PLR 200851043: The 60-day rollover clock is waived for a grandmother whose grandchild was killed

Plain-English summary

Money taken out of an IRA is taxable unless it is put back into a retirement account within 60 days. The taxpayer here missed that deadline, and the Service waived it.

The facts are terrible and the letter sets them out plainly. The taxpayer, a woman of 60, had a daughter who suffers from depression with psychotic tendencies and paranoid delusions and who had been admitted to a hospital psychiatric unit. While the daughter was in hospital, the daughter's own child lived with the taxpayer. The daughter was released into the taxpayer's care, and shortly afterward the child was found dead in the taxpayer's home. The daughter was arrested the same day and charged with the murder. The taxpayer had taken a distribution from her IRA intending to roll it over within the 60 days, and in the grief and confusion of the weeks that followed she did not complete the rollover until after the period had run.

The legal framework is short. Section 408(d)(1) makes any amount paid out of an IRA includible in gross income under section 72. Section 408(d)(3)(A) takes the amount back out of income if the entire amount received is paid into an IRA no later than the 60th day after the day it was received, or into another eligible retirement plan on similar terms, and section 408(d)(3)(D) applies the same period to partial rollovers. Section 408(d)(3)(B) adds the one-rollover-per-year restriction. The letter recites all of this before reaching the provision that matters.

That provision is section 408(d)(3)(I), which lets the Secretary waive the 60-day requirement where failing to do so would be against equity or good conscience, and names casualty, disaster and other events beyond the individual's reasonable control as examples. It reaches only distributions occurring after 31 December 2001. Rev. Proc. 2003-16 sets out how the Service weighs a waiver request, considering all relevant facts and circumstances and listing four in particular: errors by a financial institution, inability to complete a rollover because of death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error, the use made of the distributed money, and the time that has passed since the distribution.

The Service's reasoning occupies one sentence. The information presented and the documentation submitted are consistent with the taxpayer's assertion that her failure was due to the mental anguish associated with the series of tragic events surrounding the murder of her granddaughter and her concerns about her daughter. The waiver follows, and provided every other requirement of section 408(d)(3) is met the late contribution counts as a rollover. No opinion is expressed on any other provision of the Code or regulations.

Two features of the released text are worth flagging. First, it contains an internal contradiction: early on the taxpayer represents that the distributed amount has not been used for any other purpose, while the statement of facts says the amount rolled over was the distribution less an amount she had used for other purposes. Second, the waiver in the operative paragraph is granted for a different defined amount than the one the request and the facts are framed around, and that second amount is defined only in the redacted legend. Read together with the facts, the smaller amount is evidently what actually reached the new IRA, so the waiver appears to cover only what was rolled over and not the portion spent. The letter never says so, and every figure is redacted, so the reader cannot confirm it.

Ruling snapshot

• Question: Should the 60-day rollover requirement be waived for a taxpayer who failed to complete an IRA rollover in time because of the murder of her granddaughter and her daughter's mental illness and arrest?
• Outcome: Approved. The Service waives the 60-day requirement under section 408(d)(3), finding the submitted information and documentation consistent with the taxpayer's assertion that her failure was caused by the mental anguish surrounding those events. Provided all other requirements of section 408(d)(3) are met, the late contribution is a rollover contribution. No opinion is expressed on any other provision.
• Key authorities: IRC sections 72, 408(d)(1), 408(d)(3)(A), (B), (D) and (I); Rev. Proc. 2003-16, 2003-4 I.R.B. 359.

Full text (IRS public release)

200851043

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

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION

SEP 24 2008
UIL No. 408.03-00

Legend:

Taxpayer A = [illegible]
Individual B =
Individual C =
Medical Center D =
Date 1 =

Date 2 =

Date 3 =

Date 4 =

Amount T =
Amount U =

IRA X =

IRA Y =

Company A =

Dear:

This is in response to your letter dated , supplemented by letters dated , submitted on your behalf 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”).

200851043

Taxpayer A, age 60, represents that she received a distribution totaling Amount T from IRA X. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to mental anguish associated with the murder of her granddaughter, and concerns about her daughter's mental health and pending criminal charges, which impaired her ability to make sound financial decisions. Taxpayer A further represents that Amount T has not been used for any other purpose.

Under penalty of perjury, Taxpayer A submits the following facts and representations in support of the ruling request:

Individual B is Taxpayer A’s daughter. Individual B suffers from depression with psychotic tendencies and paranoid delusions. Individual B was admitted to the psychiatric unit at Medical Center D sometime prior to Date 1. During Individual B’s admission, her daughter, Individual C, lived with Taxpayer A.

Individual B was released from Medical Center D into Taxpayer A’s care on Date

1. On Date 2, Individual C was found dead in Taxpayer A’s home. Individual B
   was arrested on Date 2 and charged with the murder of Individual C.

Taxpayer A maintained IRA X with Company A. On Date 3, Taxpayer A requested a distribution of Amount T from IRA X. Taxpayer A represents that she withdrew Amount T from IRA X with the intent to rollover Amount T into an eligible rollover IRA within the 60-day rollover period. However, because of her grief and confusion during the period immediately following her granddaughter’s death, Amount T, less an amount used by Taxpayer A for other purposes, was rolled over into IRA Y on Date 4, which was beyond the 60-day rollover period.

Based on the facts and representations, Taxpayer A requests that the Internal Revenue Service (the “Service”) waive the 60 day rollover requirement contained in section 408(d)(3) of the Code, with respect to the distribution of Amount T from IRA X, because failure to do so would be against equity and good conscience.

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

200851043

(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 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 documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a rollover within the 60-day period was due to the mental anguish associated with the series of tragic events surrounding the murder of her granddaughter, and concerns about her daughter's mental health and pending criminal charges.

200851043

Therefore, pursuant to section 408(d)(3) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the rollover of Amount U to IRA Y. 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 U will be considered a rollover contribution 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.

A copy of this ruling is being sent to your authorized representative in accordance with a power of attorney on file with this office.

If you wish to inquire about this ruling, please contact , I.D. No. , at *** or *** (FAX). Please address all correspondence to SE:T:EP:RA:T4.

Sincerely yours,
[illegible]

Donzell H. Littlejohn, Manager
Employee Plans, Technical Group 4

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose

cc: