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

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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).

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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: