PLR 200401024: Hospitalization and disability warrant IRA rollover waiver

Plain-English summary

An IRA owner withdrew cash and intended to return it within the normal 60 day rollover period. The owner was then involuntarily admitted to a clinic, spent time sedated in intensive care, and was declared severely mentally disabled by a court. By the time the owner could manage personal affairs, the deadline had passed. The IRS concluded that the disability and hospitalization were beyond the owner's control and waived the deadline under section 408(d)(3)(I). It gave the owner 60 days from the ruling letter to deposit the cash into the IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the IRA owner receive a waiver after hospitalization and mental disability prevented a timely rollover?
• Outcome: Approved: the owner received a new 60 day period to redeposit the cash.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
200401024
INTERNAL REVENUE SERVICE
WASHINGTON D.C. 20224

NOV 4 2003

Uniform Issue List: 408.03-00

Legend:
Taxpayer A=
Amount B=
IRA C=
Bank D=
Clinic X=
Date 1 =

Date 2 =

Dear :

This is in response to your request of June 16, 2003, through your authorized representative, for 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:

You are married and own IRA C with Bank D. You have a history of alcohol abuse and mental illness. On Date 1 you withdrew Amount B from IRA C, in cash. At the time of the withdrawal, you were separated from your spouse and she was unaware that the

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withdrawal had been made. You intended to re-deposit the entire Amount B into an IRA account within the 60 day period allowed by the Internal Revenue Code (the Code) to avoid any adverse tax consequences.

On Date 2, you were involuntarily admitted to Clinic X for alcohol abuse treatment and suicide tendencies. You spent some time in the intensive care unit of the Clinic X sedated on a ventilator.

While you were in Clinic X, a court declared you to be severely mentally disabled and in need of continued treatment. When you were released from Clinic X and able to handle your own affairs properly, the 60 days rollover period had expired.

You want to redeposit Amount B to IRA C.

You represent that no other amount was distributed from IRA C within the one year period since the original distribution.

Based on the above facts and representations, you request that the Service waive the 60-day rollover requirement with respect to the distribution of Amount B because the failure to waive such requirement would be against equity or good conscience.

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)).

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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).

Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for partial rollovers.

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. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of the Code.

Rev. Proc. 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 408(d)(3)(I), 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 you presented demonstrate that the severe mental disability and hospitalization you experienced were beyond your control and prevented you from depositing Amount B in IRA C within 60 days after receiving the distribution. The failure to waive the 60-day requirement would be against equity or good conscience.

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 which constitutes an eligible rollover distribution pursuant to section 402(c) of the Code. You are granted a period of 60 days from the issuance of this ruling letter to contribute Amount B, in cash, into IRA C. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day requirement, are met with respect to such contributions, these amounts will be considered rollover contributions within the meaning of section 408(d)(3) 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.

200401024

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This letter is directed only to the taxpayers 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.

If you wish to inquire about this ruling, please contact , I.D. # , at
. Please address all correspondence to

Sincerely yours,

Alan C. Pipkin, Manager
Employee Plans Technical Group 4

Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose

Cc: