxxxxxxxxx
Bank C = xxxxxxxxxxxxx
Company P = xxxxxxxxxxxxx
Amount D = xxxxxxxxxxxxx
Individual M = xxxxxxxxxxxxx
Date 1 = xxxxxxxxxxxxx
Date 2 = xxxxxxxxxxxxx
Date 3 = xxxxxxxxxxxxx

Dear xxxxxxxxx:

This is in response to your request dated October 27, 2014, as supplemented by correspondence dated February 5, 2015, 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”).

201524028

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

Taxpayer A, as beneficiary, received two distributions from IRA X and IRA Y totaling Amount D maintained by Individual B, her deceased husband. 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 error committed by Individual M of Bank C for not providing the necessary “Letter of Acceptance” to Company C.

Individual B maintained IRA X and IRA Y with Company P. On Date 1, Individual B passed away and Taxpayer A decided to rollover the funds from IRA X and IRA Y to another qualified IRA account with Bank C. Accordingly, Taxpayer A met with Individual M of Bank C who completed the rollover forms and had Taxpayer A sign them on Date

2. Taxpayer A relied on the advice of Individual M and thought that Amount D from IRA
   X and IRA Y was rolled over timely as she instructed.

Taxpayer A represents that it was not until March, 2014, when she received a 2013 Form 1099-R from Company P that she became aware that Amount D was not rolled over as she instructed. Taxpayer A called Company P and was advised that it did not receive a “Letter of Acceptance”, from Individual M of Bank C, which is required to facilitate the rollover. Taxpayer A states that neither she nor Individual M knew about the “Letter of Acceptance”. Company P, also told Taxpayer A that on Date 3, Company P called her, to verify where to send the funds which Taxpayer A recalls that she told them to send the funds to her home address. At that time, Taxpayer A thought Company P was referring to funds related to a death benefit and not the distributed funds she instructed to be rolled over.

Amount D has not been used for any other purpose and is held in Taxpayer A’s checking account with Bank C.

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

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.

201524028

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 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.

201524028

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 an error committed by Individual M 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.

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 xxxxxxxxxxxxx, at xxxxxxxxxxx. 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

cc:

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