Plan mishandling supports waiver of the 60-day rollover deadline

Plain-English summary

A retirement-plan participant instructed his plan to roll an investment fund interest into a traditional IRA. The plan's administrator told his bookkeeper to request a change in the account title, and later statements referred to the account as an IRA, but the rollover was not actually completed. The participant discovered the problem years later while arranging Roth IRA conversions and then moved amounts into the traditional IRA. The IRS found that the missed 60-day deadline resulted from the plan's mishandling of his rollover request and waived that deadline under section 402(c)(3)(B). Only the amount originally distributed qualified for rollover treatment, and the excess later deposited could not be rolled over.

Ruling snapshot

• Question: Should the 60-day rollover deadline be waived when a retirement plan mishandled the participant's request and account statements led him to believe the rollover had occurred?
• Outcome: Approved
• Key authorities: IRC §§ 401(a), 402(a), 402(c), 402(f), 403, 408, 457, 501(a); Rev. Proc. 2003-16

Transcription note: this is a scanned document (5 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. Redacted dates remain shown as '20__'.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

201528043
04 15 15

Uniform Issue List: 402.00-00

SE:T:EP:RA:T1

Legend

Taxpayer A =

Plan B =

Fund C =

IRA D =
Roth IRA E =

Financial Institution F =

Financial Institution G =

Amount 1 =

Amount 2 =

Amount 3 =

Dear

This is in response to your request dated June 18, 2013, as supplemented by
correspondence dated February 20, 2014, December 18, 2014, March 6, 2015,
and March 25, 2015, submitted on your behalf by your authorized representative,
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

[Page 2]

perjury in support of the ruling requested.

Taxpayer A represents that he received a distribution from Plan B totaling Amount

1. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day
   period described in section 402(c)(3) of the Code was due to Plan B’s mishandling
   of Taxpayer A’s request to roll over Amount 1 into IRA D.

Taxpayer A participated in Plan B, a profit sharing plan that was maintained by his
employer. Financial Institution G was the custodian for Taxpayer A’s account in
Plan B. A portion of Taxpayer A’s account in Plan B, equal to Amount 1, was
invested in Fund C. Fund C was an investment fund maintained by Financial

Institution G.

In 20__, Taxpayer A established IRA D, an individual retirement arrangement
described in section 408(a) of the Code, for the purpose of rolling over Amount 1
from Plan B to IRA D. IRA D was maintained by Financial Institution F. In order to
effectuate the rollover, the administrator for Plan B advised Taxpayer A’s
bookkeeper to send a letter to Financial Institution G requesting that the name of
Taxpayer A’s account in Fund C be retitled from “Plan B FBO Taxpayer A” to
“Taxpayer A Rollover IRA.” On May 19, 20__, Taxpayer A’s bookkeeper sent this
letter. Taxpayer A periodically received statements from Fund C that referred to
Taxpayer A’s IRA. Subsequently, Taxpayer A received a Form 1099-R for the
20__ taxable year showing a complete distribution from Plan B, inclusive of
Amount 1, with a taxable amount of zero. Taxpayer A believed that he received
the Form 1099-R for 20__ rather than 20__ because Plan B was in the process of
terminating.

In 2012, Taxpayer A decided to convert traditional IRA D into a Roth IRA. At this
time, he was informed by Financial Institution F that it did not serve as the IRA
custodian for his interest in Fund C. Financial Institution F agreed, however, to
take custody of Amount 1 and hold Amount 1 in IRA D. On December 28, 2012, a
portion of Amount 1 equal to Amount 2 was deposited into IRA D. On January 2,
2013, Amount 2 was converted into Roth IRA E maintained by Financial Institution
F. Taxpayer A represents that Amount 3 was also deposited into IRA D and on
January 14, 2013, Amount 3 was converted from IRA D to Roth IRA E.
Amount 2 and Amount 3 exceed Amount 1.

Based on the above facts and representations, you request that the Service waive
the 60-day rollover requirement with respect to the distribution of Amount 1 from
Plan B.

With respect to your ruling requests, section 401(a) of the Code provides the
qualification rules applicable to retirement plans set up by employers exclusively to
benefit their employees and their beneficiaries.

