Legal basis for financial institution to deny a change in Trad IRA contribution directive

Submitted by James Gahn on Wed, 2013-04-17 18:05

My financial institution (a Federal Credit Union) is unwilling to correct the application of Traditional IRA funds contribution made on April 11, 2012 which I intended for Tax Year 2011 but the Contribution Directive Form I signed that day shows 2012 as the Tax Year to which the contribution would be applied. It was printed in error, I did not look it over carefully and I was not given a copy at the time. I only learned of the error on April 10, 2013 when I attempted to make my contribution for Tax Year 2012. They have cited Prop. Reg 1.219 (a)-2(c)(5) as the basis for their decision. It apparently says any change in the Contribution directive must be made prior to the deadline for applicable contributions for the Tax Year that the contribution would be applied to. I have been unable to search and read this particular regulation but did find discussion wherein it was stated that this was a “proposed” regulation that has not been placed in force.
Is there any legally binding rule within the tax code or Treasury Regulations that specifies 1) whether or not a Traditional IRA Contribution Direction can be revised or amended? , 2) whether or not there is a time period within which a Traditional IRA Contribution Direction must be filed with the financial institution where the contribution funds are deposited? , 3)whether or not a financial institution can correct the Tax Year to which a Traditional IRA Contribution is applied assuming the contribution meets all time and amount criteria for the desired Tax Year?

Would the financial institution be obligated to abide by the regulation cited above if it has not been placed in code or law? This credit union uses Ascensus as its IRA administrator.

I certainly would appreciate your expert advice on these matters.



Submitted by Alan - IRA critic on Wed, 2013-04-17 19:52

  1. Ascensus is extremely well regarded and highly professional. There are no regs that I know of that address your questions, including whether an institution can act on a proposed Reg. That said, their decision is consistent with all other IRA custodians with respect to changing the year of contribution, barring a clear error by the custodian and not the taxpayer. From a practical standpoint, custodians close their books on the tax deadline to prepare the 5498 forms for the IRS reporting IRA contributions for the prior year. I do not believe there is an irrefutable guidance that exists which you could present to convince the FCU to change their minds and deviate from their operating procedures that also concur with the rest of the industry.
  2. I do not know why certain proposed Regs can go for decades without enactment or declination. However, they can still be relied on to a degree, per the following definition:
  3. Proposed Regulations — Proposed regulations provide guidance concerning Treasury’s interpretation of a Code section. The public is given an opportunity to comment on a proposed regulation and a public hearing may be held if a sufficient number of requests to speak at a hearing are received. Taxpayers may rely on a proposed regulation, although they are not required to do so. Examiners, however, should follow proposed regulations, unless the proposed regulation is in conflict with an existing final or temporary regulation.

Note that in May, 2012, you would have received a 5498 showing a 2011 contribution if one had been assigned for 2011, so you obviously did not get one. Next month you will get one showing the 2012 contribution. It is widely recommended to indicate the year of the contribution on your check whenever you make a contribution between 1/1 and 4/15. If that year conflicts with a contribution form you submitted, at least you have a basis for argument and the discrepancy might result in them contacting you in time for clarification. 



Submitted by James Gahn on Wed, 2013-04-17 21:04

Thank you for a most precise and informative response.  Are you able to link me to the actual document cited?  Prop. Reg 1.219 (a)-2(c)(5).  I am so far unable to find the the reference in my numerous searches. I would like to see it in print.  I did receive the following response from an enrolled agent from the Tax Advocacy Services, Inc:”You are NOT alone.  This happens ALL the time.  The fact of the matter is YOU signed a 2012 form and you probably have no substantiation supporting the efficacy of your intent to really engage a 2011 IRA deposit on April 11 2012.  Regardless of what they tell you this CAN be corrected by the bank if they cared about you as a customer.”If the financial institution or Ascensus was to acquiese and revise the application of the contribution would they be exposed to any potential penalties or legal ramifications?



Submitted by Jose Morales on Thu, 2013-04-18 16:04

With regards to the question of whether they would be exposed to any potential penalties or legal ramifications.  In order to make this change at this point in time the IRA Custodian, and more specifically an individual working for the IRA Custodian, would have to submit a corrected 5498 for tax year 2011 along with form 1096.  On this form the preparer, which would be the individual working for the IRA Custodian, would have to identify themselves and provide their contact information as well as sign the document and include their title.  Above the section in which they would sign, date and include title it states the following:  Under penalties of perjury, I declare that I have examined this return and accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and complete.In this situation a person working for the IRA Custodian would have to perjure themselves in order to change tax records to provide you relief from a customer mistake, not the IRA Custodian’s mistake.  IRA Custodians are obligated to accurately report on the IRAs they hold.  If they make a mistake they are obligated to correct the mistake.  They do not have the freedom to change tax reporting as a matter of customer service, even though in reality it is frequently done out of ignorance.I am sure that if they could make this change for you with no threat of legal penalties, especially to the specific individual submitting the correction request to the IRS, they would do it.  It is certainly much easier to do than to deal with an angry customer who may have made a very honest and common mistake.  If the IRS wanted to provide a method for changing the reported tax year beyond what they already have allowed for, they could do so.  As it stands, the IRS has set what they believe is a reasonable process and time frame for changing the tax year of a contribution and it is not at the discretion of the IRA Custodian to disregard these rules at their whim.



Submitted by Alan - IRA critic on Thu, 2013-04-18 19:49

It is also interesting to note that a similar proposed Reg exists for the opposite situation, ie a carryback contribution that the IRA owner then wants to change to the current year. This proposed Reg does not allow that even when the transfer would be timely for both years:  http://www.rdapps.webchuckhosting.com/faqs/carrybackcontributionadjustedcurrentyearcontribution



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