PLR 1020026: IRS waived the 60-day IRA rollover deadline because of the taxpayer's medical condition

Plain-English summary

The IRS waived the 60-day deadline for rolling a distribution from one IRA into a rollover IRA. The taxpayer said that declining health, mental confusion, and memory impairment prevented timely completion of the rollover and impaired the ability to manage financial affairs. The taxpayer intended to roll over the amount remaining after tax withholding and represented that it had not been used for another purpose. Under IRC § 408(d)(3)(I), the IRS granted 60 days from the ruling letter to make the contribution, subject to the other rollover requirements. The ruling did not authorize a rollover of amounts required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement because the taxpayer's medical condition prevented a timely rollover?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), 408(d)(3)(I), 401(a)(9), and 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

201020026

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 22 2010

Uniform Issue List: 408.03-00

Legend:

Taxpayer =

Account A =

Financial Institution B =

Financial Institution C =

Financial Institution D =

Account E =

Financial Institution F =

Amount 1 =

Amount 2 =

Amount 3 =

Dear :

This is in response to your submission dated October 6, 2009, as modified and
supplemented by additional correspondence dated November 8, November 11
and November 15, 2009, 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”).

Taxpayer asserts that the failure to accomplish the rollover within the 60-day
period described by section 408(d)(3) of the Code was due to his mental and
physical condition which affected his memory and impaired his ability to manage
his financial affairs.

-2-

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

Taxpayer was age _, at the time of the distribution of Amount 1 from Account A,
an individual retirement arrangement (“IRA”) established and maintained at
Financial Institution B.

Taxpayer asserts that on October , 20 , he received a distribution of Amount
1 from Account A which he then deposited into his account at Financial Institution
C over concern that the funds would be lost if Financial Institution B failed.
Taxpayer moved the funds without consulting his spouse, as he normally did. On
October , 20 , he deposited Amount 2 (Amount 1 minus withheld Federal and
state taxes) into Account E at Financial Institution D. Taxpayer further asserts
that he subsequently transferred a portion of Amount 2 (Amount 3) to Financial
Institution F while awaiting the Service's decision regarding his submission.
Taxpayer asserts that he intended to rollover Amount 2 and believed that he was
depositing Amount 2 into another IRA account. Taxpayer represents that he has
not used Amount 2 for any other purpose.

Taxpayer suffers from numerous health issues and has been in declining health
for several years. Medical documentation and statements from Taxpayer's
spouse submitted with Taxpayer's request demonstrate the severity of his
medical problems and the extent of his treatment for these conditions. According
to the submitted documentation, Taxpayer's health issues have caused Taxpayer
to suffer lack of energy, mental confusion and memory impairment. The
documentation also shows that Taxpayer's ability to adequately manage his
financial affairs has become increasingly difficult because of his health
conditions, and that during the time leading up to and following Taxpayer's
withdrawal from Account A, Taxpayer suffered from mental confusion and
memory impairment. Taxpayer's primary care physician has confirmed in a letter
dated June , 20 , that Taxpayer, because of his mental and physical state,
was not competent to make financial decisions.

Based on the above facts and representations, Taxpayer requests a ruling that
the Internal Revenue Service (“Service”) waive the 60-day rollover requirement
contained in section 408(d)(3) of the Code with respect to Amount 2 of the
distribution from Account 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.

201020026

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)(E) of the Code provides that the rollover provisions of section
408(d) do not apply to any amount required to be distributed under section
408(a)(6).

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.

201020026
-4-

Section 401(a)(9) of the Code provides the rules for required minimum
distributions from a qualified plan. Section 401(a)(9)(A) provides, in pertinent
part, that a trust shall not constitute a qualified trust unless the plan provides that
the entire interest of each employee will be distributed or commence to be
distributed to such employee not later than the required beginning date. Section
401(a)(9)(C) defines the term “required beginning date” as April 1 of the calendar
year following the later of the calendar year in which the employee attains age
70½, or the calendar year in which the employee retires.

The information presented and documentation submitted by Taxpayer's
physicians is consistent with Taxpayer's assertion that his failure to accomplish a
timely rollover was due to medical conditions which impaired his ability to
manage his financial affairs.

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
2 from Account A. Taxpayer is granted a period of 60 days from the issuance of
this ruling letter to contribute Amount 2 into a rollover IRA. 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 2 will be considered a rollover
contribution within the meaning of section 408(d)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to be
distributed by Code section 401(a)(9).

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.

If you wish to inquire about this ruling, please contact
(Government I.D. Number xx-xxxxx) by phone at (xxx) xxx-xxxx or by fax at (xxx)
xxx-xxxx. Please address all correspondence to SE:T:EP:RA:T1.

Sincerely,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
» Deleted copy of ruling letter
» Notice of Intention to Disclose