Ambiguous statements and adviser error supported IRA rollover waiver

Plain-English summary

A taxpayer surrendered an individual retirement annuity and deposited the proceeds into a non-IRA account. The taxpayer and financial planner did not initially recognize the payment as an IRA distribution because the financial statements did not clearly identify the relevant accounts as IRAs. After the planner saw Form 1099-R, the planner advised the taxpayer to move the funds into another IRA, but the 60-day deadline had passed. The IRS found the documentation consistent with reliance on the planner and the ambiguous statements and waived the deadline. The later contribution was treated as a rollover if all other section 408(d)(3) requirements were met.

Ruling snapshot

• Question: Would the IRS waive the IRA rollover deadline when ambiguous account statements and reliance on a financial planner delayed the transfer?
• Outcome: Approved.
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

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

JUL 26 2016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00
SE:T:EP:RA:T1

Legend
Taxpayer A =

IRA B =
IRA C =

Non-IRA Account D

IRAE =

Financial Institution F

Financial Institution G =
Company H =
Financial Institution I =
Advisor J =

Amount 1 =

Dear:

This is in response to your letter dated June 1, 2016, as supplemented by correspondence received on July 22, 2016, in which you request, through your

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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, an individual retirement annuity (“IRA”) described in section 408(b) of the Code, which was issued by Financial Institution F. 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 ambiguous financial statements and reliance on his financial planner.

In 2005, Taxpayer A had rolled over the assets of his 401(k) plan to an IRA, IRA C, which was maintained by Financial Institution G. On November 16, 2010, IRA C purchased IRA B, an annuity contracted issued by Financial Institution F. Taxpayer A had been a client of Advisor J, a certified financial planner with Company H, since 2012. In December of 2015, based on the advice of Advisor J, Taxpayer A surrendered IRA B. Taxpayer A received the proceeds from IRA B on December 18, 2015, and on January 1, 2016, deposited them into a non-IRA account, Non-IRA Account D. Non-IRA Account D was managed by Company H with Financial Institution I serving as the custodian.

The financial statements from Financial Institution F and Financial Institution G did not clearly identify IRA B and IRA C as IRAs. When Advisor J received a copy of the Form 1099-R that was issued by Financial Institution F, he realized that the distribution of Amount 1 had been made from an IRA. He immediately advised Taxpayer A to roll over Amount 1 into an IRA. On March 29, 2016, after the expiration of the 60-day period, Taxpayer A deposited Amount 1 into IRA E. IRA E had been established through Company H, which used Financial Institution I as the custodian. Taxpayer A represents that Amount 1 has not been used for any other purpose. Taxpayer A’s submission is accompanied by a letter from Advisor J acknowledging the error.

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.

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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

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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 ambiguous financial statements and reliance on his financial planner.

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. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day requirement, were met with respect to the contribution of Amount 1 to IRA E on March 29, 2016, 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 at . 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: