Taxpayer receives a waiver after a bank misdirects rollover funds

Plain-English summary

A taxpayer directed that her final employee stock ownership plan balance be rolled directly into an IRA. Although the distribution check was payable to a bank for the benefit of her IRA, the bank deposited it into a non-IRA account instead. She discovered the error after receiving Form 1099-R and represented that she had not used the funds. The IRS waived the 60-day rollover deadline and gave her 60 days from the ruling date to contribute the amount to an eligible retirement plan or rollover IRA.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day rollover deadline after the receiving bank placed the funds in a non-IRA account?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover.
• Key authorities: IRC § 402(c)(3)(B); Treas. Reg. § 1.401(a)(31); Rev. Proc. 2003-16

Full text (IRS public release)

                                  DEPARTMENT OF THE TREASURY
                                                                             201610023
                                     INTERNAL REVENUE SERVICE
                                       WASHINGTON, D.C. 20224

  TAX EXEMPT AND                               DEC 07 2015
GOVERNMENT ENTITIES
      DIVISION




           Uniform Issue List: 402.00-00




           Legend:

           Taxpayer A                  =

           Plan B                      =

           Company C                   =

           Bank D                      =

           Bank E                       =

           Account F                   =

           Amount 1                    =



           Dear

           This letter is in response to a request for a letter ruling, dated June 13, 2015, as
           supplemented by correspondence dated August 10, and 17, 2015, in which you
           request a waiver of the 60-day rollover requirement contained in section
           402(c)(3)(B) of the Internal Revenue Code ("Code"), regarding the distribution of
           Amount 1 from Plan B.

           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 of Amount 1 from Plan B.
           Taxpayers A asserts that her failure to accomplish a rollover of Amount 1, within
           the 60-day period prescribed by section 402(c)(3) was due to an error by Bank
                                                                         201610023
                                          2


E. Taxpayer A further represents that Amount 1 has not been used for any
purpose.

In 2012 and 2013, Taxpayer A took distributions from Plan B, a qualified
employee stock ownership plan, under section 409(a) of the Code. Both
distributions were rolled over to an IRA with Bank D. On August 28, 2014,
Taxpayer withdrew her final account balance in Plan B totaling Amount 1.
Pursuant to her instructions, the distribution check was made payable to Bank E
FBO Taxpayer A's IRA. Taxpayer A had been assured by representatives of
Bank E that the distribution would be rolled into an IRA. Contrary to her
instructions and the check endorsement indicating a direct-rollover, Bank E
placed the funds in Account F, a non-IRA account. The error was not discovered
until Taxpayer A received a Form 1099-R in January, 2015

Based on the above facts and representations, you request that the Internal
Revenue Service ("Service") waive the 60-day rollover requirement contained in
section 402(c)(3)(A) of the Code with respect to the distribution of Amount 1.

Section 409(a) of the Code provides, in relevant part, that a tax credit employee
stock ownership plan meets the requirements for qualified trusts under section
401 (a) of the Code.

Section 402(c) of the Code provides that if any portion of the balance to the credit
of an employee in a qualified trust is paid to the employee in an eligible rollover
distribution, and the distributee transfers any portion of the property received in
such distribution to an eligible retirement plan, and in the case of a distribution of
property other than money, the amount so transferred consists of the property
distributed, then such distribution (to the extent transferred) shall not be
includible in gross income for the taxable year in which paid. Section
402(c)(3)(A) of the Code states that such rollover must be accomplished within
60 days following the day on which the distributee received the property. An
individual retirement account (IRA) constitutes one form of eligible retirement
plan.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary
may waive the 60-day requirement under section 402(c) 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. Only distributions that occurred after
December 31, 2001, are eligible for the waiver under section 402(c)(3)(B) of the
Code.

Section 402(c)(4) of the Code provides that an eligible rollover distribution shall
not include any distribution to the extent such distribution is required under
section 401 (a)(9).
                                                                     201610023
                                           3


Section 401 (a)(31) provides the rules for governing "direct transfers of eligible
rollover distributions".

Section 1.401(a)(31) of the Income Tax Regulations, Question and Answer-15
provides, in relevant part, that an eligible rollover distribution that is paid to an
eligible retirement plan in a direct rollover is a distribution and rollover, and not a
transfer of assets and liabilities.

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 sections 408(d)(3)(I) and 402(c)(3)(B) 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 presented and the documentation submitted by Taxpayer A
is consistent with her assertion that her failure to accomplish a timely rollover
of Amount 1 was due to an error by Bank E.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of Amount
1 from Plan B. Taxpayer A is granted a period of 60 days from the issuance of
this letter ruling to contribute no more than Amount 1 into an eligible retirement
plan or rollover IRA. Provided all other requirements of section 402(c)(3) of the
Code, except the 60-day requirement, are met with respect to such contribution,
the contribution will be considered a rollover contribution within the meaning of
section 402(c)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 401 (a)(9) 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.
•                                             4


    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            (I. D. #      ),        , at      or ( )


                                                  Sincerely yours,

                                                  ~A. &Jeff~
                                                  Manager
                                                  Employee Plans Technical Group 1


    Enclosures:
     Deleted Copy of this Letter
     Notice of Intention to Disclose, Notice 437

    cc: