Financial institution error supports IRA rollover waiver

Plain-English summary

An IRA owner tried to consolidate retirement accounts by sending a distribution check to a new financial institution for deposit into a new IRA. The institution mistakenly placed the money in a non-IRA account, despite later issuing a form indicating an IRA contribution. The taxpayer discovered the error when his accountant noticed that the IRA's fair market value was too low, and the institution acknowledged its mistake. The IRS waived the 60-day rollover deadline and gave the taxpayer 60 days from the ruling date to complete the rollover, subject to all other requirements.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline after a financial institution deposited the funds into the wrong account?
• Outcome: Approved, with 60 days from the ruling to complete the rollover.
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

Number: 201639022
Release Date: 9/23/2016

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

JUN 29 2016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

Legend
Taxpayer A = [redacted]

IRA B = [redacted]

Non-IRA Account C = [redacted]

IRA D = [redacted]

Financial Institution E = [redacted]

Financial Institution F = [redacted]

Amount 1 = [redacted]

Dear [redacted]:

This is in response to your request received on May 6, 2016, as supplemented by
correspondence received June 7, 2016, 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.

Taxpayer A represents that on February 3, 2014, he received a distribution equal
to Amount 1 from IRA B, an individual retirement annuity (“IRA”) described in
section 408(b) of the Code, which was maintained by Financial Institution E.

Taxpayer A asserts that his failure to accomplish a rollover within the 60-day
period prescribed by section 408(d)(3)(A) was due to financial institution error.

Taxpayer A wanted to consolidate his retirement accounts and move IRA assets
from Financial Institution E to Financial Institution F. Taxpayer A informed
Financial Institution F of these intentions, and on February 14, 2014, Taxpayer A
opened an IRA account, IRA D, with Financial Institution F. At this time, Taxpayer
A also opened a non-IRA account, Non-IRA Account C, with Financial Institution F.
On February 3, 2014, Taxpayer A received a total distribution from IRA B equal to
Amount 1. Taxpayer A remitted the check to Financial Institution F for deposit into
IRA D; however, Financial Institution F mistakenly deposited Amount 1 into Non-
IRA Account C.

In early 2015, Taxpayer A received a Form 1099-R from Financial Institution E and
a Form 5498 from Financial Institution F showing that Amount 1 had been
contributed to IRA D. In preparing Taxpayer A’s Federal income tax return,
however, Taxpayer A’s accountant noticed that the fair market value of IRA D was
substantially less than Amount 1. After discussions with Financial Institution F,
Taxpayer A discovered that Amount 1 had been mistakenly deposited into Non-
IRA Account C. The submission is accompanied by a letter from Financial
Institution F acknowledging the mistake. 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)).

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 section 408(d)(3)(A) 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 of Amount 1 and Taxpayer
A has 60 days from the issuance of this letter ruling to complete the rollover of
Amount 1 to 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, Amount
1 will be considered a rollover contribution within the meaning of section 408(d)(3).

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 [redacted].
Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

CC: