Financial institution error receives 60-day IRA rollover waiver

Plain-English summary

An IRA owner instructed a financial institution to buy an annuity inside the IRA, then canceled the investment and directed that the funds remain in the traditional IRA. After an account discrepancy appeared, the institution removed funds from the IRA and placed them in a non-IRA brokerage account for unexplained reasons. The taxpayer did not discover the distribution until receiving Form 1099-R after the 60-day rollover period had expired. The funds were later deposited into another IRA. The IRS found that the missed deadline resulted from the financial institution's failure to follow the taxpayer's instructions and waived the 60-day requirement for the distribution identified in the ruling's conclusion.

Ruling snapshot

• Question: Should the 60-day rollover deadline be waived when a financial institution moved IRA funds into a taxable brokerage account contrary to the taxpayer's instructions?
• Outcome: Approved, the 60-day deadline is waived for the distribution identified in the conclusion
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 2 0 1 5 2 9 0 1 7

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION 0 4 2 1 1 5
Uniform Issue List: 408.03-00

T:EP:RA:T1

Legend:
TaxpayerA =

IRA B =

Financial Institution C =

Financial Institution D
Account E =

IRA F =

Amount 1 =

Amount 2 =

Dear

This is in response to your request for a private letter ruling dated November 3, 2014, as supplemented by correspondence dated January 4, 17, February 3 and 4, 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’).

201529017

Page 2

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

Taxpayer A represents that he received a distribution equal to Amount 1 from IRA B, which was maintained by Financial Institution C. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to Financial Institution C’s failure to follow Taxpayer A's instructions that Amount 1 was to remain in IRA B. Taxpayer A further represents that Amount 1 has not been used for any other purpose.

Taxpayer A maintained IRA B with Financial Institution C. On October 16, 2013, Taxpayer A instructed Financial Institution C to use Amount 2 in IRA B to purchase an annuity contract with Financial Institution D. The annuity contract was purchased to be held by Taxpayer A’s IRA B. On October 24, 2013, Taxpayer informed Financial Institution C that he changed his mind about this investment and was canceling the annuity contract with Financial Institution D. On November 2, 2013, Taxpayer A sent an E-Mail to Financial Institution C stating that he wanted Amount 2 to remain as his traditional IRA B. Soon after this communication, Taxpayer A noticed that his account balance for IRA B was overstated by Amount 2. He informed Financial Institution C of the discrepancy and, for unexplained reasons, on November 12, 2013, Financial Institution C removed Amount 1 from IRA B and deposited it into Account E, a non-IRA brokerage account. Taxpayer A was unaware of this until he received Form 1099-R more than 60 days after Amount 2 was distributed from IRA B.

On November 10, 2014, Amount 2 was deposited in IRA F with Financial Institution C.

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 2.

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

201529017

Page 3

(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 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 is consistent with his assertion that his failure to accomplish a timely rollover was due to Financial Institution C’s failure to follow Taxpayer A’s instruction that Amount 1 was to remain within IRA B.

201529017

Page 4

Therefore, pursuant to section 408(d)(3) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA B. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day requirement, were met with respect to the contribution of Amount 1 to IRA I on November 10, 2014, such 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.

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,

Manager
Employee Plans Technical Group 1

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