Financial institution error justified a late retirement-plan rollover

Plain-English summary

After losing his job, an individual instructed a financial institution to roll his qualified-plan balance directly into an IRA. The institution instead deposited the distribution into his checking account. The money reached the IRA four days after the 60-day rollover period ended. Because the documentation supported the individual's claim that the delay resulted from the institution's failure to follow his written instructions, the IRS waived the 60-day deadline, subject to all other rollover requirements being met.

Ruling snapshot

• Question: Could the 60-day rollover deadline be waived when a financial institution sent the plan distribution to a checking account instead of the designated IRA?
• Outcome: approved
• Key authorities: IRC §§ 401(a)(9) and 402(c); 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

AUG 0 3 2016

201644024

Uniform Issue List: 402.00-00

SE:T:EP:RA:T1

Legend:

Taxpayer A =

Plan X =

IRA Y =

Insurance Company N =

Insurance Company M =

Amount B =

Credit Union C =

Dear

This is in response to your letter dated November 19, 2015, as
supplemented by correspondence dated June 9, 2016, submitted on your
behalf by your authorized representative, in which you request a waiver of
the 60-day rollover requirement contained in section 402(c)(3) of the Internal
Revenue Code (“Code”).

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

2 201644024

Taxpayer A represents that he received a distribution from Plan X
totaling Amount B. Taxpayer A asserts that his failure to complete a rollover of
Amount B within the 60-day period prescribed by section 402(c)(3) of the
Internal Revenue Code (“Code), was due to the failure of Insurance Company N
to make a direct rollover of Amount B into IRA Y, as requested by Taxpayer A.

Taxpayer A represents that on May 1, 2015, his employer implemented a
reduction in force and terminated Taxpayer A’s employment. On July 22, 2015,
Taxpayer A opened IRA Y to receive his Plan X rollover funds with Insurance
Company N. On August 20, 2015, Taxpayer A completed a withdrawal request
with Insurance Company N to directly rollover his Plan X account balance into his
recently established IRA Y with Insurance Company M. However, on September
14, 2015, Insurance Company N transferred Amount B into Taxpayer A's
checking account at Credit Union C instead of IRA Y, as specified by Taxpayer
A's written instructions. On November 17, 2015, four days after the end of the 60-
day rollover period, Amount B was transferred from Credit Union C into IRA Y.

Based on the above documentation and representations, you request a
ruling that the Internal Revenue Service (“the Service”) waive the 60-day rollover
requirement contained in section 402(c)(3) of the Code with respect to the
distribution of Amount B.

Section 402(c) of the Code provides that if any portion of the balance to
the credit of an employee in a qualified trust is paid to the employee in an eligible
rollover distribution, and the distributee 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, then such distribution (to the extent transferred) shall not
be includible in gross income for the taxable year in which paid. Section
402(c)(3)(A) states that such rollover must be accomplished within 60 days
following the day on which the distributee received the property. An individual
retirement account (IRA) constitutes one form of eligible retirement plan.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the
Secretary may waive the 60-day requirement under sections 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. Only distributions that occurred after
December 31, 2001, are eligible for the waiver under section 402(c)(3)(B) of the
Code.

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Section 402(c)(4) of the Code provides that an eligible rollover
distribution shall not include any distribution to the extent such distribution is
required under section 401(a)(9).

Revenue Procedure 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 presented and documentation submitted by Taxpayer A
is consistent with his assertion that his failure to accomplish a timely rollover of
Amount B was due to the failure of Insurance Company N to make a direct rollover
of Amount B into IRA Y, as requested by Taxpayer A.

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 B. Provided all other requirements of section 402(c) of the Code,
except the 60-day requirement, are met with respect to such contribution, the
contribution of Amount B into IRA Y will be considered a rollover contribution
within the meaning of section 402(c).

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.

A copy of this letter is being sent to your authorized representative
pursuant to a power of attorney on file in this office.

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.

4 201644024

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

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

CC: