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