PLR 200606050: Hospitalization supports late IRA rollover waiver

Plain-English summary

A 75 year old IRA owner took a distribution while hoping to obtain a better certificate of deposit rate before rolling it back into an IRA. She was awaiting double hip replacement surgery and was then hospitalized for an extended period. Her husband also suffered a heart attack and underwent surgery; when he tried to redeposit the funds, the IRA company refused a rollover because the 60 day deadline had passed. The IRS found the missed deadline tied to their hospitalizations and surgeries and granted a waiver under section 408(d)(3)(I). She had 60 days from the ruling letter to contribute the funds to a rollover IRA, subject to other rollover rules. The waiver did not cover amounts required to be distributed under the required minimum distribution rules.

Ruling snapshot

• Question: Could the owner roll over her IRA distribution after medical complications prevented a timely contribution?
• Outcome: Approved a waiver and a new 60 day contribution period, excluding required distributions.
• Key authorities: IRC §§ 408(d)(3)(I), 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

INTERNAL REVENUE SERVICE
200606050
NOV 17 2005

Uniform Issue List: 408.03-00
SE:T:EP:RA:T3

Legend:
Taxpayer A = [redacted]
IRA X = [redacted]
Amount A = [redacted]
Company A = [redacted]

Dear [redacted]:

This is in response to your request dated July 6, 2005, in which you request 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

Taxpayer A, age 75, represents that she received a distribution from IRA X totaling Amount A. Taxpayer A intended to roll over Amount A within the 60 day period with the hope that the certificate of deposit (“CD”) interest rates would go up within that time. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to ill health and hospitalization which impaired her ability to accomplish a timely rollover. Taxpayer A further represents that Amount A has not been used for any other purpose.

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Taxpayer A was homebound awaiting double hip replacement surgery during the first part of [redacted]. During this time, her IRA CD was set for renewal. Taxpayer hoped that the CD interest rate would increase during the 60-day rollover period and on February 25, [redacted] Taxpayer A's husband brought paperwork to Company A to close IRA X and received a check for Amount A. Taxpayer A was hospitalized on April 15 for the surgery and remained in the hospital almost continually through June 2, [redacted]. In addition, Taxpayer A's husband had a heart attack on March 19, [redacted] and had to undergo open-heart surgery. After Taxpayer A's husband was discharged from the hospital, he attempted to redeposit Amount A on May 4, [redacted] at which time Company A refused to accept Amount A as a rollover. .

Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60 day rollover requirement with respect to the distribution of Amount A contained in section 408(d)(3) of the Code in this instance.

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

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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)(E) of the Code provides that the rollover provisions of section 408(d) do not apply to any amount required to be distributed under section 408(a)(6).

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 (January 27, 2003) 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 and documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover was caused by complications as a result of the hospitalization and surgeries of both Taxpayer A and her husband.

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 A from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount A into a Rollover 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, Amount A will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to be distributed by section 401(a)(9) of the Code.

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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.

If you wish to inquire about this ruling, please contact [redacted] I.D. #
[redacted] at [redacted]. Please address all correspondence to SE:T:EP:RA:T3.

Sincerely yours,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

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