PLR 200721024: Medical incapacity supports late IRA rollover waiver

Plain-English summary

An IRA owner with progressive dementia withdrew funds and missed the 60 day deadline to roll them into another IRA. Medical records showed that the owner's condition impaired financial decision making. The IRS waived the rollover deadline under § 408(d)(3)(I) for the remaining funds held outside an IRA and gave the owner 60 days from the ruling to contribute them to a rollover IRA. The waiver did not cover money already spent or any amount that had to be distributed under the required minimum distribution rules. All other rollover requirements still had to be met.

Ruling snapshot

• Question: Can the owner roll over the remaining IRA distribution after missing the 60 day deadline because of incapacity?
• Outcome: Yes, subject to contribution within 60 days of the ruling and the other rollover rules.
• Key authorities: IRC §§ 408(d)(3)(I), 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

200721024

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

FEB 26 2007
T:EP:RA:T3

Legend:

Institution A =
Institution B =
Amount M =
Amount N =
Amount P =
Amount Q =
Amount R =
Date M =
Date N =
Date P =
IRA X =

Dear

This is in response to your request dated September 29, 2006, submitted by your authorized representative, 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”). Correspondence dated January 30, 2007, supplemented the request.

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

You are over 70 ½ years old and maintained IRA X with Institution A. 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 R.

On Date M, 2005, you withdrew Amount M from IRA X. On Date N 2005, you withdrew Amount N from IRA X, and on Date P, 2005, you withdrew Amount P from IRA X. Amount Q has been spent by you. The remaining funds, Amount R, are in a non-IRA account with Institution B. You have been suffering from progressive dementia which has impaired your ability to make sound financial decisions. Your daughter, while attending to your needs noticed that you withdrew the funds from IRA X. Medical documentation submitted with your request indicates the severity of your chronic medical problems (which includes an inability to make financial decisions) and the extent of your treatment for these conditions.

Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60-day rollover requirement, with respect to Amount D, 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

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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)(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 you presented, and the medical documentation submitted on your behalf, demonstrate that you were incapable of handling your financial affairs in an appropriate manner.

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 R from IRA X. You are granted a period of 60 days from the issuance of this ruling letter to contribute Amount R (less amounts described below), 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 R will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

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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.

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 ruling 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 (ID ) at ( ) Please address all correspondence to SE:T:EP:RA:T:3

Sincerely yours,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

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

CC: