Financial adviser error justified a late IRA rollover

Plain-English summary

An IRA owner requested a waiver after a financial adviser failed to complete a rollover within 60 days. Acting on the adviser's instructions, the taxpayer surrendered an individual retirement annuity and delivered the distribution check for deposit into another IRA. The adviser instead placed the funds in a non-IRA investment account, and the taxpayer did not discover the mistake until receiving Form 1099-R. The IRS found the documentation consistent with a financial-adviser error and waived the deadline under section 408(d)(3)(I). It allowed 60 days from the ruling date to contribute up to the distributed amount to a rollover IRA, provided the other rollover requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline after a financial adviser deposited the funds into a non-IRA account?
• Outcome: Approved.
• Key authorities: IRC §§ 72 and 408; 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

JUL 18 2016

Uniform Issue List: 408.03-00

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Legend:

Taxpayer A = xxxxxxxxxxxx
IRA X = xxxxxxxxxxxx
Investment Account Y = xxxxxxxxxxxx
Company C = xxxxxxxxxxxx
Amount D = xxxxxxxxxxxx
Company E = xxxxxxxxxxxx
Financial Advisor F = xxxxxxxxxxxx

Dear xxxxxxxx:

This is in response to your request dated November 10, 2015, submitted on your behalf by your authorized representative, 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 penalty of perjury in support of the ruling requested.

Taxpayer A represents that on October 11, 2013, he received a distribution from IRA X totaling Amount D. 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 committed by Financial Advisor F, of Company C.

Taxpayer A held IRA X, an Individual Retirement Annuity (“IRA”) issued by Company E, within Investment Account Y. On October 9, 2013, Taxpayer A met with Financial Advisor F, a representative of Company C, and determined that IRA X was no longer a suitable investment for his retirement goals. Taxpayer A was advised that IRA X could be surrendered and re-invested into another type of IRA.

Upon the advice and assistance of Company C, on October 10, 2013, Taxpayer A executed a request to liquidate IRA X. On October 11, 2013, Company E issued and mailed a check totaling Amount D to Taxpayer A. On October 24, 2013, Taxpayer A gave the check to Company C with the instructions that the check should be deposited into another IRA. However, Company C erroneously deposited Amount D into Investment Account Y as a non-IRA investment.

Taxpayer represents that he was not aware that Amount D was not deposited into an IRA within Investment Account Y until he received Form 1099-R from Company E in January, . Taxpayer A asserts that he relied upon the advice of Financial Advisor F and complied with all the instructions given him by Company C for depositing Amount D into an IRA.

In a letter dated February 25, , from Financial Advisor F, Company C acknowledged its mistake and agreed to pay the filing fee to request a waiver of the 60- day rollover requirement.

Based upon the above documentation 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 D.

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 his assertion that his failure to accomplish a timely rollover was due to an error committed by Financial Advisor F of Company C.

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 D from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this letter to contribute an amount not to exceed Amount D 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 of Amount D 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 ruling 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 xxxxxxxx, # xxxxxxxxxx at xxxxxxxx xxxxxxxxxx. 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: xxxxxxxxxx