Bank error supports waiver of IRA rollover deadline

Plain-English summary

An IRA owner intended to move a certificate of deposit into another IRA offering a better interest rate. A bank employee instead transferred the distribution into a non-IRA account, while the taxpayer believed the new account was an IRA. The taxpayer discovered the problem while preparing an income tax return, later moved the funds through a savings account, and ultimately deposited them into another IRA. The bank acknowledged its error. The IRS waived the 60-day rollover deadline under IRC § 408(d)(3)(I), provided the contribution met all other rollover requirements.

Ruling snapshot

• Question: Should the taxpayer receive a waiver of the 60-day IRA rollover deadline after a bank employee placed the distribution in a non-IRA 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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 01 2015

U.I.L. 408.03-00

SE:T:EP:RA:T2

XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXX
IRA Y = XXXXXXXXXXXXX
Bank B = XXXXXXXXXXXXX
Bank C = XXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXX
Individual M = XXXXXXXXXXXXX
Date 1 = XXXXXXXXXXXXX
Date 2 = XXXXXXXXXXXXX
Date 3 = XXXXXXXXXXXXX
Date 4 = XXXXXXXXXXXXX

Dear xxxxxxxxxxx:

This letter is in response to your request dated March 11, 2015, as supplemented
by correspondence dated June 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 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 Date 2, Taxpayer A received a distribution of Amount D from IRA X with the
intent to rollover Amount D into a rollover 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 an error committed by Individual M of
Bank B.

IRA X was invested in a Certificate of Deposit (CD) which matured on Date 1.
Prior to Date 1, Taxpayer A was contacted via telephone by Individual M of Bank
B and told that he could receive a better interest rate on IRA X and his savings
accounts. On Date 2, Taxpayer A met with Individual M at Bank B and was told
that he could obtain a higher interest rate by rolling over IRA X into an IRA CD.
Individual M executed withdrawal forms which Taxpayer A signed. Instead of
rolling over funds in IRA X, Individual M transferred Amount D into a non-IRA
account. Taxpayer A believed the new account was an IRA.

Taxpayer A first became aware that Amount D was not rolled over into another
IRA CD account as he intended when he went to his tax preparer for the
preparation of his income tax return for year 2010. Taxpayer A immediately
contacted Bank B to correct the Form 1099-R that he received, but Bank B
refused to do so.

On Date 3, Taxpayer A withdrew Amount D from Bank B and deposited Amount
D into his savings account with Bank C.

Taxpayer A represents that upon the advice of his tax preparer, on Date 4, he
withdrew Amount D from Bank C and rolled it over into IRA Y.

In a letter from Bank B, it acknowledged its error and stated that Taxpayer A
never intended to cause a taxable distribution of funds that he did not touch.

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 by Taxpayer A is
consistent with his assertion 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.

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 xxxxxxxxxxx,
at xxxxxxxxxxxxxxxxxxxxxxxx. 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

Cc:
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