PLR 201130013: IRS waived the 60-day IRA rollover requirement after emotional distress and divorce proceedings

Plain-English summary

An older taxpayer unintentionally transferred funds from an IRA to a non-IRA account while moving assets to a bank near a new residence. The taxpayer then experienced severe emotional distress, depression, and insomnia during contentious divorce proceedings, and the funds remained unused. The IRS waived the 60-day rollover requirement and granted 60 days from the ruling date to contribute the amount to a rollover IRA, subject to the other section 408(d)(3) requirements. The ruling did not authorize rollover of amounts required to be distributed under section 401(a)(9).

Ruling snapshot

• Question: Whether the IRS should waive the 60-day rollover requirement for an unintended IRA distribution.
• Outcome: Approved.
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), 408(d)(3)(I), and 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

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

TAX EXEMPT AND

GOVERNMENT ENTITIES MAY 02 2011 y 0 l 1 3 0 0 1 3

DIVISION

Uniform Issue List: 408.03-00
TEP RAY T4

Legend:
Taxpayer A =

IRA B =

Financial Institution C =
Account D =

Financial Institution E

Amount 1 =

Dear

This letter is in response to a request for a letter ruling dated February 21, 2011, as supplemented by additional information dated March 22, 2011, from your authorized representative, in which you 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, age 81, at the time of the distribution of Amount 1 from IRA B, asserts that his failure to accomplish a rollover of Amount 1 within the 60-day period prescribed by section 408(d)(3) was due to his depressed condition following his separation from his spouse, which adversely impacted his ability to

manage his financial affairs. Amount 1 remains in Account D and has not been used for any purpose.

Taxpayer A maintained IRA B, an individual retirement account, under section 408(a) of the Code, with Financial Institution C. Financial Institution C is

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located in the general vicinity of his former employer. In October, 2009, Taxpayer A separated from his spouse. As a result of the separation, Taxpayer A now lives 25 miles from Financial Institution C. In February, 2010, Taxpayer A opened Account D at a branch of Financial Institution E because he wanted to move most of his financial assets near his new residence. On March 11, 2010, Taxpayer A converted a certificate of deposit in IRA B and immediately deposited the funds in Account D. He believed he was simply changing banks. He did not realize he was transferring from an IRA to a non-IRA account. Taxpayer A never intended to remove Amount 1 from a retirement plan.

On March 15, 2010, four days after the transfer, Taxpayer A’s spouse instituted divorce proceedings. Taxpayer A envisioned a straightforward mediated division of community property, and a quiet termination of his marriage. Unfortunately, the divorce proceedings grew contentious and, consequently, Taxpayer A experienced severe emotional distress, depression and insomnia. Taxpayer A’s physician documented that he examined him and prescribed medications to treat his stress and insomnia. The stress caused by the separation from his spouse

and subsequent divorce proceedings interfered with Taxpayer A’s management of his financial affairs.

Based on the above facts and representations, you request that the Internal Revenue Service (“Service”) waive the 60-day rollover requirement contained in section 408(d)(3) of the Code with respect to the distributions of Amount 1.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d) of the Code, 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) of the Code).

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Section 408(d)(3)(B) of the Code provides that section 408(d)(3) of the Code does not apply to any amount described in section 408(d)(3)(A)(i) of the Code 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) of the Code 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.

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 sections 408(d)(3)(I) and 402(c)(3)(B) of the Code, 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 A is consistent with his assertion that his failure to accomplish a timely rollover of Amount 1 was caused by his inability to manage his financial affairs as a result of diagnosed emotional distress, depression and insomnia following separation from his spouse and subsequent contentious divorce proceedings.

Therefore, pursuant to section 408(d)(3)(I), the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA B and Taxpayer A 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) of the Code, 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) of the Code. This ruling does not

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201130013

authorize the rollover of amounts that are required to be distributed by section 401(a)(9) of the Code.

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.

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 (I.D. # ); ,at( )

Sincerely yours,

Cartte- A- Wothey

Manager
Employee Plans Technical Group 1

cc:

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