Taxpayer receives waiver for IRA rollover delay caused by custodian

Plain-English summary

An IRA custodian resigned without informing the taxpayer, causing assets held in three funds to be distributed from the IRA. The taxpayer learned of the resignation only after one fund sent a redemption check directly to him, and he represented that none of the distributed amounts had been used for another purpose. The IRS found that the missed 60-day rollover deadline resulted from the custodian's failure to provide notice, an event beyond the taxpayer's reasonable control. It waived the deadline under IRC § 408(d)(3)(I) and allowed 60 days from the ruling date to roll the three distributions into an IRA. The ruling did not permit rollover of any required distribution.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day IRA rollover deadline after the custodian resigned without notice and caused distributions?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover
• 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

JAN 27 2016

COMMISSIONER
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend

Taxpayer A =

IRA B =

Trust Company C =

Fund D =

Fund E =

Fund F =

Amount 1 =

Amount 2 =

Amount 3 =

Dear                 :

This is in response to your request dated July 30, 2015, as supplemented by
correspondence dated October 14, 2015, and November 20, 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.

Taxpayer A represents that he received a distribution equal to Amount 1, Amount
2, and Amount 3 from IRA B, which was maintained by Trust Company C.

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Taxpayer A asserts that his failure to accomplish a rollover within the 60-day
period prescribed by 408(d)(3)(A) of the Code was due to the failure of Trust
Company C to inform him of its resignation as custodian of IRA B.

The assets of IRA B were invested in three separate funds, Fund D, Fund E and
Fund F. Fund D was a cash account and Funds E and F were non-liquid
investments. Trust Company C was the custodian of IRA B. In January, 2015,
unbeknown to Taxpayer A, Trust Company C resigned as trustee of IRA B. On
January 1, 2015, Fund D sent Trust Company C a redemption check equal to
Amount 1 which was to be credited to IRA B. On February 3, 2015, Trust
Company C sent Fund D a letter informing Fund D that it was no longer serving
as the custodian of IRA B. On April 9, 2015, Trust Company C returned the
check equal to Amount 1 to Fund D. Taxpayer A first became aware that Trust
Company C had resigned as custodian of IRA B when on May 18, 2015, he
received a check for Amount 1, issued to him personally, from Fund D. Trust
Company C’s resignation as custodian for IRA B also resulted in a distribution of
Amount 2 and Amount 3 from IRA B. Taxpayer A represents that Amounts 1, 2,
and 3 have not been used for any other purpose.

Based on the above facts and representations, you request a ruling that the
Service waive the 60-day rollover requirement under section 408(d)(3) of the
Code as to the distributions of Amount 1, Amount 2, and Amount 3 and that
Taxpayer A be given a period of 60 days from the issuance of the ruling to
complete the rollover of Amount 1, Amount 2, and Amount 3 to an IRA.

Section 408(a) of the Code defines an IRA to mean a trust created or organized
in the United States, and requires that the trustee be a bank or an approved non-
bank trustee.

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 defines, and 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

3

(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 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 408(d)(3)(A) of the Code was due to the failure of Trust Company
C to inform Taxpayer A that it could no longer serve as custodian for IRA B.

4

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service waives the
60-day rollover requirement with respect to the distributions of Amount 1, Amount
2, and Amount 3 from IRA B and Taxpayer A has 60 days from the issuance of
this letter ruling to complete the rollover of Amounts 1, 2, and 3 to an IRA. Such
rollover can consist only of the cash (or other property) received in the
distribution of from IRA B.

Provided all other requirements of section 408(d)(3) of the Code, except the 60-
day requirement, will be met with respect to the contribution of Amount 1,
Amount 2 and Amount 3 to an IRA, such contribution will be considered a rollover
contribution within the meaning of section 408(d)(3).

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 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