Bank error and illness justify late IRA rollover

Plain-English summary

An IRA owner's certificate of deposit matured, and she instructed her financial institution to move the money to a money market fund inside the IRA. The institution instead placed the funds in a non-IRA account without her knowledge while she was undergoing treatment for a serious illness. She did not learn of the error until the IRS notified her nearly two years later, and bank statements showed she had not used the funds. The IRS waived the 60-day rollover deadline and gave her 60 days from the ruling date to contribute no more than the original distributed amount to a rollover IRA.

Ruling snapshot

• Question: May the taxpayer complete a late IRA rollover after a financial institution placed the funds in a non-IRA account?
• Outcome: Approved, with 60 days to transfer up to the original distribution amount into a rollover IRA.
• 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
201526026

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

APR 01 2015

Uniform Issue List: 408.03-00

T:EP:RA:T1

Legend:
Taxpayer A =

IRA B =

Bank C =
Account D =

Amount 1 =

Dear

This is in response to your request for a private letter ruling dated October 29, 2014, as supplemented by correspondence dated January 26, and February 26, 2015, 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.

Taxpayer A represents that she received a distribution equal to Amount 1 from IRA B, which was maintained by Financial Institution C. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to a miscommunication with a representative of

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Bank C which led to Amount 1 being placed in a non-IRA account. Taxpayer A further represents and provided bank statements showing that Amount 1 has not been used for any other purpose.

Taxpayer A maintained IRA B with Financial Institution C. On October 23, 2012, a certificate of deposit in IRA B became due. Seeking a higher rate of return, on October 25, 2012, Taxpayer A decided to transfer this investment to what she understood was a regular money market fund within IRA B. For unexplained reasons, Financial Institution C disregarded Taxpayer A instructions and transferred Amount 1 to Account D, a non-IRA Account. At the time of this transaction Taxpayer A was undergoing medical treatment for a serious illness. Taxpayer A was unaware Amount 1 had been transferred to Account D until September, 2014, when she was notified by the Internal Revenue Service.

Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60 day rollover requirement contained in section 408(d)(3) of the Code with respect to the distribution of Amount 1.

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 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

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408(d)(3)(A)(i) from an IRA which was not includible 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 (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), 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 are consistent with her assertion that her failure to accomplish a timely rollover of Amount 1 was caused by a miscommunication with a representative of Bank C which led to Amount 1 to be deposited into a non-IRA account.

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 1 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of this letter ruling to transfer an amount not to exceed Amount 1 into a rollover IRA. 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 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 401(a)(9) of the Code.

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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.

If you wish to inquire about this ruling, please contact (ID # )at( ) . Please address all correspondence to

Sincerely yours,

Carlton A. Watkins

Manager
Employee Plans Technical Group 1

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