PLR 1036029: IRS waived the 60-day IRA rollover deadline after a taxpayer's mental impairment

Plain-English summary

The IRS waived the 60-day deadline for a taxpayer to roll an IRA distribution into another IRA. The taxpayer intended to transfer the funds within the same IRA but, because of diminished mental capacity while taking prescription medication, the money was deposited into a non-IRA account instead. The IRS found that the taxpayer had not used the distribution for another purpose and granted 60 days from the ruling date to contribute the distributed amount to an IRA. The ruling does not authorize rollover of required distributions, or interest and dividends earned while the money was held in the non-IRA account.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover requirement?
• Outcome: Approved
• Key authorities: IRC §§ 401, 408, and 6110

Full text (IRS public release)

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

GOVERNMENT ENTITIES “JUN 22 2010

DIVISION

U.I.L. 408.03-00 CET EP eA: Te

XXXXX
XXXXX

Legend:

Taxpayer A = xxxxx

IRA X = xxxxx
Account Y = xxxxx

Financial Institution C = xxxxx
Amount N = XXXXX

Amount O = xxxxx

Year 1= xxxxx

Date 1 = xxxxx

Dear xxxxx:

This is in response to a letter dated June 22, 2009, as supplemented by
correspondence dated October 7, November 5 and November 9, 2009, and
January 22 and March 3, 2010, submitted on your behalf by your authorized

XXXXX )
2008 201036029
representative, requesting 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 are made under penalties of perjury in
support of your ruling request.

Taxpayer A, age 77, represents that he received a distribution of Amount N from
IRA X, an Individual Retirement Arrangement he maintained with Financial
Institution C. Taxpayer A asserts that his failure to accomplish a rollover of
Amount N into an IRA within the 60-day period prescribed by section 408(d)(3) of
the Code was due to his mental condition which severely impaired his ability to
manage his financial affairs. Taxpayer A further asserts that Amount N has not
been used for any other purpose.

IRA X was spread among nine different investment funds. Each fund had an
identifying title and fund number which distinguished one fund from the other.
Taxpayer A received a separate written statement for the transactions of each
fund. The statement for each fund identified the investment as an IRA on behalf
of Taxpayer A. Each statement showed an account number common to all nine
funds.

In addition to IRA X, Taxpayer A maintained a non-IRA account (Account Y) with
Financial Institution C.

On Date 1, Taxpayer A gave Financial Institution C instructions by telephone to
withdraw the account balance (Amount N) of eight of the nine funds held by IRA
X intending to transfer Amount N into the ninth fund of IRA X from which no
withdrawal was made. Documentation shows that although IRA X and Account Y
did not have the same account number, the ninth fund of IRA X and Account Y
had the same title and fund number.

Due to his diminished Capacity as a result of prescription medication he was
taking, Taxpayer A became confused and the distribution was instead transferred
into Account Y, the non-IRA money market account. Financial Institution C
deducted 10 percent Federal tax withholding from the distribution, resulting in
Amount O being deposited in Account Y.

While preparing Taxpayer A’s tax return for Year 1, Taxpayer A’s accountant
discovered that Amount N had been withdrawn from IRA X. Such discovery
occurred after the 60-day period for rolling over Amount N into another IRA had
expired. .

Documentation, including a letter from Taxpayer A’s treating physician, states
that Taxpayer A suffered from diminished mental Capacity at the time of the

Page 3

distribution of Amount N from IRA X and during the 60-day period following the
distribution due to the side effects of medication prescribed to Taxpayer A which
severely impaired Taxpayer A’s ability to manage his financial affairs.

Based on the facts and representations presented in this letter, you request that
the Service waive the 60-day rollover requirement with respect to the distribution
of Amount N from IRA X.

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) 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 60" 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) of the Code.

Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for
partial rollovers. —

00K 201 036029

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(d)(6).

Section 408(d)(3)(1) of the Code provides that the Secretary may waive the 60-
day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) 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.

Revenue Procedure 2003-16, 2003-4 I.R.B. 359, 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 his assertion that on Date 1, he intended to transfer Amount N
into the ninth fund of IRA X.

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
N from IRA X. Taxpayer A is granted a period of 60 days from the issuance of
this ruling letter to contribute Amount N into an 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 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 to Taxpayer A by section 401(a)(9) of the Code.

This ruling also does not authorize the rollover of interest or dividends earned on
Amount O while Amount O was held in Account Y.

This ruling assumes that IRA X satisfies the qualification requirements of section
408 of the Code at all times relevant to this transaction.

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.

Page 5 201036029

This ruling 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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is
being sent to your authorized representative.

If you wish to inquire about this ruling, please contact xxxxx, I.D. # xxxxx, by
telephone at —--xxxxx. Please address all correspondence to SE:T:EP:RA:T4.

Sincerely yours,

nw B Waveho,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 4

Enclosures:
Copy of deleted ruling letter
Notice of Intention to Disclose

CC:

XXXXX
XXXXKXK
XXXXX