PLR 1338056: IRS waives rollover deadline after medical impairment

Plain-English summary

An individual received an IRA distribution but missed the 60-day rollover deadline after a medical condition impaired the individual’s ability to manage financial affairs. The distribution was deposited into a non-IRA money market account instead of an IRA, and the individual did not realize the problem until receiving a Form 1099-R. The IRS found that the medical condition caused the missed deadline and waived the requirement, allowing the individual 60 days from the ruling’s issuance to contribute no more than the distribution to a rollover IRA. The ruling did not authorize a rollover of amounts required to be distributed under section 408(a)(6).

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement when a medical condition impaired the taxpayer’s ability to manage financial affairs?
• Outcome: Approved. The IRS waived the requirement for the distribution.
• Key authorities: IRC §§ 72, 408(d)(3)(I), 408(a)(6); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
201338056

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND JUN 26 2013

GOVERNMENT ENTITIES

DIVISION

Uniform Issue List: 408.03-00

T:EP:RA:T1

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 April 6, 2012, as
supplemented by correspondence dated June 13 and June 29, 2012, 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 represents that she received a distribution of Amount 1 from

IRA B. Taxpayer A asserts that her failure to accomplish a rollover within the
60-day period prescribed by section 408(d)(3) of the Code was due to her
medical condition which impaired her ability to manage her financial affairs.

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Taxpayer A further represents that Amount 1 has not been used for any
other purpose and that she was unaware that Amount 1 was not in an IRA
until she received a Form 1099-R in January, 20 [illegible], showing a full distribution
of Amount 1.

Taxpayer A maintained IRA B, an individual retirement account (IRA) under
section 408(a) of the Code, with Financial Institution C. The funds were invested
in a certificate of deposit (CD). Upon maturity, Taxpayer A liquidated the CD
and received a cashier's check from IRA B totaling Amount 1, dated August 3, 20 [illegible], and made payable to herself. On or around September 27, 20 [illegible],
Taxpayer A met with an employee of Financial Institution E concerning the
transfer and investment of the funds withdrawn from IRA B. Taxpayer A wanted
the funds deposited in an IRA and invested in a money market fund, and
assumed the employee of Financial Institution E understood her desire.
However, when Financial Institution E received Taxpayer A’s cashier's check
totaling Amount 1, it was deposited in Account D, a non-IRA account money
market account, on September 27, 20 [illegible]

Prior to the withdrawal of Amount 1 from IRA B, Taxpayer A was being treated
for a medical condition. On August 27, 20 [illegible], Taxpayer A was taken off the
particular therapy treatment which she had been on for 25 years. The ruling
request is supported by a letter from her physician that explains Taxpayer A’s
medical condition. It states that being taken off her therapy treatment resulted in
Taxpayer A experiencing extreme stress, an inability to concentrate and memory
disorders. Taxpayer A represents that this negatively impacted her judgment
and the management of her financial affairs. Thus, she was unable in
September of 20 [illegible] to complete the rollover into an IRA within the 60-day time
period. Taxpayer A’s medical condition did not improve until her therapy
treatment was resumed in January of 20

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 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

201338056

(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).

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 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 the documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover of
Amount 1 was due to her medical condition which impaired her ability to manage
her financial affairs during the 60-day rollover period.

Therefore, pursuant to section 408(d)(3) of the Code, the Service hereby waives
the 60-day rollover requirement with respect to the distribution of Amount 1 from

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IRA B. Taxpayer A is granted a period of 60 days from the issuance of this letter
ruling to contribute not more than 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, the contribution will be
considered a rollover contribution within the meaning of section 408(d)(3) of the
Code.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 408(a)(6) 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,

Carlton A. Watkins

Manager
Employee Plans Technical Group 1

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

CC: