Unknown IRA escheat supports rollover waiver

Plain-English summary

A bank transferred an inactive IRA to a state's unclaimed-property program without the taxpayer's knowledge and sent part of the amount to the IRS as withholding. The taxpayer discovered the transfer much later, reclaimed the funds, and kept the state's check in his possession without using it for another purpose. The IRS found that his failure to complete a timely rollover resulted from his lack of awareness of the escheat distribution. It waived the 60-day deadline and gave him 60 days from the ruling date to contribute no more than the original distributed amount to a rollover IRA.

Ruling snapshot

• Question: Would the IRS waive the 60-day rollover deadline when a bank escheated an IRA without the owner's knowledge?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover.
• Key authorities: IRC §§ 401(a)(9) and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

COMMISSIONER
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 16 2015

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

IRA B =

IRA C =

Bank D =

State E =

Amount 1 =

Amount 2 =

Amount 3 =

Amount 4 =

Dear Mr.

This is in response to a letter dated July 7, 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 (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 from IRA B totaling

Amount. Taxpayer A asserts that his failure to complete a rollover of Amount 1 within
the 60-day period prescribed by section 408(d)(3) of the Code, was due to his being


unaware of the distribution to State E. Taxpayer A further represents that Amount 1 has
not been used for any other purpose.

Taxpayer A maintained two IRA accounts, IRA B and IRA C. Taxpayer A
represents he took his required minimum distribution from IRA C with IRA B being
inactive. At some point, Taxpayer A stopped receiving statements from Bank D on IRA
B. Taxpayer A represents that he would go to Bank D to obtain the balance of IRA B for
purposes of his yearly required minimum distribution taken from IRA C. On August 7,
2013, unknown to Taxpayer A, Bank D, escheated IRA B to State E. The total
escheated was Amount 1, with Amount 2 being withheld and forwarded to the Internal
Revenue Service (“Service”).

In late 2014, Taxpayer A went to Bank D to check his balance in IRA B. At that
time, he learned that IRA B had been escheated to State E and immediately began to
reclaim the funds from State E. On February 12, 2015, State E sent Taxpayer A a
check in Amount 3, representing Amount 2 plus interest earned, Amount 4. This check
remains in the possession of Taxpayer A. The Service issued a notice of omission to
Taxpayer A for failing to report the distribution of Amount 1 on his 20 __ tax return.

Based on the facts and representations, you request a ruling that the Internal
Revenue Service (the “Service”) waive the 60-day rollover requirement contained in
section 408(d)(3) of the Code with respect to the distribution of Amount 1.

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) 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 documentation submitted by Taxpayer A is
consistent with his assertion that his failure to accomplish a timely rollover of Amount 1
was due to him being unaware of the escheat distribution to State E.

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 from
IRA B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter
to contribute an amount not to exceed Amount 1 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 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 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.

A copy of this letter has been sent to your authorized representative in
accordance with a power of attorney on file in this office.

If you have any questions, please contact
                                      . Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose

Cc: