PLR 1301016: IRS waives the 60-day rollover deadline after a serious medical crisis

Plain-English summary

An employee received a distribution from an exempt employer trust and asked the IRS to waive the 60-day rollover deadline. The taxpayer said that serious, ongoing medical conditions, surgeries, complications, malnutrition, and ulcerative colitis impaired his ability to make coherent financial decisions during the rollover period. The distribution remained in a savings account and was not used for other purposes. The IRS accepted the submitted information and waived the deadline under IRC § 402(c)(3)(B), allowing 60 days from the ruling letter's issuance to contribute the amount to an IRA. The ruling does not authorize rolling over required minimum distributions under IRC § 401(a)(9).

Ruling snapshot

• Question: Could the IRS waive the 60-day deadline for rolling an employee trust distribution into an IRA?
• Outcome: Approved
• Key authorities: IRC § 402(c)(3)(B), § 402(c)(4), and § 402(c)(8); 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
DIVISION

OCT 10 2012

201301016

Uniform Issue List: 402.00-00

[illegible handwritten notation]

Legend

Taxpayer A =
Plan B =
Account C =
Bank D =

Amount 1 =

Dear [redacted]:

This is in response to your request dated May 24, 2012, as supplemented by correspondence dated August 15, 2012, in which you request, through your authorized representative, a waiver of the 60-day rollover requirement contained in section 402(c)(3)(A) 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 represents that he received a distribution equal to Amount 1 from Plan B. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) of the Code was due to a serious ongoing medical condition that compromised his ability to roll over Amount 1 into an IRA within the 60-day period.

Documentation submitted indicates that Taxpayer A has a history of serious gastrointestinal issues, resulting in repeated surgeries, post-operative complications, severe malnutrition, and ongoing ulcerative colitis. Due to complications from one of the surgeries and chronic ulcerative colitis, Taxpayer A retired from employment and received a single sum distribution from Plan B. On April 1, 20 [redacted], Taxpayer A received a check for Amount 1 from Plan B. Taxpayer A deposited the check into his savings account where it has remained since the initial deposit. Taxpayer A’s physician provided a letter stating that during April and May of 20 [redacted], Taxpayer A experienced multiple medical conditions and as a result of his treatment was not able to make coherent decisions. During the rollover period, Taxpayer A was too weak to undergo further surgery, which was postponed until September of 20 [redacted]. In February of 20 [redacted], Taxpayer A became aware that Amount 1 had not been properly rolled over when he brought his tax information to Volunteer Income Tax Assistance.

Based on the above facts and representations, you request that the Service waive the 60-day rollover requirement under section 402(c)(3)(A) of the Code with respect to the distribution of Amount 1 from Plan B.

Section 402(a)(1) of the Code provides that except as otherwise provided in this section, any amount actually distributed to any distributee by any employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to the distributee, in the taxable year of the distributee in which distributed, in the manner provided under section 72 (relating to annuities).

Section 402(c) of the Code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans, including IRAs.

Section 402(c)(1) of the Code provides, generally, that if any portion of an eligible rollover distribution from a qualified employees trust is paid to the employee in an eligible rollover distribution and the employee transfers any portion of the property received in such distribution to an eligible retirement plan, and in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.

Section 402(c)(2) of the Code provides that the maximum amount of an eligible rollover distribution to which paragraph (1) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to paragraph (1)).

Section 402(c)(3)(A) of the Code provides, generally, that section 402(c)(1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.

Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60-day requirement under subparagraph (A) 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 occur after December 31, 2001, are eligible for the waiver under section 402(c)(3)(B).

201301016

Section 402(c)(4) of the Code defines “eligible rollover distribution” as any distribution to an employee of all or a portion of the balance to the credit of an employee in a qualified trust, except that such term shall not include:

(A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made -
(i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee's designated beneficiary, or
(ii) for a specified period of 10 years or more,
(B) any distribution to the extent the distribution is required under section 401(a)(9), and
(C) any distribution which is made upon hardship of the employee.

Section 402(c)(8) of the Code defines eligible retirement plan as (i) an individual retirement account described in section 408(a); (ii) an individual retirement annuity described in section 408(b) (other than endowment contract); (iii) a qualified trust; (iv) an annuity plan described in section 403(a); (v) an eligible deferred compensation plan described in section 457(b) maintained by an eligible employer as described in section 457(e)(1)(A); and (vi) an annuity contract described in section 403(b).

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 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 and documentation provided by Taxpayer A is consistent with Taxpayer A's assertion that the failure to accomplish a timely rollover was due to multiple medical conditions that impaired his ability to manage his financial affairs during the 60-day rollover period.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from Plan B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount 1 to an IRA. Provided all other requirements of section 402(c), except the 60-day requirement, are met with respect to such contribution, the contributed amounts will be considered a rollover contribution within the meaning of section 402(c).

201301016

Please note that this ruling does not authorize the rollover of Code section 401(a)(9) minimum required distributions.

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 that may be applicable hereto.

This letter ruling is directed solely 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 have any questions regarding this ruling, you may contact [redacted] at [redacted].

Sincerely yours,

[signature]

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

cc: