Adviser error supports waiver for inherited plan rollover

Plain-English summary

A deceased participant's qualified-plan benefit was payable to a trust whose trustee and beneficiary was the participant's surviving spouse. The spouse instructed a financial adviser to place the distribution into an IRA in her name and completed the requested rollover paperwork. The adviser instead deposited the check into a non-IRA trust account and did not disclose the error, which the trust's accountant discovered months later. The IRS found that the missed deadline resulted from the adviser's failure to follow instructions. It waived the 60-day requirement and gave the spouse 60 days to roll the amount into her own IRA, subject to the other rollover rules.

Ruling snapshot

• Question: Should the surviving spouse receive a rollover waiver after an adviser placed the inherited plan distribution in a non-IRA account?
• Outcome: Approved, with 60 days to complete the rollover into her own IRA
• Key authorities: IRC §§ 401(a), 402(c), and 408; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY                                      201627006
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

TAX EXEMPT AND APR 06 2016

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 402.00-00                         SE:T:EP:RA:T1

Legend
Taxpayer A =

Decedent B =

Plan C =
Trust D =

Trust Company E =

Financial Advisor F =

Personal Representative G

Amount 1 =

Dear

This is in response to your request dated December 14, 2015, in which you
request a waiver of the 60-day rollover requirement contained in section
402(c)(3)(A) of the Internal Revenue Code (the “Code”).

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The following facts and representations have been submitted under penalty of
perjury in support of the ruling requested.

Taxpayer A represents that Trust D received a distribution from Plan C totaling
Amount 1. Taxpayer A, the Trustee of Trust D, asserts that her failure to
accomplish a rollover within the 60-day period described in section 402(c)(3) of the
Code was due to the failure of Financial Advisor F to follow her instructions to roll
over Amount 1.

Prior to his death on December 16, 2013, Taxpayer A’s spouse, Decedent B,
participated in Plan C, a qualified plan under section 401(a) of the Code. Trust D
was the beneficiary of Decedent B’s benefit under Plan C. Taxpayer A is the
Trustee and the beneficiary of Trust D. On November 17, 2014, Taxpayer A gave
her daughter, Personal Representative G, a durable power of attorney over her
financial affairs.

On January 8, 2014, Taxpayer A, as Trustee of Trust D, and her daughter
attended a meeting with Trust Company E and Financial Advisor F, to discuss
Decedent B’s estate and request that Amount 1 be rolled over into an IRA account
in Taxpayer A’s name. On July 15, 2014, Taxpayer A received a check from Plan
C in the names of Trust D and Taxpayer A, as the Trustee of Trust D. Taxpayer A
gave the check to Financial Advisor F to roll over the distribution into an IRA. In
an email sent on July 31, 2014, Financial Advisor F requested the rollover
paperwork from Taxpayer A. Taxpayer A completed the paperwork and did not
hear back from Financial Advisor F. On August 7, 2014, however, Financial
Advisor F deposited Amount 1 into a non-IRA account. Taxpayer A was not
informed of the error until May 14, 2015, when Taxpayer A’s and Trust D’s
accountant discovered that Amount 1 had been placed in an account of Trust D
rather than an IRA account.

Based on the above facts and representations, you request that the IRS waive the
60-day rollover requirement with respect to the distribution of Amount 1 from Plan
C.

With respect to your ruling requests, section 401(a) of the Code provides the
qualification rules applicable to retirement plans set up by employers exclusively to
benefit their employees and their beneficiaries.

Section 402(a)(1) of the Code provides that except as otherwise provided in this
section, any amount actually distributed to any distributee by any employees’ trust
described in section 401(a) which is exempt from tax under section 501(a) shall be
taxable to the distributee, in the taxable year of the distributee in which distributed,
in the manner provided under section 72 (relating to annuities).

Section 402(c) of the Code provides rules governing rollovers of amounts from
exempt trusts to eligible retirement plans, including IRAs.


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Section 402(c)(1) of the Code provides, generally, that if any portion of an eligible
rollover distribution from a qualified employees trust is paid to the employee in an
eligible rollover distribution and the employee 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, such distribution (to the extent so transferred) shall not be
includible in gross income for the taxable year in which paid.

Section 402(c)(2) of the Code provides that the maximum amount of an eligible
rollover distribution to which paragraph (1) applies shall not exceed the portion of
such distribution which is includible in gross income (determined without regard to

paragraph (1)).

Section 402(c)(3)(A) of the Code provides, generally, that section 402(c)(1) shall
not apply to any transfer of a distribution made after the 60th day following the day
on which the distributee received the property distributed.

Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60-
day requirement under subparagraph (A) 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 occur after December 31, 2001, are
eligible for the waiver under section 402(c)(3)(B).

Section 402(c)(4) of the Code defines "eligible rollover distribution" as any
distribution to an employee of all or a portion of the balance to the credit of an
employee in a qualified trust, except that such term shall not include:

(A) any distribution which is one of a series of substantially equal periodic
payments (not less frequently than annually) made --

(i) for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and the employee's designated beneficiary, or

(ii) for a specified period of 10 years or more,

(B) any distribution to the extent the distribution is required under section
401(a)(9), and

(C) any distribution which is made upon hardship of the employee.

Section 402(c)(6)(A) of the Code provides that the transfer of an amount equal to
any portion of the proceeds from the sale of property received in the distribution
shall be treated as the transfer of property received in the distribution.

Section 402(c)(6)(B) of the Code provides that the excess of the fair market value
of property on sale over its fair market value on distribution shall be treated as
property received in the distribution.


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Section 402(c)(6)(D) of the Code provides that no gain or loss shall be recognized
on any sale described in subparagraph (A) to the extent that an amount equal to
the proceeds is transferred pursuant to paragraph (1).

Section 402(c)(8) of the Code defines eligible retirement plan as (i) an individual
retirement account described in section 408(a); (ii) an individual retirement annuity
described in section 408(b) (other than endowment contract); (iii) a qualified trust;
(iv) an annuity plan described in section 403(a); (v) an eligible deferred
compensation plan described in section 457(b) maintained by an eligible employer
as described in section 457(e)(1)(A); and (vi) an annuity contract described in
section 403(b).

Revenue Procedure 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)(B) 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 by Taxpayer A support her
assertion that her failure to accomplish a rollover within the 60-day period
described in section 402(c)(3) of the Code was due to the failure of Financial
Advisor F to follow her instructions to roll over Amount 1.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of Amount

1. Taxpayer A has 60 days from the issuance of this ruling letter to roll over
Amount 1 into an IRA established in her name. Provided all other requirements of
section 402(c)(3), except the 60-day requirement, will be met with respect to the
contribution of Amount 1 to her own IRA, Amount 1 will be considered a rollover
contribution within the meaning of section 402(c)(3).

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 wish to inquire about this ruling, please contact

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at          . Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

[signature]
Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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