[Page 3]

Section 402(a)(1) of the Code provides that except as otherwise provided in this
section, any amount actually distributed to any distributee by any employees’ trust
described in section 401(a) of the Code which is exempt from tax under section
501(a) shall be taxable to the distributee, in the taxable year of the distributee in
which distributed, in the manner provided under section 72 (relating to annuities).

Section 402(c) of the Code provides rules governing rollovers of amounts from
exempt trusts to eligible retirement plans, including IRAs.

Section 402(c)(1) of the Code provides, generally, that if any portion of an eligible
rollover distribution from a qualified employees trust is paid to the employee in an
eligible rollover distribution and the employee 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, such distribution (to the extent so transferred) shall not be
includible in gross income for the taxable year in which paid.

Section 402(c)(2) of the Code provides that the maximum amount of an eligible
rollover distribution to which paragraph (1) applies shall not exceed the portion of
such distribution which is includible in gross income (determined without regard to

paragraph (1)).

Section 402(c)(3)(A) of the Code provides, generally, that section 402(c)(1) shall
not apply to any transfer of a distribution made after the 60th day following the day
on which the distributee received the property distributed.

Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60-
day requirement under subparagraph (A) 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 occur after December 31, 2001, are
eligible for the waiver under section 402(c)(3)(B).

Section 402(c)(4) of the Code defines "eligible rollover distribution" as any
distribution to an employee of all or a portion of the balance to the credit of an
employee in a qualified trust, except that such term shall not include:

(A) any distribution which is one of a series of substantially equal periodic
payments (not less frequently than annually) made --

(i) for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and the employee's designated beneficiary, or

(ii) for a specified period of 10 years or more,

(B) any distribution to the extent the distribution is required under section
401(a)(9), and

(C) any distribution which is made upon hardship of the employee.

[Page 4]

Section 402(c)(6)(A) of the Code provides that the transfer of an amount equal to
any portion of the proceeds from the sale of property received in the distribution
shall be treated as the transfer of property received in the distribution.

Section 402(c)(6)(B) of the Code provides that the excess of the fair market value
of property on sale over its fair market value on distribution shall be treated as
property received in the distribution.

Section 402(c)(6)(D) of the Code provides that no gain or loss shall be recognized
on any sale described in subparagraph (A) to the extent that an amount equal to
the proceeds is transferred pursuant to paragraph (1).

Section 402(c)(8) of the Code defines eligible retirement plan as (i) an individual
retirement account described in section 408(a); (ii) an individual retirement annuity
described in section 408(b) (other than endowment contract); (iii) a qualified trust;
(iv) an annuity plan described in section 403(a); (v) an eligible deferred
compensation plan described in section 457(b) maintained by an eligible employer
as described in section 457(e)(1)(A); and (vi) an annuity contract described in
section 403(b).

Section 402(f) of the Code provides for a written explanation to recipients of
distributions eligible for rollover treatment. Section 402(f)(1) provides, in pertinent
part, that the plan administrator of any plan shall, within a reasonable period of
time before making an eligible rollover distribution, provide a written explanation to
the recipient of the provisions under which the recipient may have the distribution
directly transferred to an eligible retirement plan and of the provisions under which
the distribution will not be subject to tax if transferred to an eligible retirement plan
within 60 days after the date on which the recipient received the distribution.

Revenue Procedure 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
402(c)(3)(B) 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 and documentation submitted by Taxpayer A support his assertion
that his failure to accomplish a rollover within the 60-day period described in
section 402(c)(3) of the Code was due to Plan B’s mishandling of Taxpayer A’s
request to roll over Amount 1 into IRA D.

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 of Amount

1. Provided all other requirements of section 402(c)(3), except the 60-day

[Page 5]

requirement, will be met with respect to the contribution of Amount 1 to IRA D,
Amount 1 will be considered a rollover contribution within the meaning of section
402(c)(3). The excess of the total of Amount 2 and Amount 3 over Amount 1
cannot be rolled over to an IRA.

This letter ruling is based on the assumption that Plan B was a qualified plan
under section 401(a) 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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is
being sent to your authorized representative.

If you wish to inquire about this ruling, please contact
at . Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,
Carlton A. Watkins

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

Ce: