PLR 200804024: IRA owner gets rollover waiver after incapacities and unauthorized withdrawal

Plain-English summary

An elderly IRA owner's spouse withdrew funds from his account without authority and put them in her own checking account. The owner was in a nursing home, and both spouses had serious impairments that affected their ability to manage finances. The IRS accepted that these conditions prevented a timely rollover and waived the normal 60 day deadline. It allowed the owner 60 days from the ruling date to contribute an amount equal to the withdrawal to an IRA, provided the other rollover requirements were met. The waiver did not cover required minimum distributions.

Ruling snapshot

• Question: Could the IRA owner receive a waiver of the 60 day rollover deadline after the unauthorized withdrawal?
• Outcome: Approved; 60 days were allowed for the corrective rollover.
• Key authorities: IRC §§ 408(d)(3)(I), 408(d)(3)(E).

Full text (IRS public release)

200804024

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION OCT 29 2007

Uniform Issue List: 408.03-00

Legend:

Court M =

Taxpayer A =
Taxpayer B =
Conservator A =
Conservator B =

IRA X =

Checking Account Y =
Amount C =
Company M =

Dear

This is in response to a letter dated May 21, 2007, submitted on your behalf by your authorized representative as supplemented by correspondence dated August 22, 2007 and October 3, 2007, 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 81, represents that his wife, Taxpayer B, age 80, acting without authority requested and received a distribution from IRA X, which Taxpayer A maintained with Company M, totaling Amount C. Taxpayer A, through his conservators, asserts that his failure to accomplish a rollover of Amount C was due to the medical and mental condition of both Taxpayers A and B which was such as to impair their ability to make sound financial decisions or to understand the consequences of their actions.

\

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Taxpayer A, suffers from severe physical and mental incapacities and as a result was confined to a nursing home on or about March 2005, prior to the appointment of his conservators, Conservator A and B, by Court M in May of 2006. On September 12, 2005, Taxpayer B requested a distribution of Amount C from Taxpayer A’s IRA, and deposited Amount C into her own individual checking account, Checking Account Y. Taxpayer A, due to his physical and mental impairments, was unable to attend to his financial interests and was unaware of the distribution to Taxpayer B from his IRA account, IRA X. Subsequently, a temporary conservatorship was ordered in March, 2006 for Taxpayer A by Court M and letters of conservatorship appointing Conservators A and B were issued in May, 2006.

Taxpayer B also suffers from severe mental incapacity which has impaired her ability to understand the consequences of her action such that a petition for appointment of a conservator was initially established for Taxpayer B in March 2006 by Court M with letters of conservatorship appointing Conservators A and B issued in May 2006.

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 C, contained in section 408(d)(3) of the Code (“the Code”).

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)(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)(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

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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)(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 Taxpayer A’s assertion that his failure to accomplish a rollover of Amount C was due to the medical and mental condition of both Taxpayers A and B which was such as to impair their ability to make sound financial decisions or understand the consequences of their actions.

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 from IRA X. Pursuant to this ruling letter, Taxpayer A is granted a period of 60

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days measured from the date of the issuance of this letter ruling to make a rollover contribution of an amount equal to Amount C to an IRA (or IRAs) described in Code section 408(a). Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, are met with respect to such IRA contribution, the contribution will be considered a rollover contribution within the meaning of Code section 408(d)(3).

Please note that, pursuant to code section 408(d)(3)(E), this ruling letter does not authorize the rollover of the Code section 401(a)(9) minimum required distributions.

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.

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

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 XXXXXXXKXKXXKX # XXXXXXKXXKKK _ Please address all correspondence to

Sincerely yours,

[signature]
Frances V. Sloan, Manager
Employee Plans Technical Group 3

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