PLR 200904028: Mental impairment justified a late IRA rollover

Plain-English summary

A 64-year-old taxpayer made an online withdrawal from an IRA but had no recollection of doing so. The taxpayer and spouse had enough non-IRA assets to cover their expenses, and the taxpayer submitted letters from a treating physician showing that a mental condition impaired the taxpayer's ability to understand financial decisions at the time. The IRS found the evidence consistent with the taxpayer's explanation. It waived the 60-day rollover deadline under section 408(d)(3)(I) and gave the taxpayer 60 days from the ruling's issuance to contribute an equal amount to one or more IRAs. All other rollover requirements still had to be met.

Ruling snapshot

• Question: Could a mental condition that impaired the taxpayer's financial judgment justify waiving the 60-day IRA rollover deadline?
• Outcome: Approved. The taxpayer received 60 days from the ruling date to complete the rollover
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

200904028

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

OCT 30 2008

Uniform Issue List: 408.03-00

SE:T:EP:RA:T3
Legend:
Taxpayer A =
Taxpayer B =
IRA X =
Financial Institution C =
Amount U =
Doctor B =
Date 1 =
Dear
This is in response to your request dated July 10, 2007, as supplemented by correspondence dated November 1, 2007, June 26, 2008, and August 13, 2008, 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 64, asserts that on Date 1 he received a distribution from IRA X of Amount U, and that Taxpayer A’s failure to accomplish a rollover of Amount U was due to the effects of a mental condition which was such as to impair his ability to make sound financial decisions or to understand the consequences of his actions.

200904028

Page 2

On Date 1, Taxpayer A authorized the distribution of Amount U from IRA X through an internet online transfer. Taxpayer A asserts that he has no recollection of the Amount U withdrawal. Taxpayers A and Taxpayer B, Taxpayer A’s wife, had sufficient other non-IRA assets available to pay any expenses at the time of the Date 1 transaction.

Taxpayer A has submitted documentation including letters from his treating physician, Doctor B, that Taxpayer A was suffering from a mental condition at the time of the Date 1 IRA X withdrawal, and that Taxpayer A’s mental condition impaired his ability to understand the consequences of his financial actions.

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 transfer of Amount U contained in section 408(d)(3) of the Code in this instance.

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

(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).

200904028

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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 Taxpayer A’s assertion that his failure to accomplish a rollover of Amount U was due to the effects of a mental condition which was such as to impair his ability to make sound financial decisions or to understand the consequences of his 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 U from IRA X. Pursuant to this ruling letter, Taxpayer A is granted a period of 60 days measured from the date of the issuance of this letter ruling to make a rollover contribution of an amount equal to Amount U 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).

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.

200904028

Page 4

A copy of this letter ruling is sent to your authorized representative pursuant to the provisions of a Power of Attorney on file in this office.

If you wish to inquire about this ruling, please contact XXXXXX. 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 ruling letter
Notice of Intention to Disclose