Financial institution error qualifies for rollover waiver

Plain-English summary

An individual intended to roll an IRA distribution into another IRA, but the receiving institution placed the funds in a non-IRA account. The error traced back to transaction forms that another financial institution had incorrectly coded as non-qualified. The individual learned of the failed rollover only after receiving an IRS notice and promptly sought correction. The IRS waived the 60-day rollover deadline and granted 60 days from the ruling date to contribute the amount to a rollover IRA, assuming all other rollover requirements were met.

Ruling snapshot

• Question: May the individual receive a waiver of the 60-day IRA rollover deadline after a financial institution's coding error?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover
• Key authorities: IRC §§ 72 and 408(d)(3); 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

OCT 15 2015

U.I.L. 408.03-00 RE: SE:T:EP:RA:T2

xxxxxxxxxxxxxx

xxxxxxxxxxxxxxx

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Legend:

Taxpayer A = xxxxxxxxxxxxx
IRA X = xxxxxxxxxxxxx
Company B = xxxxxxxxxxxxx
Company C = xxxxxxxxxxxxx
Company E = xxxxxxxxxxxxx
Amount D = xxxxxxxxxxxx
Individual M = xxxxxxxxxxxx

Dear xxxxxxxxx:

This letter is in response to your request dated April 2, 2015, as supplemented by
correspondence dated September 3, 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.

2 201602013

Taxpayer A represents that he received a distribution totaling Amount D from IRA
X on May 29, 2012. 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 Company E.

On September 10, 2007, Taxpayer A established IRA X with Company E. IRA X
was invested in a variable annuity with Company B. However, on September 11,
2007, when Company E completed Company B’s transaction forms the type of
plan was coded as being non-qualified.

Taxpayer A represents that in 2012, he contacted Individual M and discussed his
intention to rollover IRA X into another IRA with Company C. Taxpayer A further
represents that Individual M advised him to first liquidate IRA X and rollover the
funds from the annuity into an IRA account with Company C. Based upon the
advice of Individual M, IRA X was liquidated on May 29, 2012. Amount D was
deposited into a non-IRA account by Company C since the electronic feed from
Company B identified the funds Company B received in 2007 as “non-qualified”.

Taxpayer A first became aware that Amount D was not rolled over into another
IRA as he intended when he received a notice from the Internal Revenue
Service.

Taxpayer A immediately contacted Company C to correct the error and put
Amount D into a rollover IRA.

In a letter provided by Company C, it acknowledged that in 2007 Company E did
not identify the proper source of Amount D which resulted in Amount D being
placed into a non-IRA account. Amount D remains in the non-IRA account with
Company C.

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.

3 201602013

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.

4 201602013

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 an error committed by Company E.

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 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.

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.

5 201602013

If you have any questions concerning this ruling, please contact xxxxxxxxxx,
at xxxxxxxxxxxx. 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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