Mistaken deposit into non-IRA account qualified for rollover waiver

Plain-English summary

An individual asked that balances from two § 403(b) plans be rolled directly into an IRA. After only part of the requested rollover reached the IRA, she requested another direct rollover, but the remaining amount was transferred to a non-IRA investment account instead. The Form 1099-R reported a direct rollover with no taxable amount, and she did not discover the mistake until she later received a Form 1099-DIV. Because the funds had not been used for another purpose and the evidence supported financial-institution error, the IRS waived the 60-day rollover deadline, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the 60-day rollover deadline be waived when plan funds intended for an IRA were mistakenly deposited into a non-IRA account?
• Outcome: approved
• Key authorities: IRC §§ 401(a)(9), 402(c), and 403(b)(8); Rev. Proc. 2003-16

Full text (IRS public release)

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

AUG 0 1 2016

201644023

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 403.05-00

SE:T:EP:RA:T1

Legend
Taxpayer A =

Plan B =
Plan C =
IRA D =
Non-IRA Account E =

Financial Institution F =
Financial Institution G =

Amount 1 =

Dear

This is in response to your request received May 13, 2016, as supplemented by
correspondence received on July 14, 2016, 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”).

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

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Taxpayer A represents that she received distributions from Plan B and Plan C in
excess of Amount 1. Taxpayer A asserts that the failure to accomplish a rollover of
Amount 1 within the 60-day period described in section 402(c)(3) of the Code was
due to an error on the part of Financial Institution G.

Taxpayer A participated in two 403(b) plans, Plan B and Plan C, which invested in
annuity contracts purchased through Financial Institution F. Taxpayer A met with
Financial Institution G to establish an investment plan that provided that Amount 1
would be rolled over into an IRA, IRA D, maintained by Financial Institution G. On
March 1, 2015, Taxpayer A requested that her vested account balances in Plan B
and Plan C be directly rolled over into IRA D. Realizing that only a partial
distribution had been made in the form of a direct rollover to IRA D, Taxpayer A
made another request for a direct rollover of Amount 1 into IRA D. However, on
May 12, 2015, Amount 1 was transferred by Financial Institution F to Non-IRA
Account E, a non-IRA account maintained by Financial Institution G.

The Form 1099-R issued by Financial Institution F reflected a direct rollover (Code
G) from Plan B and Plan C of Amount 1, with a taxable amount of zero. Taxpayer
A did not discover the error until February of 2016, when she received a Form
1099-DIV. Taxpayer A represents that Amount 1 has not been used for any other
purpose.

Based on the above facts and representations, Taxpayer A requests a waiver of
the 60-day rollover requirement under section 402(c)(3) of the Code with respect
to the distribution of Amount 1 from Plan B and Plan C.

With respect to your ruling request, section 403(b)(8)(A) of the Code provides that
if any portion of the balance to the credit of an employee in a section 403(b)
annuity contract 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 described in section 402(c)(8)(B), 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 includible in gross income for the taxable year in which paid.

Section 403(b)(8)(B) of the Code provides that the rules of section 402(c)(2)
through (7), (9) and (11) shall apply for the purposes of section 403(b)(8)(A).

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.

3 201644023

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 states that such rollover must be accomplished
within 60 days following the day on which the distributee received the property.

Section 402(c)(3)(B) of the Code provides 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.

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)(8)(B) 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).

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 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.

The information and documentation submitted by Taxpayer A support her
assertion that the failure to accomplish a rollover of Amount 1 within the 60-day
period described in section 402(c)(3) of the Code was due to an error on the part

4 201644023

of Financial Institution G.

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. 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 an 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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is
being sent to your authorized representative.

If you wish to inquire about this ruling, please contact
at . Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

Cc: