Erroneous IRA withdrawal receives rollover deadline waiver

Plain-English summary

A taxpayer asked her financial adviser to move money from a personal account to her checking account, but the adviser's company mistakenly distributed the money from her IRA. She did not discover the error until she received Form 1099-R, and the adviser documented the mistake. The IRS waived the 60-day IRA rollover deadline because the failure resulted from the company's error. It gave the taxpayer 60 days from the ruling date to contribute the amount to a rollover Roth IRA, subject to all other rollover requirements and the exclusion of required distributions.

Ruling snapshot

• Question: May the taxpayer receive a waiver after a financial representative mistakenly withdrew money from her IRA?
• Outcome: Approved, with a new 60-day contribution period
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

201615025

JAN 11 2016

U.I.L. 408.03-00

XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXX
Account B = XXXXXXXXXXXXX
Company C = XXXXXXXXXXXXX
Financial Institution D = XXXXXXXXXXXXX
Amount E = XXXXXXXXXXXXX
Individual M = XXXXXXXXXXXXXX

Dear XXXXXXXXXXX:

This letter is in response to your request dated April 15, 2015, as supplemented
by correspondence dated September 30, 2015, 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.

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Taxpayer A represents that she received a distribution totaling Amount E from
IRA X on April 18, 20__. Taxpayer A asserts that her failure to accomplish a
rollover of Amount E within the 60-day period prescribed by section 408(d)(3) of
the Code was due to an error committed by a representative of Company C.

Taxpayer A has IRA X with Financial Institution D. Taxpayer A also has Account
B a personal checking account with Financial Institution D. Taxpayer A
represents that on April 18, 20__, she called her financial advisor, Individual M to
move Amount E from Account B to her personal checking account. Taxpayer A
further represents that she makes these types of transfers on a fairly frequent
basis as she holds multiple accounts with Financial Institution D.

Taxpayer A represents that she assumed that her request to transfer Amount E
from Account B to her personal checking account was processed properly as all
other requests in the past. However, on April 13, 20__, upon receipt of Form
1099-R, Taxpayer A became aware that Amount E had been made erroneously
distributed from IRA X.

Taxpayer A immediately contacted her financial advisor, Individual M of
Company C who confirmed that the transaction was done in error. In a letter
dated April 15, 20__, Individual M acknowledges that an error was committed by
a representative of Company C.

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

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 received 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

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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 included 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. Only distributions that
occurred after December 31, 2001, are eligible for the waiver under section
408(d)(3)(I) of the Code.

Rev. Proc. 2003-16, 2003-4 I.R. B. 359, provides that in determining whether to
grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I),
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 her assertion that her failure to accomplish a timely rollover was
due to an error committed by a representative of Company C.

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
E from IRA X. Taxpayer A is granted a period of 60 days from the issuance of
this letter to contribute Amount E into a rollover Roth IRA. Provided all other
requirements of Code section 408(d)(3), except the 60-day requirement, are met

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with respect to such contribution, the contribution of Amount E 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 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.

If you have any questions concerning this ruling, please contact XXXXXXXXXX,
XXXXXXXXXXXXX at XXXXXXXXXXXXX. All correspondence should be addressed to
SE:T:EP:RA:T3.

Sincerely yours,

Carolyn E. Zimmerman, Acting Manager
Employee Plans Technical Group 3

Enclosures:

Deleted copy of letter ruling
Notice of Intention to Disclose