IRS waives rollover deadline after IRA transfer error

Plain-English summary

A taxpayer requested a trustee-to-trustee IRA transfer, and the original financial institution issued a check payable to the receiving institution for the taxpayer's benefit. The receiving institution mistakenly deposited the funds into a non-IRA account. The taxpayer discovered the error after his spouse attended a retirement seminar, and he represented that the funds had not been used for another purpose. The IRS treated the missed deadline as the result of financial-institution error, waived the 60-day rollover requirement, and gave the taxpayer 60 days to contribute no more than the distributed amount to an IRA.

Ruling snapshot

• Question: Should the taxpayer receive a waiver after a financial institution deposited an intended IRA transfer into a non-IRA account?
• Outcome: Approved, with 60 days to complete the rollover
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

201629013

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

APR 20 2016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend
Taxpayer A =

IRA B =
Non-IRA Account C =
Financial Institution D =

Financial Institution E =

Amount 1 =

Dear               :

This is in response to your request dated December 18, 2015, as supplemented
by correspondence dated April 13, 2016, in which you request, through your
authorized representative, 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 represents that he received a distribution equal to Amount 1 from IRA
B, which was maintained by Financial Institution D. Taxpayer A asserts that his
failure to accomplish a rollover within the 60-day period prescribed by section
408(d)(3)(A) of the Code was due to financial institution error.

2 201629013

Taxpayer A represents that he requested a trustee-to-trustee transfer of Amount 1
from IRA B to an IRA maintained by a different financial institution, Financial
Institution E. On February 1, 2013, Financial Institution D issued a check equal to
Amount 1 that was payable to “Financial Institution E IRA FBO of Taxpayer A.” In
2014, Taxpayer A received a Form 1099-R that indicated Code G, direct rollover,
in Box 7. In 2015, Taxpayer A’s spouse attended a retirement seminar that raised
concerns regarding whether Amount 1 had been directly rolled over. When
Taxpayer A contacted his advisor with Financial Institution E to discuss his
concerns, Taxpayer A discovered that Amount 1 had been deposited into a non-
IRA account, Non-IRA Account C.

Taxpayer A submitted a letter from Financial Institution E as evidence of financial
institution error. Taxpayer A represents that Amount 1 has not been used for any
other purpose.

Based on the above facts and representations, Taxpayer A requests a waiver of
the 60-day rollover requirement with respect to the distribution of Amount 1 from
IRA B.

Section 408(a) of the Code defines an IRA to mean a trust created or organized in
the United States, and requires that the trustee be a bank or an approved non-
bank trustee.

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.

Section 408(d)(3) of the Code provides the rules applicable to IRA rollovers.

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) 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 or 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)).

3 201629013

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 of the Treasury may
waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) 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.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359, provides that the Service will issue a ruling
waiving the 60-day rollover requirement in cases 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 taxpayer. In
determining whether to grant a waiver of the 60-day rollover requirement pursuant
to section 408(d)(3)(I) of the Code, 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 and documentation submitted are consistent with Taxpayer A’s
assertion that the failure to accomplish a rollover within the 60-day period
prescribed by 408(d)(3)(A) of the Code was due to financial institution error.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service waives the 60-
day rollover requirement with respect to the distribution equal to Amount 1.
Taxpayer A has 60 days from the issuance of this letter ruling to complete the
rollover of an amount not exceeding Amount 1 into an IRA.

Provided all other requirements of section 408(d)(3) of the Code, except the 60-
day requirement, will be met with respect to the contribution of Amount 1 to an
IRA, such contribution will be considered a rollover contribution within the meaning
of section 408(d)(3).

4 201629013

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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is
being sent to your authorized representative.

If you wish to inquire about this ruling, please contact
at                        . Please address all correspondence to              .

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

Cc: