IRA rollover deadline waived after taxpayer's incapacity

Plain-English summary

The IRS waived the 60-day IRA rollover deadline for an incapacitated taxpayer. The taxpayer had received a distribution, placed most of it in a checking account, and later became subject to a guardianship after a court found her incapacitated. The IRS allowed the guardian to roll over the remaining amount, after accounting for the amount used, within 60 days of the ruling letter. The ruling did not authorize rollover of required minimum distributions and assumed that the original and receiving IRAs satisfied the applicable requirements.

Ruling snapshot

• Question: Could the guardian receive additional time to roll over the remaining IRA distribution after the taxpayer's mental incapacity prevented a timely rollover?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(9), 408(d)(3), and 408; Rev. Proc. 2003-16, 2003-4 I.R.B. 359

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

UILs: 408.00-00
408.03-00

LEGEND:
Taxpayer A:
Guardian B:
Taxpayer C:
Taxpayer D:
Amount 1:
Amount 2:
Amount 3:
Year 1:
Date 1:
Date 2:
Date 3:
Date 4:
Date 5:
Date 6:

Date 7:

201022025

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

MAR 11 2010

SE:T:EP:RA:T3

Page 2

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Date 8:
Company M:

IRA X:

Account Y:
Court T:
County W:
State X:

Case 1:

Dear

This is in response to the request for letter rulings under section 408(d) of the Internal Revenue Code (“Code”), submitted on your behalf by your authorized representative, as supplemented by correspondence dated , , and . The following facts and representations support your ruling request.

Taxpayer A, whose date of birth was Date 1, 19__, is a resident of State X.
Taxpayer A formerly maintained IRA X with Company M. During Year 1, Taxpayer A
received a total distribution in the amount of Amount 1 from her IRA X. Said
distribution was placed into Account Y, a checking account, on or about Date 2, Year 1.

By Petition dated Date 3, 20__, Taxpayer C, the son of Taxpayer A, petitioned
Court T, County W, State X, to declare Taxpayer A incapacitated and in need of a
guardian. On Date 4, 20__, Court T, in Case 1, found Taxpayer A to be an incapacitated
person, and on Date 5, 20__, a Commission of Guardians was issued naming Guardian B
as Guardian of the property of Taxpayer A.

Court T also appointed, on Date 7, 20__, a geriatric care manager, Taxpayer D,
for Taxpayer A. An affidavit which was attached to the instant request for letter ruling,
dated Date 6, 20__, indicates that Taxpayer D is a registered nurse and a geriatric case

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manager. It also indicates that Taxpayer D has a Masters Degree in Nursing. The Date 6,
20__, affidavit indicates that Taxpayer D sees Taxpayer A on a regular, almost weekly,
basis and has had ample opportunity to interact with Taxpayer A. Taxpayer D also
indicates that she has reviewed Taxpayer A’s medical records and, based on her review of
said records and her contact with Taxpayer A, Taxpayer D opines that Taxpayer A
“...has been suffering from diminished cognitive ability dating back to at least

20__.... Taxpayer A has a diagnosis of dementia and other progressive illnesses which are
indicative of her cognitive decline over the past years”.

The affidavit continues by stating that “...It is my professional opinion, based
upon my personal knowledge of Taxpayer A, a review of her medical records and
discussions with her treating physicians that Taxpayer A has suffered from diminished
capacity dating back to at least 20__ and she would have been unable to manage her
affairs and finances...it is my opinion that Taxpayer A would have been unable to
understand the implications of a withdrawal from a qualified account and the tax
ramifications of such a transaction”.

20__ predates the year in which Taxpayer A withdrew Amount 1 from IRA X.

As of the date of this ruling request, the assets distributed from IRA X which is
the subject matter of this ruling request, other than Amount 2, remain in Account Y
referenced above.

It has been represented that Taxpayer A’s calendar year 2003 Federal Form 1040
was filed on or about Date 8, 20__. Thus, 20__ is an “open” tax year.

Based on the above facts and representations, you, through your authorized
representative, request the following letter rulings:

1. That, pursuant to Code section 408(d)(3)(I), except as noted below,
   Guardian B, on behalf of Taxpayer A, is granted a period, not to
   exceed 60 days, as measured from the date of this ruling letter, to
   contribute, by means of a rollover contribution (or contributions),
   Amount 3, the difference between Amount 1, the amount distributed
   from IRA X during 2003, and Amount 2, the amount used by
   Taxpayer A, into one or more traditional IRAs set up and maintained
   in the name of Taxpayer A.

With respect to your ruling requests, 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.

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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.

Code section 408(d)(3)(E) provides, in summary, that this paragraph does not
apply to any amount required to be distributed in accordance with subsection (a)(6) or
(b)(3) (Code section 401(a)(9) required distributions).

Code section 401(a)(9)(C) provides, in general, that with respect to an IRA
described in Code section 408, required distributions must begin no later than April 1 of
the calendar year following the calendar year in which the IRA holder attains age 70 1/2.
Thus, Taxpayer A’s “required beginning date” was April 1, 2004.

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.

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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.

With respect to your ruling request, we note that Taxpayer A’s failure to complete
a timely rollover of Amount 1 distributed from her IRA X referenced herein was due to
her mental incapacity. Evidence submitted in conjunction with the instant ruling request
asserts that, since at least calendar year 20__, Taxpayer A lacked the capacity to
understand the ramifications of her actions. Furthermore, shortly after Taxpayer A
withdrew Amount 1 from her IRA X she was placed under a guardian which placement
supports the proposition that Taxpayer A did not comprehend the nature of her action
when she accomplished the Year 1 withdrawal from her IRA X.

Thus, with respect to your ruling request, we conclude as follows:

1. That, pursuant to Code section 408(d)(3)(I), except as noted below,
   Guardian B, on behalf of Taxpayer A, is granted a period, not to exceed 60
   days as measured from the date of this ruling letter, to contribute, by means
   of a rollover contribution (or contributions), Amount 3, the difference
   between Amount 1, the amount distributed from IRA X during 2003, and
   Amount 2, the amount used by Taxpayer A, into one or more traditional
   IRAs set up and maintained in the name of Taxpayer A.

This ruling letter is based on the assumption that IRA X met the requirements of
Code section 408(a) at all times relevant thereto. Furthermore, it assumes that the IRA
(or IRAs), into which Guardian B, on behalf of Taxpayer A, will contribute the allowable
amounts (or portions thereof) will also meet the requirements of Code section 408(a) at
all times relevant thereto.

This letter ruling notes that Taxpayer A’s date of birth was Date 1, 19__. Thus,
Taxpayer A is over age 70 1/2 and, with respect to her IRA X, and any rollover IRA into
which allowable amounts will be rolled over, has reached her required beginning date as
that term is defined in section 401(a)(9)(C) of the Code. Thus, this letter ruling does not
authorize the rollover into an IRA (or IRAs) of amounts required to be distributed with
respect to years 20__ through 20__.

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.

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A copy of this letter has been sent to your authorized representatives in
accordance with a power of attorney on file in this office.

If you wish to inquire about this ruling, please contact , Esquire (ID:
) at either (Phone) or (FAX). Please address all
correspondence to SE:T:EP:RA:T:3.

Sincerely yours,

Y

Frances V. Sloan, Manager,
Employee Plans Technical Group 3

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