Taxpayer receives waiver for a late IRA rollover

Plain-English summary

A taxpayer withdrew funds from an IRA after her husband's death and deposited them within 60 days into two non-IRA accounts at new financial institutions. She believed she had merely changed custodians and did not discover the mistake until her accountant explained more than a year later that the IRA distribution was taxable. She represented that the funds had not been used for any other purpose. The IRS waived the 60-day rollover deadline and gave her 60 days from the ruling to contribute the amount to an IRA, provided all other rollover requirements were met.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day IRA rollover deadline after mistakenly placing the distribution in non-IRA accounts?
• Outcome: approved; 60 days from the ruling were granted to complete the rollover
• Key authorities: IRC §§ 72, 408(a), 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE 201652033
WASHINGTON, D.C. 20224

TAX EXEMPT AND SEP 26 2016
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend

Taxpayer A =

IRA B =

Non-IRA Account C =

Non-IRA Account D =

Financial Institution E =

Financial Institution F =

Financial Institution G =

Amount 1 =

Dear

This is in response to your letter dated April 27, 2016, as supplemented by
correspondence received on September 8, 2016, and September 13, 2016, in
which you request, through your 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 she received a distribution equal to Amount 1 from IRA
B, an individual retirement account (“IRA”) described in section 408(a) of the
Code. Taxpayer A asserts that her failure to accomplish a rollover of Amount 1

201652033

within the 60-day period prescribed by section 408(d)(3)(A) was due to confusion
regarding the status of IRA B as a tax-deferred retirement account after she
changed financial institutions.

Taxpayer A owned IRA B, which was maintained by Financial Institution E. Prior
to his death, Taxpayer A’s husband had handled all of his and Taxpayer A’s
finances. After his death, Taxpayer A was advised to transfer her accounts to
another custodian where she would receive a better interest rate. On January 13,
2015, Taxpayer A withdrew Amount 1 from IRA B. Within 60 days from the date of
the withdrawal, Taxpayer A deposited Amount 1 into two non-IRA accounts, Non-
IRA Account C and Non-IRA Account D, which were maintained by Financial
Institution F and Financial Institution G, respectively.

Taxpayer A believed that she had merely changed custodians. Taxpayer A
discovered her mistake in February of 2016, when Taxpayer A’s accountant
informed Taxpayer A that the January 13, 2015, distribution from IRA B was
taxable. 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(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)).

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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 confusion regarding the status of
IRA B as a tax-deferred retirement account after she changed financial institutions.

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 1.
Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to
contribute Amount 1 into an IRA account. Provided all other requirements of
section 408(d)(3), except the 60-day requirement, will be met with respect to such
contribution, Amount 1 will be considered a rollover contribution within the
meaning of section 408(d)(3).

201652033

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: