PLR 200650025: Mental incapacity supports waiver of the IRA rollover deadline

Plain-English summary

An IRA owner took a full distribution while suffering from a documented mental condition that impaired understanding of the transaction and financial affairs. The owner's daughter sought relief under a durable power of attorney, and the credit union acknowledged that staff had recognized the owner's confusion. The IRS found that the condition caused both the withdrawal and the failure to complete a timely rollover. It waived the section 408(d)(3) deadline and allowed 60 days from issuance of the ruling to contribute the amount to a rollover IRA. All other rollover requirements remain in force, and required minimum distributions cannot be rolled over under this relief.

Ruling snapshot

• Question: Does documented mental incapacity justify relief from the 60-day IRA rollover requirement?
• Outcome: Approved: 60 days from ruling issuance to complete the rollover, excluding required distributions and subject to other requirements.
• Key authorities: IRC §§ 408(d)(3)(I) and 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

200650025

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

T:EP:RA:T4

SEP 19 2006

Uniform Issue List: 408.03-00

Legend:

Taxpayer A=
Taxpayer B=
Amount C=

IRA X=

Credit Union D=

Dear :

This is in response to your request dated May 7, , submitted by your daughter, Taxpayer B, 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:

Taxpayer A is an year-old who is being represented in this request by Taxpayer B. Taxpayer B has obtained a Durable Power of Attorney signed by Taxpayer

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A. Taxpayer A has been diagnosed with a mental condition which impaired ability to handle financial affairs and understand the consequences of actions. Medical documentation that Taxpayer A was being treated at the time of the transaction, and the severity of condition has been submitted.

Taxpayer A maintained IRA X with Credit Union D. On November 1, , Taxpayer A requested from Credit Union D a distribution from IRA X of Amount C. Taxpayer A deposited Amount C in checking account. Taxpayer A’s mental condition prevented

from understanding the consequences of taking a total distribution from IRA X. The manager of Credit Union D stated that the staff at Credit Union D recognized that Taxpayer A was confused at the time requested the distribution from IRA X but, nevertheless, allowed Taxpayer A to take the 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 C.

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

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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)(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, 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 and documentation presented on behalf of Taxpayer A is consistent with Taxpayer B’s assertion that Taxpayer A’s distribution of Amount C and subsequent failure to accomplish a timely rollover was caused by Taxpayer A’s mental condition.

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 C. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount C 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 C 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.

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.

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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 , , at ( ) . Please address all correspondence to .

Sincerely yours,

Ada Perry, Manager
Employee Plans Technical Group 4

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