Broker error earns waiver for missed IRA rollover

Plain-English summary

An IRA owner received an IRA distribution and separate non-IRA funds, then sent a combined check to an investment adviser with instructions to place the IRA portion in a new IRA. The adviser instead deposited the entire check into a non-IRA account. The mistake was discovered two years later after the taxpayer received an IRS deficiency notice, and the adviser acknowledged the error in writing. The IRS found that the adviser's failure caused the missed deadline and waived the 60-day rollover requirement. It gave the taxpayer 60 days to transfer no more than the original IRA distribution into a rollover IRA.

Ruling snapshot

• Question: Should the taxpayer receive a rollover waiver after an adviser placed the IRA portion of a combined investment check into a non-IRA account?
• Outcome: Approved, with 60 days to complete the rollover
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

201625026

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAR 21 2016

SE:T:EP:RA:T1

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

IRA B =

Company C =
Company D =
Financial Institution E =
Bank F =

Account G =

Amount 1 =

Amount 2 =

Dear                  :

This is in response to your request for a private letter ruling dated
December 16, 2015, 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.


201625026

Page 2

Taxpayer A represents that she received a distribution of Amount 1 from
IRA B. Taxpayer A asserts that her inability to accomplish a rollover within the
60-day period prescribed by section 408(d)(3) was due to a failure of a
representative of Company D to follow Taxpayer B’s instructions that Amount 1
be placed in an IRA. Taxpayer A further represents that Amount 1 has not been

used for any other purpose.

Taxpayer A maintained IRA B with Company C. Taxpayer A also
maintained a non-IRA money market account with Company C. On December
20, 2012, Taxpayer A spoke with a representative of Company D regarding his
Company's management of Taxpayer A’s IRA and money market account and
investing them in like accounts at Financial Institution E. Based on these
discussions, Taxpayer A decided to hire the services of Company D to manage
her investments. On January 8, 2013, Taxpayer A received a distribution check
for Amount 1 from IRA B as well as another check representing the majority of
her money market fund account with Company C. Both of these checks were
deposited into her checking account with Bank F.

On January 16, 2013, Taxpayer A wrote a check for Amount 2, payable to
Financial Institution E, and mailed it to the representative of Company D. Instead
of following Taxpayer A’s instructions and depositing Amount 1 into an IRA at
Financial Institution E, and the balance in a non-IRA account, the representative
deposited the entire amount into a non-IRA account with Financial Institution E,
Account G. The error was not discovered until 2015, when Taxpayer A received
a deficiency notice from the Internal Revenue Service. She immediately
contacted the representative of Company D who admitted the error. The ruling
request is accompanied by a letter from Company D acknowledging the broker’s
error.

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


201625026

Page 3

(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.


Page 4 201625026

The information presented and documentation submitted by Taxpayer A
are consistent with her assertion that her inability to accomplish a timely rollover
of Amount 1 was due to the failure by a representative of Company D to follow
Taxpayer A’s instructions that Amount 1 be placed in an IRA.

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 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,
Carlton A. Watkins

Manager
Employee Plans Technical Group 1

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

cc: