PLR 200833030: Elderly taxpayer received a waiver for a one-day-late IRA rollover

Plain-English summary

An 87-year-old taxpayer with dementia liquidated an IRA while trying to consolidate assets at a local bank, without intending to withdraw retirement funds. His wife of 70 years, who had handled the family's finances, had recently died, and his daughter discovered the mistake only one business day after the rollover deadline. The money remained in a certificate of deposit and had not been used. The IRS waived the 60-day rollover requirement and gave him another 60 days to contribute the eligible amount to a rollover IRA. The waiver did not cover the required minimum distribution.

Ruling snapshot

• Question: Could the taxpayer receive a waiver after missing the IRA rollover deadline by one business day?
• Outcome: Approved, with 60 days to contribute the eligible amount to a rollover IRA
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

200833030

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

TAX EXEMPT AND MAY 20 2008

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00
SE:T:EP:RA:T1

Legend:

Taxpayer =
IRA A =
Financial Institution B =
Account C =
Account D =
Financial Institution E =
Amount 1 =
Amount 2 =

Amount 3 =

Dear

This letter is in response to a request for a letter ruling dated February 1, 2008, as supplemented by correspondence dated March 17, 2008, from your authorized representative, in which you have applied for a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code ("Code"), regarding the distribution of Amount 1 from your individual retirement account (IRA A) maintained with Financial Institution B.

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

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Taxpayer maintained IRA A, an individual retirement account under section 408(a) of the Code. Taxpayer, age 87, represents that on November 26, 2007, he liquidated IRA A and transferred the proceeds (Amount 1) to Account C, a non-IRA account also maintained with Financial Institution B. Subsequently, on January 24, 2008, Account C was closed out and the entire proceeds, including Amount 1, were used to purchase a certificate of deposit in Account D, a non-IRA account with Financial Institution E. When Taxpayer completed the application form to liquidate IRA A, he did not intend to remove funds from a retirement plan. He sought to simplify his financial affairs by transferring his assets to Financial Institution E, a local bank where he could receive more personal attention from a bank officer he knew. Prior to the death of his wife of 70 years on October 6, 2007, she had handled all of the financial affairs of the family. Taxpayer, who has dementia, did not realize the importance of designating the monies as IRA rollover due to his total lack of understanding of the tax consequences of his actions. While assisting Taxpayer on January 27, 2008, in gathering information to be used to prepare his tax return, Taxpayer’s daughter first learned of Taxpayer’s liquidation of IRA A from a Form 1099-R he had received from Financial Institution B. When Taxpayer was made aware of his failure to complete the rollover, only one business day had elapsed following the 60-day deadline contained in Code section 408(d)(3).

Amount 1 is now in Account D and has not been used for any purpose. Taxpayer received a Form 1099-R for from Financial Institution B showing a taxable amount equal to Amount 3 (Amount 1 plus Amount 2, a required minimum distribution under section 401(a)(9) of the Code).

Based on the above facts and representations, you request that the Internal Revenue Service (“Service”) waive the 60-day rollover requirement contained in Code section 408(d)(3) with respect to the distribution of Amount 1.

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

200833030

(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 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 presented and the documentation submitted by Taxpayer is consistent with his assertion that his failure to accomplish a timely rollover of Amount 1 was due to his medical condition and recent loss of his spouse of 70 years. When Taxpayer was made aware of his failure to complete the rollover, only one business day had elapsed following the 60-day deadline contained in section 408(d)(3) of the Code.

Therefore, pursuant to Code section 408(d)(3)(I), the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA A. Taxpayer is granted a period of 60 days from the issuance of this letter ruling to contribute Amount 1 into a rollover IRA. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, Amount 1 will be considered a rollover contribution within the meaning of section 408(d)(3).

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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 ruling does not authorize the rollover of amounts that are required to be distributed by section 401(a)(9) of the Code.

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 letter ruling has been sent to your authorized representative pursuant to a power of attorney on file in this office. If you wish to inquire about this ruling, please contact , , ( ), at

Sincerely yours,

Carlton A. Watkins
Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

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