Adviser error qualifies for IRA rollover deadline waiver

Plain-English summary

A retiring taxpayer intended to move retirement assets through an IRA into an investment fund held by a new IRA custodian. Her financial advisers failed to establish the new IRA, so the investment was titled in her own name and the transfer became a taxable distribution rather than a rollover. She reasonably believed the transaction had been completed correctly and did not discover the error until tax forms arrived. The IRS waived the 60-day rollover deadline and gave her 60 days to contribute the distributed amount to an IRA, assuming the other rollover requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline after her financial advisers failed to establish the intended IRA?
• Outcome: Approved, with 60 days to complete the rollover contribution.
• Key authorities: IRC § 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

JUN 15 2016

Uniform Issue List: 408.03-00

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* * *
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SE:T:EP:RA:T2

Legend:

Taxpayer A = * * *
Amount B = * * *
Individual C = * * *
             * * *
Individual D = * * *
             * * *
Company E = * * *
Plan F = * * *
Financial Institution G = * * *
Company H = * * *
Fund I = * * *
IRA J = * * *
        * * *

Dear * * *:

This is in response to your letter, dated September 3, 2015, as supplemented by
correspondence dated January 21, 2016, April 19, 2016, and June 7, 2016, in which
your authorized representative, on your behalf, requested 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 penalty of perjury in
support of the ruling requested.

Taxpayer A represents that on September 29, 2014, she received a distribution of
Amount B from IRA J. Taxpayer A asserts that her failure to accomplish a rollover within
the 60 day period prescribed by section 408(d)(3) was due to an error committed by her
financial advisors, Individual C and Individual D, of Company E. Taxpayer A further
represents that Amount B has not been used for any other purpose.

Taxpayer A was a participant in Plan F administered by Financial Institution G. On June
18, 2014, Taxpayer A met with her financial advisor, Individual C to discuss financial
and estate planning matters pertaining to her then upcoming retirement, which was to
occur on July 1, 2014. After the discussion, Taxpayer A decided to transfer the balance
of her account in Plan F to an Individual Retirement Account (“IRA”) with Company H
and invest the assets of the IRA in Fund I. Accordingly, Taxpayer A contacted Financial
Institution G and requested a full distribution of her account and a trustee-to-trustee
transfer from Plan F to an IRA with Company H.

Financial Institution G refused to do a trustee-to-trustee transfer from Plan F to an IRA
with Company H. Instead, they required her to take a distribution of her account from
Plan F and rollover the amount to an IRA at Financial Institution G. In turn, she would
then transfer the assets of that IRA in a trustee-to-trustee transfer to an IRA at
Company H, which would then invest the assets in Fund I. Taxpayer A established IRA
J in which she timely deposited the distribution of Amount B from Plan F.

Taxpayer A relied on representatives from Company E, Individual C and Individual D, to
facilitate the rollover from IRA J to an IRA with Company H. During August and
September 2014, Individual D had email communications with Company H, which is
Fund I’s third party administrator and custodian, to facilitate an IRA investment in Fund I
for the benefit of Taxpayer A. While Company H does provide IRA custodial services,
such services are not provided under Fund I’s service agreement with Company H, and
no paperwork was executed or requested by Individual C or Individual D to establish an
IRA account with Company H for the benefit of Taxpayer A.

Taxpayer A completed the required paperwork to invest in Fund I on September 24,
2014, and a wire transfer was made on September 29, 2014 to Fund I. However, due to
the errors described above, no IRA account with Company H (or any other custodian)
had been established and the investment in Fund I was titled incorrectly in Taxpayer A’s
own name, rather than an IRA account for Taxpayer A’s benefit. This resulted in a
taxable distribution from IRA J during the tax year.

Individual C provided an affidavit that Taxpayer A reasonably believed that the
transaction had been completed through an IRA rollover and had no reason to suspect



that an administrative error had occurred. Taxpayer A first became aware that no IRA
had been established in March 2015, when she received a Form K-1 from Fund I that
did not indicate that the investment was held in an IRA account and a Form 1099-R
from Financial Institution G indicating a taxable distribution of Amount B. At that time
she called Individual C to inform him that a mistake had been made.

Based on the facts and representations, you request a ruling that the Internal Revenue
Service (“Service”) waive the 60 day rollover requirement contained in section 408(d)(3)
of the Code with respect to the distribution of Amount B.

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.

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 is consistent
with her assertion that her failure to accomplish a timely rollover was due to an error
committed by her financial advisors, Individual C and Individual D, of 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 B from IRA J.
Taxpayer A is granted a period of 60 days from the issuance of this letter to contribute
Amount B into an 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 of Amount B 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.

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 * * * at * * *. Please address all
correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Sherri M. Edelman, Manager,
Employee Plans Technical Group 2

Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose
cc: * * *
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