PLR 1335028: IRS waives the 60-day retirement-plan rollover deadline after medical injury

Plain-English summary

An individual received a distribution from an eligible retirement plan and intended to roll it into an IRA within 60 days. A medical injury during the rollover period required hospitalization and prevented the individual from handling financial affairs, so the rollover was completed after the deadline. The IRS found that the submitted medical records supported the explanation and waived the 60-day requirement under IRC § 402(c)(3)(B). The ruling applied only if the other rollover requirements were satisfied and the distributed amount had not been used for another purpose.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day rollover requirement after a medical injury and hospitalization?
• Outcome: Approved, subject to the other requirements of IRC § 402(c)(3).
• Key authorities: IRC §§ 401, 402, 408, and 6110; Treas. Reg. § 1.401(a)(31)-1; Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224 201335028
TAX EXEMPT AND JUN 06 2013

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 402.00-00

XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

Legend:
Taxpayer A = XXXXXXXXXXXXXX
Plan B = XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Financial Institution C = XXXXXXXXXXXXXX
Financial Institution D = XXXXXXXXXXXXXX
IRA E = XXXXXXXXXXXXXX
Amount 1 = XXXXXXXXXXXXXX

Dear XXXXXXXXXXXXXX:

This letter is in response to a request for a letter ruling dated January 31, 2013,
as supplemented by additional correspondence dated April 12, 2013, in which
you request a waiver of the 60-day rollover requirement contained in section
402(c)(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 represents that he-received a distribution from Plan B totaling
Amount 1. Taxpayer A asserts that his failure to accomplish a rollover of Amount
2, within the 60-day period prescribed by section 402(c)(3), was due to a medical
condition that occurred within the 60-day rollover period.

Taxpayer A maintained Plan B, an eligible retirement plan, which was maintained
by Financial Institution C. On November [illegible], 20[illegible], Taxpayer A received a
distribution of Amount 1 from Plan B with the intention to rollover the distribution
within the 60-day rollover period. On November [illegible], 20[illegible], within the 60-day
rollover period, Taxpayer A suffered a medical injury which necessitated
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hospitalization and he remained hospitalized until December [illegible], 20[illegible], Taxpayer
A asserts that he was unable to move or take care of any of his financial affairs
while undergoing medical treatment. Taxpayer A has submitted medical records
including a letter from his physician that documents his state of mental and
physical health during the period. On January [illegible], 20[illegible], after recovering from
the medical condition, and after the expiration of the 60-day period, Taxpayer A
completed the rollover of Amount 1 with Financial Institution D, depositing
Amount 1 into IRA E. Taxpayer A asserts that Amount 1 has not been used for
any other purpose.

Based on the above facts and representations, you request that the Internal
Revenue Service ("Service") waive the 60-day rollover requirement contained in
section 402(c)(3) of the Code with respect to the distribution of Amount 1.

Section 402(c) of the Code provides that if any portion of the balance to the credit
of an employee in a qualified trust is paid to the employee in an eligible rollover
distribution, and the distributee 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, then such distribution (to the extent transferred) shall not be
includible in gross income for the taxable year in which paid. Section
402(c)(3)(A) states that such rollover must be accomplished within 60 days
following the day on which the distributee received the property. An IRA
constitutes one form of eligible retirement plan.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary
may waive the 60-day requirement under sections 402(c) 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 402(c)(3)(B) of the Code.

Section 401(a)(31) provides the rules for governing “direct transfers of eligible
rollover distributions.”

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and Answer-15,
provides, in relevant part, that an eligible rollover distribution that is paid to an
eligible retirement plan in a direct rollover is a distribution and rollover, and not a
transfer of assets and liabilities.

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
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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 due to a medical injury that occurred during the 60-day rollover
period.

Therefore, pursuant to section 402(c)(3)(B), the Service hereby waives the 60-
day rollover requirement with respect to the distribution of Amount 1 from Plan B.
Provided all other requirements of section 402(c)(3) of the Code, except the 60-
day requirement, were met with respect to Taxpayer A’s contribution of Amount 1
into IRA E, on January [illegible], 20[illegible], such contribution will be considered a rollover
contribution within the meaning of section 402(c)(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.

If you wish to inquire about this ruling, please contact [illegible]
(Identification No. XXXXXXXXXXXXXX) at (XXX) XXX-XXXX. Please address
all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

[illegible]

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

cc: