IRS waived rollover deadline after funds entered the wrong annuity

Plain-English summary

An IRA owner intended to roll a distribution into an IRA annuity and relied on an employee of the annuity company to complete the application. Although the check and application identified the transaction as an IRA, the company deposited the funds into a nonqualified annuity. The owner did not discover the error until receiving an IRS notice, and the company employee acknowledged the processing mistake. The IRS waived the 60-day deadline under IRC § 408(d)(3)(I) and allowed 60 days from the ruling letter to transfer no more than the stated amount into a rollover IRA.

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline when an annuity company placed the funds in a nonqualified annuity despite instructions to open an IRA annuity?
• Outcome: Approved, with 60 days from the ruling letter to complete the rollover
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), and 401(a)(9); 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

MAR 03 2016

Uniform Issue List: 408.03-00

SE:T: EP: RA:T1

Legend:

Taxpayer A =
IRA B =
Company C =
Annuity D =
Company E =
Account F =
Financial Institution G =
Individual H =
Amount 1 =

Dear :

This is in response to your request for a private letter ruling dated
December 3, 2015, as supplemented by correspondence dated January 5, and
February 15, 2016, from 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 of Amount 1
from IRA B. Taxpayer A asserts that his inability to accomplish a rollover within
the 60-day period prescribed by section 408(d)(3) was due to a failure by
Company E to follow Taxpayer A’s instructions that Amount 1 be placed in an
IRA annuity. Taxpayer A further represents that Amount 1 has not been used
for any other purpose.

Taxpayer A maintained IRA B with Company C. On December 17, 2013,
Taxpayer A took a distribution of Amount 1 from IRA B. The funds were
deposited into Account F with Financial Institution G. Taxpayer A intended to roll
Amount 1 into an IRA annuity with Company E. Taxpayer communicated his
intention to Individual H, an employee of Company E. He considered this
employee to be his financial advisor at Company E and relied on him to complete
the IRA application form and oversee the rollover.

Individual H included Taxpayer A’s social security number and the word
“IRA” on the memo line of the check Taxpayer A prepared for Amount 1. In
addition, in the section marked “Type of Plan” on the application to open the
annuity, Individual H checked “IRA”. Taxpayer A assumed all necessary actions
were taken to complete the rollover when he signed the application. For
unknown reasons, the funds were deposited into Annuity D, a nonqualified
annuity. Taxpayer B did not become aware of the distribution was includible in
his gross income until he received Notice CP3219A from the Internal Revenue
Service on November 16, 2015. The ruling request is accompanied by a letter
from Individual H in which he acknowledges a processing error caused Amount 1
to be deposited into a non-IRA annuity.

Based on the facts and representations, you request a ruling that the
Internal Revenue 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. 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 (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), 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
are consistent with his assertion that his inability to accomplish a timely rollover
of Amount 1 was due to a failure by Company E to follow Taxpayer B’s
instructions that Amount 1 be placed in an IRA annuity.

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 2 from IRA B. Taxpayer A is granted a period of 60 days from the
issuance of this letter ruling to transfer 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 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,

Manager
Employee Plans Technical Group 1

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

cc: