Brokerage deposit error supports IRA rollover waiver

Plain-English summary

A taxpayer directed a check from one IRA to a clearing firm for the benefit of the taxpayer's IRA at a new company. Contrary to those instructions, the company deposited the funds in the taxpayer's non-IRA account. The error was discovered after the taxpayer received an IRS deficiency notice, and the company acknowledged its mistake. The IRS waived the 60-day rollover deadline and gave the taxpayer 60 days from the ruling to contribute up to the distributed amount to a rollover IRA.

Ruling snapshot

• Question: Would the IRS waive the 60-day rollover deadline when a company deposited an intended IRA transfer into the taxpayer's non-IRA account?
• Outcome: Approved, the taxpayer received 60 days from the ruling to complete the rollover.
• Key authorities: IRC §§ 72, 401(a)(9), 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

DEC 16 2015

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

IRA B =

Financial Institution C =

Company D =

IRA E =

Non-IRA Account F =

Amount 1 =

Dear                 :

This letter is in response to a letter dated June 16, 2015, in which you
request a waiver of the 60-day rollover requirement contained in section
408(d)(3) of the Internal Revenue Code (“Code”).

The following facts and representations have been submitted under
penalties of perjury in support of your request.

Taxpayer A represents that he received a distribution from IRA B totaling
Amount 1. Taxpayer A asserts that his failure to accomplish a rollover within the
60-day period prescribed by section 408(d)(3) of the Code was due to an error by
Company D. 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 June 11,
2013, Taxpayer A met with a representative of Financial Institution C to discuss
his IRA portfolio. Taxpayer A decided to move his IRA with Financial Institution
C to Company D. Taxpayer A completed the necessary forms and a check
totaling Amount 1 was distributed on June 13, 2013. The check was made
payable to the clearing firm for Company D FBO Taxpayer A. Taxpayer A
maintained several accounts with Company D including IRA E. On June 19,
2013, contrary to Taxpayer A’s instructions, Company D deposited Amount 1 into
Non-IRA Account F instead of IRA E. The mistake was discovered in 2015 when
Taxpayer A received a deficiency notice from the Service. The request for a
waiver is accompanied by a letter from Company D acknowledging the error.

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 1.

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

(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
are consistent with his assertion that his failure to accomplish a timely rollover of
Amount 1 was due to an error by Company D.

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 1 from IRA B. Taxpayer A is granted a period of 60 days from the
issuance of this letter ruling to contribute an amount not to exceed Amount 1 into
a rollover IRA. Provided all other requirements of section 408(d)(3) of the Code,
except the 60-day requirement, are met with respect to such contribution, the
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.

A copy of this letter ruling has been sent to your authorized representative
pursuant to a power of attorney on file in this office. If you wish to inquire about
this ruling, please contact                 , SE:T:EP:RA:T1,
.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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