Medical crisis supports a 60-day IRA rollover waiver

Plain-English summary

A taxpayer withdrew funds from an IRA while preparing for a possible separation and intended to roll them into an IRA for his spouse. During the 60-day period, the taxpayer's young son experienced a severe medical crisis that required constant monitoring, and the rollover was not completed on time. The IRS found that the medical crisis and caregiving responsibilities caused the delay and waived the 60-day requirement. It treated the later deposit back into the original IRA as timely, provided the other rollover requirements were met.

Ruling snapshot

• Question: Whether a family medical crisis justified waiving the 60-day IRA rollover requirement.
• Outcome: Approved.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16; IRC § 72.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

201234031

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Uniform Issue List: 408.03-00
MAY 29 2012
T:EP:RA:T2
Legend:
Taxpayer A =
Spouse B = ***
Individual C = ***

Financial Institution D =

Physician E =
IRA X = **
Date 1 = ***
Date 2 = *
Amount A = **
Dear ***:

This letter is in response to your ruling request dated October 11, 2011, as
supplemented by correspondence dated March 23, 2012, in which you requested a
waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal
Revenue Code (the Code).

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

Taxpayer A, age 60, represents that he received a distribution of Amount A from
his Individual Retirement Account (IRA), IRA X, at Financial Institution D. He asserts

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that his failure to accomplish a rollover of Amount A within the 60-day period prescribed
by section 408(d)(3) was due to the medical condition of his son, Individual C.
Taxpayer A represents that Amount A has not been used for any other purpose.

Taxpayer A represents that on Date 1, he withdrew Amount A from IRA X in
anticipation of a separation or divorce from his wife, Spouse B. Taxpayer A and Spouse
B intended to obtain a separation agreement that would allow Spouse B to roll over
Amount A into an IRA in her name. Taxpayer A also represents that Individual C, age
7, has suffered from a psychological medical condition for several years that severely
impairs his social interactions and physical well-being. During the same month as Date
1, Individual C’s condition worsened, leading his physician, Physician E, to prescribe a
new medication. Physician E has provided a statement that the new medication caused
Individual C to have a “psychotic breakdown.” This condition lasted several months,
during which Individual C experienced episodes of severe aggression and paranoia,
requiring constant monitoring by his parents. Taxpayer A represents that his son’s
illness prevented Taxpayer A from either obtaining a separation agreement permitting
Spouse B to roll over Amount A to an IRA in her name, or from returning Amount A to
IRA X. On Date 2, after Individual C’s condition subsided, Taxpayer A deposited
Amount A back into IRA X.

Based on the foregoing facts and representations, you request a ruling that the
Internal Revenue Service (the Service) waive the 60-day rollover requirement with
respect to the distribution of Amount A from IRA X at Financial Institution D.

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)).

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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)(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.

Revenue Procedure 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) 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 documentation submitted by Taxpayer A are
consistent with his assertion that his failure to accomplish a timely rollover was caused
by Individual C’s medical condition, specifically the “psychotic breakdown” that
Physician E described as occurring during the 60-day rollover period, and Taxpayer A
and Spouse B’s roles as primary caretaker, which resulted in Taxpayer A depositing
Amount A into IRA X after the 60-day deadline.

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 A from
IRA X. Pursuant to this ruling letter, Taxpayer A's contribution on Date 2 of Amount A
into IRA X is deemed to have been timely made and deemed to constitute a rollover
contribution as long as all other requirements of Code section 408(d)(3), except the 60-
day requirement, are met with respect to such IRA contribution.

No opinion is expressed as to the tax treatment of the transactions 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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If you wish to inquire about this ruling, please contact ***. Please address all
correspondence to SE:T:EP:RA:T2.

Sincerely,

Donzell Littlejohn, Manager
Employee Plans Technical Group 2

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

CC: