PLR 200907043: Medical and cognitive impairments justified a rollover waiver

Plain-English summary

An elderly taxpayer liquidated an IRA and placed the proceeds in a certificate of deposit held in a non-IRA account at the same financial institution. The taxpayer did not complete a rollover within 60 days, and his family later learned of the distribution while preparing his tax return. Family members and a physician reported that medical conditions and dementia had impaired his ability to understand matters and make financial decisions. The funds remained in the non-IRA account and had not been used for another purpose. The IRS waived the deadline and gave the taxpayer 60 days from the ruling date to contribute the amount to a rollover IRA, subject to all other rollover requirements.

Ruling snapshot

• Question: Would the IRS waive the 60-day IRA rollover deadline because medical and cognitive impairments prevented a timely rollover?
• Outcome: Approved: the taxpayer received 60 days from the ruling date to complete the rollover.
• Key authorities: IRC §§ 401(a)(9) and 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 200907043
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND NOV 21 2008
GOVERNMENT ENTITIES
DIVISION

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

Taxpayer’s SSN:
Control Number:

Legend:
Taxpayer =

IRA A =

Financial Institution B =

Account C =

Amount 1 =
Amount 2 =

Individual D =

Dear

This letter is in response to a request for a letter ruling dated March 10, 2008, as supplemented by a facsimile dated March 28, 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:

Taxpayer, age 87, represents that on November 5, 2007, Taxpayer liquidated IRA A and used the proceeds (Amount 1) to purchase a certificate of deposit (CD) in Account C, a

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non-IRA account also maintained with Financial Institution B. Taxpayer apparently believed Amount 2 was improperly withdrawn and he sought to transfer the assets in IRA A to a safer investment vehicle. Taxpayer asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was to his various medical problems which impaired his ability to make financial decisions. Taxpayer further represents that Amount 1 is now in Account C and has not been used for any purpose.

Taxpayer received a Form 1099-R for 2007 from Financial Institution B showing a taxable amount equal to Amount 1. Individual D, his son, who has been looking after Taxpayer’s affairs, became aware of the distribution from Taxpayer’s IRA while preparing his 2007 tax return. Taxpayer’s family members represent Taxpayer suffers from conditions which have affected his cognitive abilities over an extended period and has only a sixth grade education. The ruling request is accompanied by a letter from the Taxpayer’s Doctor which confirms states, in part, that the Taxpayer’s “current medical conditions along with his dementia level have put him in a state of limited ability to understand written and oral matters.”

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 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)).

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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 the Taxpayer’s assertion that the Taxpayer’s failure to accomplish a timely rollover of Amount 1 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 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).

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.

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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 , SE:T:EP:RA:T1, (I.D. # ), at .

Sincerely yours,

[signature]
Manager
Employee Plans Technical Group 1

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

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