PLR 200814029: Mental impairment justifies waiver of IRA rollover deadline

Plain-English summary

An older taxpayer withdrew money from an IRA while an irreversible neurological disease impaired her ability to manage her affairs. She deposited the money in savings instead of completing a rollover within 60 days. After her representative found the mistake, the representative moved the amount remaining after her required minimum distribution into another IRA. The IRS waived the 60-day deadline for that rollover amount because the documented impairment prevented her from understanding the financial consequences of the withdrawal. The waiver did not permit rollover of the required minimum distribution.

Ruling snapshot

• Question: Could the taxpayer's late IRA rollover receive a waiver of the 60-day deadline?
• Outcome: Approved for the rollover amount, excluding the required minimum distribution.
• Key authorities: IRC §§ 408(d)(3)(I), 408(d)(3)(E), 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

200814029

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

TAX EXEMPT AND

GOVERNMENT ENTITIES JAN -9 2008

DIVISION

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

Amount A =

Amount B =

Amount C =

IRA X =

Date 1 =

Financial Institution H =
IRA Y =

Financial Institution A =
Date 2 =

Dear

This is in response to your request submitted on your behalf by your authorized representative dated April 16, 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, over age 70 1/2, represents through her authorized representative, that she received a distribution of Amount A from her IRA account, IRA X. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to the effects of a mental impairment which was such as to impair her ability to make sound financial decisions and to understand the consequences of her actions.

Medical documentation submitted indicates that beginning two years before Date 1, Taxpayer A had begun treatment for an irreversible neurological disease which renders her unable to manage her affairs. On Date 1, Taxpayer A, who for many

years before the onset of her mental impairment handled all her family’s financial affairs, requested a distribution of Amount A from IRA X at Financial Institution A.

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However, at the time of the distribution request on Date 1, her mental condition had deteriorated to the point that she was unaware of the financial consequences of her request and failed to understand what Financial Institution A recommended with respect to her need to rollover her maturing certificate of deposit. Instead, Taxpayer A closed her account with Financial Institution A and deposited Amount A into a savings account at Financial Institution H.

Amount A was not used for any other purposes until her authorized representative discovered the mistake she had made. On Date 2 her authorized representative arranged for the rollover of Amount B (Amount A minus the required minimum distribution for year _ Amount C) into IRA Y.

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 B, 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 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

200814029

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 her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to the effects of a mental impairment which was such as to impair her ability to make sound financial decisions and to understand the consequences of her actions.

Therefore, pursuant to Code section 408(d)(3)(I), the Service hereby waives the 60-day rollover requirement with respect to the withdrawal of Amount B. Pursuant to this ruling letter, the Service will treat Taxpayer A's Date 2, rollover contribution of Amount B into IRA Y as a valid rollover within the meaning of Code section

408(d)(3).

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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 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