Waiver denied for late rollover of tax withholding amount

Plain-English summary

A retirement-plan distribution included an amount paid to the taxpayer and a separate amount withheld for federal income tax. The taxpayer timely rolled the check amount into an IRA, so that portion needed no waiver. He did not replace the withheld amount until after the 60-day deadline and claimed international mail delay. The IRS found that the late deposit resulted from an online request made after the deadline, not from delayed mail or another circumstance listed in Revenue Procedure 2003-16. It therefore declined to waive the deadline for the withheld amount.

Ruling snapshot

• Question: May the taxpayer receive a waiver for the portion of a retirement-plan distribution withheld for tax and deposited into an IRA after 60 days?
• Outcome: Denied
• Key authorities: IRC §§ 401(a)(31) and 402(c)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201618014
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
FEB 3 2016
SE:T:EP:RA:T3
U.I.L. 402.08-00
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
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Legend:
Taxpayer A = XXXXXXXXXXXXX
Plan X = XXXXXXXXXXXXX
Financial Institution B = XXXXXXXXXXXXX
Amount D = XXXXXXXXXXXX
Amount E = XXXXXXXXXXXX
Amount F = XXXXXXXXXXXX
IRA Y = XXXXXXXXXXXX
Credit Union C = XXXXXXXXXXXX
Date 1 = XXXXXXXXXXXX
Date 2 = XXXXXXXXXXXX

Date 3 = XXXXXXXXXXXX

Dear

This letter is in response to your request dated May 3, 2015, as supplemented by
correspondence dated October 27 and October 29, 2015, and November 22,
2015, in which you request a waiver of the 60-day rollover requirement contained
in section 402(c)(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.

On Date 1, Taxpayer A received a distribution of Amount D from Plan X. Amount
F was withheld for federal income taxes. Taxpayer A asserts that his failure to
accomplish a rollover of Amount F within the 60-day period prescribed by section
402(c)(3) of the Code was due to the delay of international mail delivery.

Financial Institution B was the custodian for Plan X. Financial Institution B closed

Taxpayer A’s account in Plan X and on Date1 he received a check for Amount E.

On Date 2 (less than 60 days after Date 1), Taxpayer A rolled over Amount E into
IRA Y with Credit Union C.

Taxpayer A represents that once he became aware that IRA Y was established
and Amount E had been rolled over into IRA Y, he made an online request with
Credit Union C to withdraw Amount F from his checking account and deposit
Amount F into IRA Y. On Date 3, after the 60-day rollover period, Amount F was
deposited into IRA Y.

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

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 included
in gross income for the taxable year in which paid. Section 402(c)(3)(A) 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)(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) of the Code.

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) 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 401(a)(31) of the Code provides the rules for governing “direct transfers
of eligible rollover distributions”.

Section 1.401(a)(31)-1 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, provides that in determining whether to
grant a waiver of the 60-day rollover requirement pursuant to section 402(c)(3) 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.

Based on the information presented and documentation submitted by Taxpayer
A, no waiver of the 60-day rollover requirement is necessary with respect to
Amount E, because the rollover of that amount was accomplished timely.

However, such information and documentation does not support the assertion
that Taxpayer A’s failure to accomplish a timely rollover of Amount F was due to
delay of international mail delivery. Rather, in this case, after the 60-day rollover
period, Taxpayer A made an online request to transfer Amount F from his
personal checking account to IRA Y. Further, the documentation submitted does
not demonstrate that Taxpayer A failed to accomplish a rollover due to any of the
factors cited in Rev. Proc. 2003-16.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby
declines to waive the 60-day rollover requirement with respect to the distribution

of Amount F from IRA Y.

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.

If you have any questions concerning this letter, please contact xxxxxxxxxxxxx
xxxxxxxxxxxxxx, at xxxxxxxxxxxx. All correspondence should be addressed

to SE:T:EP:RA:T3.

Enclosures:
Deleted copy of letter ruling
Notice of Intention to Disclose

Sincerely yours,

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