PLR 200921037: Medical condition justified an IRA rollover deadline waiver

Plain-English summary

A 68-year-old taxpayer withdrew money from an IRA while suffering from a medical condition that impaired her ability to manage her finances. A person holding her durable power of attorney discovered the liquidation while preparing her tax return, moved the funds to an account the taxpayer could not access, and later deposited the amount into another IRA. Medical records confirmed the condition. The IRS found that the medical condition caused the missed 60-day rollover deadline and waived that requirement under section 408(d)(3)(I). It treated the specified amount already deposited in the second IRA as a rollover contribution, while warning that any excess deposited with it would be an excess contribution subject to section 4973.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline because a medical condition prevented timely action?
• Outcome: Approved: the specified amount deposited in the second IRA was treated as a rollover contribution.
• Key authorities: IRC §§ 72, 408(d)(3), 4973; Rev. Proc. 2003-16.

Full text (IRS public release)

200921037

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: FEB 27 2009

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend:
Taxpayer A =
Individual A =
IRA A =
IRA B =
Amount A =
Account A =
Account B =

Dear:

This letter is in response to a request for a letter ruling dated November 3, 2007, from your authorized representative, in which you (Taxpayer A) request a waiver of the 60- day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code ("Code").

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

Taxpayer A is currently age 68. The ruling request asserts Taxpayer A is suffering from a medical condition which impairs her ability to manage her financial affairs and which prevented her from accomplishing the timely rollover of Amount A as required by section 408(d)(3) of the Code.

On September 8, 2006, Taxpayer A withdrew Amount A from IRA A and deposited it into Account A on September 12, 2006. During the preparation of Taxpayer A’s 2006

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income tax return, Individual A, who holds a Durable Power of Attorney on behalf of Taxpayer A, discovered the liquidation of IRA A. On May 25, 2007, Amount A was removed from Account A by Individual A and deposited into Account B to prevent Taxpayer A from having access to Amount A. On September 24, 2007, Individual A deposited Amount A into IRA B for the benefit of Taxpayer A. Medical documentation received in connection with the request confirms Taxpayer A's condition.

Based on the above facts and representations, you request that due to Taxpayer A's medical condition, the Internal Revenue Service waive the 60-day rollover requirement with respect to the distribution of Amount A from IRA A.

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).

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

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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 on behalf of Taxpayer A is consistent with the assertion that the failure to accomplish a timely rollover was caused by Taxpayer A's medical condition.

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 A from IRA A. The contribution to IRA B of Amount A will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code. Any amount in excess of Amount A contributed to IRA B along with Amount A will be considered an excess contribution and subject to the treatment provided in section 4973 dealing with tax on excess contributions.

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 Income Tax Regulations thereunder that may be applicable.

This letter is directed only to Taxpayer A who is named above. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

If you wish to inquire about this ruling, please contact , SE:T:EP:RA:T1, (Badge No. ) at . Please address all correspondence to SE:T:EP:RA:T1.

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: