PLR 200507017: Beneficiary gets more time to roll over inherited IRA annuity proceeds

Plain-English summary

A woman inherited an IRA annuity after her husband's death. On her son's advice, she claimed its death benefit, but neither he nor a company representative told her it was an IRA annuity that could be rolled over. The proceeds went into a non-IRA account and remained unused; she learned about the missed rollover opportunity while preparing her tax return. The IRS found that, given her lack of financial experience and the advice she received, she could not reasonably meet the original 60-day deadline. It waived that deadline and gave her 60 days from the ruling letter to contribute the specified proceeds to an IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the beneficiary roll over the IRA annuity death benefit after the original 60-day deadline?
• Outcome: Approved: a new 60-day period from the ruling letter.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200507017

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 24 2004

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend:

Taxpayer =
Company E =

Company F =

IRA Annuity G =

Amount H =

Amount I =

Dear

This letter is in response to a request for a letter ruling dated May 7, 2004, as supplemented by additional correspondence dated June 7, 2004, June 17, 2004,

August 31, 2004, and November 1, 2004, from your authorized representative, in which you have applied for a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code ("Code").

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

The Taxpayer is 72 years old. Taxpayer’s spouse of [redacted] years passed away in [redacted]

Taxpayer’s spouse was an attorney and handled all of the couple’s business affairs. After the death of Taxpayer’s spouse, Taxpayer’s son served as her financial advisor and stockbroker. Taxpayer’s son is a registered representative and was previously employed by Company E.

Taxpayer’s spouse, unbeknownst to Taxpayer, had used the proceeds from an individual retirement account described in Code section 408(a) to purchase IRA Annuity G, an individual retirement annuity under section 408(b), issued by Company F. Taxpayer’s son, who was a broker with Company E at that time, facilitated the purchase of IRA Annuity G by Taxpayer’s spouse. Taxpayer was named the beneficiary of IRA Annuity G.

The Taxpayer’s mother passed away in February, 2004. She resided at the Taxpayer’s home until August, 2003 when she entered a respite center, suffering from Alzheimer’s disease. For a number of years until their recent deaths, Taxpayer had provided nursing care to her husband and mother. As a result, Taxpayer was physically and mentally exhausted.

Shortly after her husband’s death, Taxpayer was contacted by her son and advised that there was an annuity (IRA Annuity G) with a death benefit option. Taxpayer was not advised that the annuity was an IRA annuity. The Taxpayer was told to cash in the qualified annuity due to the guaranty feature, which provided that she would receive the greater of the fair market value on the date of the surrender, or the actual investment. The amount actually invested in the annuity was higher than the fair market value at the date the annuity was surrendered.

The Taxpayer, due to her lack of understanding of the tax consequences of this transaction, relied upon her son who was a registered representative. Taxpayer’s son assured Taxpayer that Company E would handle the processing of the claim. Relying on her son’s advice, on October 8, 2003, Taxpayer signed a form, provided by Company E, for the purpose of claiming the death benefit. Taxpayer’s son was not present at the time the form was completed and Taxpayer was not given any explanation regarding the form by the representative of Company E. Due to the Taxpayer’s lack of financial experience and knowledge, Taxpayer did not review the form before signing it.

The proceeds from IRA Annuity G, in Amount H, less the withholding of federal income taxes (Amount I), were deposited in an interest bearing, non-IRA account with Company F on October 13, 2003. Taxpayer met with her accountant on February 19, 2004, to

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begin preparing her tax return for the 2003 calendar year, and was advised that Amount H was from an IRA annuity and could have been rolled over. The proceeds, as described above, still remain in the non-IRA account with Company F. None of the proceeds have been used by the Taxpayer.

Taxpayer has not violated the requirements of Code section 408(d)(3)(B). The Taxpayer has not received any other amount from an individual retirement account or individual retirement annuity, during the one year previous, which was not includible in her gross income because of section 408(d)(3).

Based on the above facts and representations, you request that the Internal Revenue Service waive the 60-day rollover requirement with respect to the distribution, in Amount H, from IRA Annuity G maintained with Company F 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)).

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

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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 presented by you demonstrates that the rollover of funds (Amount H) from IRA Annuity G to another IRA was not made within 60 days. Due to your lack of experience in financial matters, you relied upon the advice of your son who serves as your financial advisor. You were advised by your son, a registered representative, to cash in IRA Annuity G; however, neither your son nor a representative of Company E informed you that IRA Annuity G was an IRA annuity that could be rolled over. Under these circumstances, you could not reasonably satisfy the requirement that the funds be deposited in an IRA within 60 days of the distribution from Company F.

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 funds (Amount H) from IRA Annuity G with Company F. You are granted a period of 60 days from the issuance of this ruling letter to contribute Amount H to an 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, this amount (Amount H) will be considered a rollover contribution 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.

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 ruling has been sent to your authorized representatives pursuant to a power of attorney on file in this office.

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5
If you wish to inquire about this ruling, please contact [redacted], SE:T:EP:RA:T1, I.D. [redacted], at [redacted]. Sincerely yours, Carlton A. Watkins Manager

Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

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