PLR 200701036: Medical incapacity justifies late rollover of a deceased spouse’s IRA distribution

Plain-English summary

A widow withdrew funds from her deceased husband’s IRA in 2004 before moving to another city and placed them in a money market account that was not an IRA. She sought a waiver of the 60-day rollover deadline because mental and physical conditions impaired her ability to manage her finances. Medical records from physicians in both cities documented her chronic health problems, and she represented that the funds had not been used for another purpose. The IRS found that she was effectively disabled and granted relief under section 408(d)(3)(I). She had 60 days from the ruling to contribute the distribution to a rollover IRA, subject to all other rollover requirements.

Ruling snapshot

• Question: Can documented medical incapacity justify a late rollover of a distribution from a deceased spouse’s IRA?
• Outcome: Approved: the rollover deadline is waived, with 60 days from the ruling to contribute the funds.
• Key authorities: IRC §§ 408(d)(3), 72, 6110(k)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
200701036

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
OCT 10 2006
T:EP:RA:T3

DIVISION

Uniform Issue List 408.00-00

Legend:

Individual B =

City C =

City D =

Date E =

Date F =

Amount H =

Bank L =

Bank M =

IRA X =

Dear

This is in response to your request dated December 20, 2005, for a ruling to waive the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code (the “Code”). Correspondence dated March 10, 2006, and July 28, 2006, supplemented the request.

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Under penalty of perjury, you have submitted the following facts and representations:

You are under age 70 ½, and represent that you received a distribution from IRA X, maintained at Bank L, totaling Amount H. You assert that your failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to mental and physical incapacities which impaired your ability to handle your financial affairs, including the rollover of Amount H. You further represent that Amount H has not been used for any other purpose

Individual B, your husband, passed away on Date E, 2003 without having attained age 70 1/2. Individual B maintained IRA X at Bank L in City C (where you resided). You were the sole individual beneficiary of IRA X and entitled to receive the IRA X proceeds upon the death of Individual B. In contemplation of your move to City D, you withdrew Amount H from IRA X on Date F, 2004. After the withdrawal of Amount H from IRA X, you moved to City D and deposited Amount H in a money market account in Bank M, which was not an IRA.

Medical documentation submitted with your request from treating physicians in both City C and City D indicates the severity of your chronic medical problems and the extent of your treatment for these conditions.

Based on the facts and representations, you request that the Internal Revenue Service waive the 60 day rollover requirement with respect to your contribution of Amount H into an IRA because the failure to waive such requirement would be against equity or good conscience.

With respect to your ruling request, 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, (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 you presented, and the documentation submitted on your behalf, demonstrate that you were effectively disabled and incapable of handling your financial affairs in an appropriate manner.

Accordingly, 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 H from IRA X. You are granted a period not to exceed 60 days as measured from the issuance of this ruling letter to contribute Amount H 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, the contribution of Amount H into one or more IRAs described in Code section 408(a) will be considered a rollover contribution(s) 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.

200701036

Page 4
In accordance with a power of attorney on file with this office, a copy of this letter ruling is being sent to your authorized representative.

If you wish to inquire about this ruling, please contact ** (ID *-) at ()
-* Please address all correspondence to SE:T:EP:RA:T3. Sincerely yours,

Frances V Sloan

Frances V. Sloan, Manager,
Employee Plans Technical Group 3

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

CC: