PLR 201228046: IRS waives the 60-day IRA rollover deadline because of medical impairment

Plain-English summary

The IRS waived the 60-day IRA rollover requirement for a taxpayer who received a distribution and mistakenly deposited it into a non-IRA account. The taxpayer supported the request with medical records showing that bipolar disorder impaired her ability to manage her financial affairs during the rollover period. The IRS found that the information and documentation supported the claimed medical impairment and granted 60 days from the ruling letter’s issuance to contribute the amount to a rollover IRA. The ruling made the relief subject to the other requirements of IRC § 408(d)(3).

Ruling snapshot

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

Full text (IRS public release)

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

201228046

TAX EXEMPT AND
GOVERNMENT ENTITIES

APR 20 2012

DIVISION

Uniform Issue List: 408.03-00

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T: EP: RA: T2

Legend:

Taxpayer A = XXXXXXXXXXXXX
IRA B = XXXXXXXXXXXXX
Bank C = XXXXXXXXXXXXX
Bank D = XXXXXXXXXXXXX
Amount 1 = XXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

This is in response to your request dated July 7, 2011, as supplemented by correspondence dated April 8, 2012, in which you requested 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 53, represents that she received a distribution from IRA B totaling Amount 1. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to her medical condition, which impaired her ability to manage her financial affairs and accomplish a timely rollover. Taxpayer A further represents that Amount 1 has not been used for any other purpose.

Taxpayer A maintained IRA B, an individual retirement arrangement, under section 408(d)(3) of the Code with Bank C. In late 2010, Taxpayer A contemplated

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transferring the assets of IRA B to another investment firm. On October 11, 2010, Taxpayer A contacted Bank C and requested that the balance of her IRA, Amount 1, be distributed directly to her. At that time Taxpayer A had not decided where to rollover the distribution. Taxpayer A received a distribution in the form of a check from IRA B in Amount 1, which as a result of her medical condition she erroneously deposited on October 22, 2010, in a non-IRA account at Bank E instead of in an IRA. The mistake was discovered during the preparation of Taxpayer A’s income tax return.

Taxpayer A has suffered from bipolar disorder since 2002 and has been receiving treatment including both therapy and medication. Taxpayer A has submitted medical records including a letter from her physician documenting that her state of mental health at the time of the distribution and during the 60-day period following the distribution of Amount 1 prevented her from attending to her financial affairs, including completing a rollover. Amount 1 remains in a non-IRA account with Bank D.

Based on the facts and representations, a ruling has been requested 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 distribution of Amount 1.

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

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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 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 documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover was caused by her medical condition which impaired her ability to manage her financial affairs and accomplish a timely rollover.

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 1 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter 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.

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 ruling letter is being sent to your authorized representative pursuant to a Power of Attorney filed in this office.

If you wish to inquire about this ruling, please contact XXXXXXXXXXXXX (XXXXXXXX) at (XXX) XXX-XXXX. Please address all correspondence to SE:T:EP:RA:T1.

Sincerely,

Carlton Watkins, Manager
Employee Plans Technical Group 1

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