PLR 200901035: 60-day rollover waived where medical conditions left the taxpayer unable to manage his finances

Plain-English summary

Money taken out of an IRA is taxable unless it goes back into a retirement account within 60 days. Since 2002 the IRS has been able to waive that deadline when enforcing it would be against equity or good conscience, and Rev. Proc. 2003-16 lists the factors it weighs: errors by a financial institution, inability to complete the rollover because of death, disability, hospitalization, incarceration, foreign-country restrictions or postal error, what the taxpayer did with the money, and how much time has passed.

The taxpayer was 72 and had four IRAs, all invested in certificates of deposit, at one financial institution. In early June he cashed out all four and moved the combined proceeds into his checking account at the same institution. Over the next week he wrote checks into a mutual fund account at a second institution. Nobody treated any of this as a rollover, and it was not until October that his family realized the four withdrawals had been taxable distributions.

The request came with a letter from his doctor stating that he has a very difficult time understanding complex financial statements, is not truly capable of making financial decisions on his own, and that his decision-making ability is severely impaired. Later that month his son obtained a general power of attorney over his financial and legal affairs. In November the son sold exactly the number of shares his father had bought in June, opened a new account at the original institution and deposited part of the proceeds there, with the rest going into the existing checking account.

The IRS found the documentation consistent with the claim that the missed deadline was caused by medical conditions impairing the taxpayer's ability to manage his affairs, and waived the 60-day requirement for all four distributions. He has 60 days from the date of the letter to contribute the full amount into a rollover IRA, and if the other requirements of section 408(d)(3) are met, that contribution counts as a rollover. One limit is stated expressly: the ruling does not authorize rolling over amounts that section 401(a)(9) requires to be distributed, which matters at his age.

Ruling snapshot

• Question: Should the 60-day rollover deadline be waived for four IRA
  distributions the taxpayer failed to roll over because of medical conditions that impaired his ability to manage his financial affairs?
• Outcome: Approved. The 60-day requirement is waived for all four
  distributions, with 60 days from the letter to make the rollover contribution. No waiver of required minimum distributions under section 401(a)(9).
• Key authorities: I.R.C. §§ 408(d)(1), 408(d)(3)(A), 408(d)(3)(B),
  408(d)(3)(D), 408(d)(3)(I), 401(a)(9), 72; Rev. Proc. 2003-16, 2003-4 I.R.B. 359

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List:

Control Number:
SSN:

Legend:
Taxpayer

IRA A

IRA B

IRA C

IRA D

200901035

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

OCT O 6 2008
408.03-00 SE , T: EP: Rh ‘TY

Financial Institution E =

Account F

Financial Institution G =

Account H

Account I

Amount 1

Amount 2

Amount 3

Amount 4

200901035

Amount 5 =
Amount 6 =
Amount 7 =
Amount 8 =
Amount 9 . =

Individual J =

Dear

This letter is in response to a request for a letter ruling dated January 9, 2008, as modified and supplemented by additional information dated September 25, 2008, from your authorized representatives, 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 Amounts 1, 2, 3, and 4 (totaling Amount 5) from your individual retirement accounts (IRAs A, B, C, and D, respectively) maintained with Financial Institution E.

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

Taxpayer, age 72 at the time of the distribution of Amounts 1, 2, 3, and 4 from IRAs A, B, C, and D, respectively, suffers from various medical problems. It is asserted that the failure to accomplish a rollover within the 60-day period prescribed by Code section 408(d)(3) was due to his mental and physical conditions which impaired his ability to manage his financial affairs.

Taxpayer maintained IRAs A, B, C, and D, individual retirement accounts under section 408(a) of the Code. All four IRAs were invested in certificates of deposit (CD). Taxpayer represents that on June 2, he liquidated IRAs A, B, C, and D and transferred proceeds from the CDs totaling Amount 5 to Account H, a checking account with Financial Institution E. On June 5, and June 8, . Taxpayer deposited checks totaling Amount 7 and Amount 8, respectively, into Account F, a mutual fund account maintained with Financial Institution G. On October 5, , Taxpayer’s family discovered the four taxable distributions from IRAs A, B, C, and D.

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/3

The Taxpayer has suffered from a variety of medical problems over an extended period

• of time. The ruling request is accompanied by a letter from the Taxpayer’s Doctor which
  states, in part, that the Taxpayer “...has a very difficult time understanding complex financial statements, and is not truly capable of making financial decisions on his own ” and that “his decision-making ability is severely impaired.” Because of Taxpayer’s condition, on October 29, , Individual J, his son, obtained a General Power of Attorney to handle his financial and legal affairs. On November 9, , Individual J sold the exact same number of shares Taxpayer purchased on June 5 and 8, . He opened Account I with Financial Institution E, into which he deposited Amount 9. The remaining proceeds from this transaction (Amount 6) were deposited in Taxpayer’s

_ existing checking account (Account H) with Financial Institution E.

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 5.

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 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 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).

200901035

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 the Taxpayer’s assertion that the Taxpayer’s failure to accomplish a timely rollover of Amount 5 was due to medical conditions which impaired his ability to manage his financial affairs.

Therefore, pursuant to Code section 408(d)(3)(I), the Service hereby waives the 60-day rollover requirement with respect to the distributions of Amount 1, 2, 3, and 4 from IRAs A, B, C, and D. Taxpayer is granted a period of 60 days from the issuance of this letter ruling to contribute Amount 5 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 5 will be considered a rollover contribution within the meaning of section 408(d)(3).

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.

200901035

A copy of this letter ruling has been sent to your authorized representatives pursuant to powers of attorney on file in this office. If you wish to inquire about this ruling, please contact — , SE:T:EP:RA:T1, (ID# ), 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

cc: