Misleading bank information justified IRA rollover waiver

Plain-English summary

An IRA owner responded to an online bank’s newspaper advertisement for a higher interest rate and deposited an IRA distribution into what he believed was a rollover IRA. Shortly after the 60-day period ended, the bank told him that it did not offer IRA accounts. He withdrew the funds to a checking account in an effort to return them to an IRA and represented that they remained untouched. The IRS found the missed deadline consistent with misleading information from the bank. It waived the deadline and gave him 60 days from the ruling’s issuance to contribute the amount to a rollover IRA.

Ruling snapshot

• Question: Could the IRA owner receive a rollover waiver after an online bank led him to believe it offered IRA accounts?
• Outcome: Approved, with 60 days to complete the rollover
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

201530024

TAX EXEMPT AND
GOVERNMENT ENTITIES

SE:T:EP:RA:T2

APR 27 2015

U.I.L. 408.03-00

XXXXXXXXXXXXXXX

XXXXXXXXXXXXXXX

XXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXX
Bank C = XXXXXXXXXXXXX
Bank E = XXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXX

Dear xxxxxxxxxx:

This is in response to your request dated August 11, 2014, as supplemented by
correspondence dated November 28, 2014, February 20, 2015, and March 24,
2015, 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.

On October 28, 2013, Taxpayer A received a distribution of Amount D from IRA
X with the intent to rollover the funds into another IRA. 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 misleading information
provided by Bank C.

2 201530024

Taxpayer A saw a newspaper advertisement for Bank C, an on-line bank, which
advertised a higher interest rate than Taxpayer A was getting on IRA X with Bank
E. Based on this advertisement, on October 28, 2013, Taxpayer A withdrew
Amount D to purchase a new IRA Certificate of Deposit (CD) account at Bank C.

On November 1, 2013, Taxpayer A deposited, on-line, Amount D with Bank C in
what he thought was a rollover IRA. On January 27, 2014, Taxpayer A contacted
Bank C to ensure that Amount D was in an IRA. At that time, which was less
than a month after the 60-day rollover period ended, he was informed by Bank C
that they did not offer IRA accounts. On January 28, 2014, Taxpayer A withdrew
funds in his non-IRA account with Bank C and deposited such funds into his
checking account with Bank E in an attempt to get Amount D back into his IRA.

Taxpayer A represents that Amount D has not been used for any other purpose
and has remained untouched in his checking account.

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
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)).

3 201530024

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. 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, 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 misleading information provided by Bank C.

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.

4 201530024

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.

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
XXXXXXXXXXXXXXXXXAXXXX, at XXXXXXXXXXXXXXXXXX. All correspondence should be
addressed to SE:T:EP:RA:T:2.

Sincerely yours,

Sherri M. Edelman, Manager

Employee Plans Technical Group 2

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

cc:
XXXXXXXXXXXXXKX