Bank error qualifies for IRA rollover waiver

Plain-English summary

An IRA owner intended to renew a maturing certificate of deposit within an IRA, but the bank transferred the funds into a non-IRA savings account. The owner discovered the mistake while preparing his federal income tax return and asked the bank to restore the funds to an IRA. The money was later transferred to one IRA and then rolled into another IRA, where it remained. The IRS found the documentation consistent with a financial-institution error and waived the 60-day rollover deadline under IRC § 408(d)(3)(I), provided all other rollover requirements were met.

Ruling snapshot

• Question: Could an IRA owner receive a waiver after a bank mistakenly transferred a maturing IRA certificate of deposit into a non-IRA savings account?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(3), 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

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

201546013

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 18 2015

SE:T:EP:RA:T2

U.I.L. 408.03-00

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXXXX

IRA X = XXXXXXXXXXXXX

IRA Y = XXXXXXXXXXXXX

IRA Z = XXXXXXXXXXXXX

Bank B = XXXXXXXXXXXXX

Company C = XXXXXXXXXXXXX

Amount D = XXXXXXXXXXXXX

Dear xxxxxxxxx:

This letter is in response to your request dated February 17, 2015, as
supplemented by correspondence dated May 18, 2015, and August 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”).

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 on July 1, 2012, from IRA X with
the intent to rollover Amount D into a rollover IRA with Bank B. 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 Bank B.

IRA X was invested in a Certificate of Deposit (CD). When the CD was nearing
maturity, a representative of Bank B suggested moving the CD funds into an
account that would pay a higher rate of return. On July 1, 2012, Bank B
transferred Amount D into a non-IRA savings account. Taxpayer A represents
that it was never his intention to take a distribution from IRA X since over the past
15 years he had rolled over the CD in IRA X each time it matured.

Taxpayer A first became aware that Amount D was not rolled over into another
IRA CD account when he met with his accountant for preparation of his 2012
federal tax return. Upon learning of the error, Taxpayer A contacted Bank B to
correct the error and move Amount D back into IRA X. Taxpayer A represents
that even though Bank B refused to acknowledge its error, Bank B transferred
Amount D, the funds in the non-IRA account to, IRA Y on March 19, 2013.

On November 21, 2013, Taxpayer A rolled over IRA Y into IRA Z with Company
C. Amount D remains in IRA Z.

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)).

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 is consistent with the
assertions that the failure to accomplish a timely rollover was due to an error
committed by Bank B.

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. 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 into IRA Y 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 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 have any questions concerning this ruling, please contact xxxIxxxxxxxx. 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