IRS waives IRA rollover deadline after bank error

Plain-English summary

A taxpayer received an IRA distribution after a bank representative moved funds from her maturing IRA certificate of deposit into a non-IRA money market account. The taxpayer had medical conditions that impaired her ability to process financial information and understand printed material. Her daughter later discovered the distribution, and the bank confirmed that its representative had made an error. The IRS waived the 60-day rollover deadline under IRC § 408(d)(3)(I) and gave the taxpayer 60 days from the ruling date to contribute no more than the distributed amount to a rollover IRA.

Ruling snapshot

• Question: Should the taxpayer receive a waiver of the 60-day IRA rollover deadline after her medical condition and a bank error caused the missed deadline?
• 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)

201629015

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

APR 21 2016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend:
Taxpayer A =
Individual B =

IRA X =

Amount B =
Bank C =

Date 1 =

Dear

This is in response to your letter, dated May 17, 2015, supplemented by
correspondence dated October 15, 2015, March 17, 2016, and April 11, 2016,
submitted on your behalf by 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 on Date 1 she received a distribution from IRA
X totaling Amount B. Taxpayer A asserts that her failure to complete a rollover of
Amount B within the 60-day period prescribed by section 408(d)(3) of the Code,
was due to her mental condition and an error by a representative of Bank C.

Taxpayer A represents that a representative of Bank C called Taxpayer A
and informed her that her IRA certificate of deposit (CD) was maturing. Taxpayer A
suffers with a disease that affects her ability to mentally process complex financial
information and she did not understand that IRA X was in the CD. On Date 1
Taxpayer A went to Bank C and was confused about what funds she had at Bank C.

201629015

At that time a representative of Bank C recommended that Taxpayer A move her
CD into a money market account. The representative of Bank C then arranged for
Amount B from IRA X to be deposited into a non-IRA money market account with
Bank C.

In May 2015, Taxpayer A’s daughter, Individual B, learned that Amount B
had been distributed from IRA X. Individual B spoke with the branch manager of
Bank C about the transfer to a non-IRA account. A letter submitted by Bank C
substantiates that an error was made by Bank C.

In addition, medical documentation submitted shows that Taxpayer A has
medical conditions which impair her ability to process financial information as
well as her ability to clearly read printed matter.

Based on the facts and representations, you request a ruling that
the Internal Revenue Service (the "Service") waive the 60-day rollover
requirement contained in section 408(d)(3) of the Code with respect to
the distribution of Amount B.

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).

201629015

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.

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) 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 presented and documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover of
Amount B was due to her mental condition and an error by a representative of
Bank C.

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 B
from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this
ruling letter to contribute an amount not to exceed Amount B 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 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.

A copy of this letter has been sent to your authorized representative in
accordance with a power of attorney on file in this office.

201629015

If you wish to inquire about this ruling, please

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

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical
Group 1

Enclosures:

Deleted Copy of Ruling Letter
Notice of Intention to Disclose

CC: