Custodian error qualifies for rollover deadline waiver

Plain-English summary

A taxpayer directed that a distribution from her employer's 401(k) plan be deposited into an IRA. Although the check was payable for her benefit as an IRA rollover, the receiving company deposited it into her existing taxable investment account instead. The company later admitted that it failed to follow her instructions, and the amount was not used for another purpose. The IRS waived the 60-day rollover deadline and gave the taxpayer 60 days to transfer the amount into a rollover IRA, assuming the other requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day rollover deadline after the receiving company deposited the funds into the wrong account?
• Outcome: Approved, with 60 days to transfer the amount into a rollover IRA.
• Key authorities: IRC §§ 401(a)(31), 402(c)(3)(B); Treas. Reg. § 1.401(a)(31)-1; 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

JUN 14 2016

Uniform Issue List: 402.00-00

SE:T:EP:RA:T1

Legend:

Taxpayer A =
Plan B =
Company C =
Account D =
Company E =
Individual F =
Company G =
Amount 1 =

Dear                         :

This is in response to your request for a private letter ruling dated January
7, 2016, as supplemented by correspondence dated April 8, 2016, from your
authorized representative, in which you request a waiver of the 60-day rollover
requirement contained in section 402(c)(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 she received a distribution of Amount 1
from Plan B. Taxpayer A asserts that her inability to accomplish a rollover within



the 60-day period prescribed by section 402(c)(3) was due to a failure by
Company E to follow Taxpayer A’s instructions that Amount 1 be placed in an
IRA account. Taxpayer A further represents that Amount 1 has not been used
for any other purpose.

Beginning in 2009, Taxpayer A became a participant in her employer's
401(k) Plan, maintained with Company C. In June, 2012, Taxpayer A decided to
transfer/rollover her account balance in Plan B to an IRA with Company E.
Taxpayer A met with Individual F, her financial advisor at Company E. Taxpayer
A instructed Individual F to open an IRA on her behalf. On June 11, 2012, the
Plan Administrator for Plan B issued a check representing Taxpayer A’s account
balance (Amount 1) in Plan B. The check was made payable to “Company G
TR IRA FBO Taxpayer A” and was received, on June 20, 2012, by the cashing
department at Company E. Instead of depositing the check into an IRA as
Taxpayer A instructed, the cashing department deposited it into Taxpayer A’s
existing investment account (Account D).

The Form 1099-R issued by the administrator of the 401(k) plan was
marked “Taxable Amount” “0” and “G” for “Direct Rollover”. Following an internal
audit in 2014, Taxpayer A was advised by Company E that Amount 1 was
deposited into Account D. Included with the ruling request is a letter from
Company E in which it admitted it failed to follow Taxpayer A’s instructions that
the distribution of Amount 1 from Plan B be deposited into an IRA.

Based on the facts and representations, you request a ruling that the
Internal Revenue Service waive the 60 day rollover requirement contained in
section 402(c)(3) of the Code with respect to the distribution of Amount 1.

Section 402(c) of the Code provides that if any portion of the balance to
the credit of an employee in a qualified trust is paid to the employee in an
eligible rollover distribution, and the distributee transfers any portion of the
property received in such distribution to an eligible retirement plan, and in the
case of a distribution of property other than money, the amount so transferred
consists of the property distributed, then such distribution (to the extent
transferred) shall not be includible in gross income for the taxable year in which
paid. Section 402(c)(3)(A) states that such rollover must be accomplished within
60 days following the day on which the distributee received the property. An
individual retirement account (IRA) constitutes one form of eligible retirement
plan.

Section 402(c)(4) of the Code provides that an eligible rollover distribution
shall not include any distribution to the extent such distribution is required under
section 401(a)(9).

Section 402(c)(3)(B) of the Code provides, in relevant part, that the
Secretary may waive the 60-day requirement under sections 402(c) 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 402(c)(3)(B) of the
Code.

Section 401(a)(31) provides the rules for governing “direct transfers of
eligible rollover distributions”.

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and
Answer-15, provides, in relevant part, that an eligible rollover distribution that is
paid to an eligible retirement plan in a direct rollover is a distribution and rollover,
and not a transfer of assets and liabilities.

Revenue Procedure 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 402(c)(3) 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 presented and the documentation submitted by
Taxpayer A is consistent with her assertion that her failure to accomplish a
timely rollover of Amount 1 was due a failure by Company E to follow Taxpayer
A's instructions that Amount 1 be deposited into an IRA.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service
hereby waives the 60-day rollover requirement with respect to the distribution of
Amount 1 from Plan B. Taxpayer A is granted a period of 60 days from the
issuance of this letter ruling to transfer Amount 1 into a rollover IRA. Provided all
other requirements of section 402(c) 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 402(c) 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                         (I.D. #        ),            , at or (   ).

Sincerely yours,

[signature]

Manager
Employee Plans Technical Group 1

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

cc: