Mistaken deposit into a taxable account receives rollover relief

Plain-English summary

A former employee asked to move his employer-plan balance into a rollover IRA at a new financial institution. The distributing institution issued a check payable to the receiving institution for an IRA benefiting the taxpayer, but the taxpayer mistakenly selected a non-retirement account while opening the account online. The receiving institution deposited the money into that taxable account and did not catch the mismatch. The taxpayer discovered the error in 2014, had not used the money for another purpose, and submitted documents showing that the receiving institution accepted part of the responsibility. The IRS waived the 60-day rollover deadline and allowed 60 days from the ruling to contribute the amount to a rollover IRA, assuming all other requirements were met.

Ruling snapshot

• Question: Should the 60-day IRA rollover deadline be waived when a financial institution deposited an IRA-directed check into a non-retirement account and later acknowledged the error?
• Outcome: Approved
• Key authorities: IRC §§ 72, 408(a)(6), 408(d)(1), 408(d)(3); Rev. Proc. 2003-16

Transcription note: this is a scanned document (4 PDF pages) transcribed by OCR and proofread against every page image. Repeated stamped release numbers have been replaced with page markers, and obvious OCR misreads were corrected from the official scan. The source itself refers to “IRA X” in the conclusion even though the legend identifies “Plan X”; that wording is preserved.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

201528042

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
U.I.L. 408.03-00
APR 13 2015
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX

SE:T:EP:RA:T2
Legend:
Taxpayer A = XXXXXXXXXXXXX
Plan X = XXXXXXXXXXXXX
Financial Institution B = XXXXXXXXXXXX
Financial Institution C = XXXXXXXXXXXX
Amount D = XXXXXXXXXXXX
Company E = XXXXXXXXXXXX
Date 1 = XXXXXXXXXXXX
Date 2 = XXXXXXXXXXXX

Dear XXXXXXXXXxX:

This is in response to your request dated October 16, 2014, 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”).

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

Taxpayer A received a distribution of Amount D from Plan X. Taxpayer A asserts that his 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 the error committed by Financial Institution C.

[Page 2]

Taxpayer A, while employed with Company E, was a participant in Plan X maintained by Financial Institution B. Upon termination of Taxpayer A’s employment in year 2012, his balance in Plan X totaled Amount D.

Taxpayer A decided to make a transfer of Amount D into a rollover IRA with Financial Institution C. Accordingly, Taxpayer A discussed with Financial Institution B which issued a check made payable to Institution C IRA FBO Taxpayer A on Date 1. On Date 2, Financial Institution C deposited Amount D in a non-retirement account.

Taxpayer A represents that he did not maintain any account with Institution C prior to this transfer and when opening an IRA account with Institution C online he inadvertently indicated a non-retirement account. Taxpayer A was not aware that he had mistakenly made this error until 2014 when he contacted Financial Institution C to open a non-retirement investment account and was told that he already had one. This is when he first learned that Financial Institution C had deposited Amount D into a non-retirement account and not into a rollover IRA. Amount D has not been used for any other purpose.

Taxpayer A asserts that Financial Institution C should have recognized the error and avoided it timely but they failed to do so which resulted in Amount D not being rolled over into a rollover IRA within the 60-day period prescribed by section 408(d)(3) of the Code..

Documents submitted by Financial Institution C acknowledged this error and Financial Institution C has accepted a share of the responsibility.

Based on the foregoing facts and representations, you request that the Internal Revenue Service (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

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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.

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)(1), 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 his assertion that his failure to accomplish a timely rollover was due to the error committed by Financial Institution C.

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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 xxxxxxxxXxXxXXXXX at Xxxxxxxxxx. All correspondence should be addressed to SE:T:EP:RA:T2.

Sincerely yours,

Sherri M. Edelman, Manager
Employee Plans Technical Group 2
Enclosures:
Deleted copy of letter ruling
Notice of Intention to Disclose

cc:

XXXXXXXXXXXXXX