IRS waives the 60-day IRA rollover requirement because of a medical condition

Plain-English summary

An individual asked the IRS to waive the 60-day deadline for rolling an IRA distribution into a self-directed IRA or a 401(k) plan. The individual said a chronic medical condition, a new diagnosis, surgery, and related treatment impaired the ability to manage financial affairs during the rollover period. The individual also represented that the distributed amount had not been used. The IRS found that the medical documentation supported the claim and waived the deadline, giving the individual 60 days from the ruling letter to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement for the distribution of Amount 1 from IRA B?
• Outcome: Approved
• Key authorities: IRC §§ 72, 401(a)(9), 408(d)(1), 408(d)(3), 408(d)(3)(A), 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

201411046

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 18 2013

T:EP:RA:T1

Uniform Issue List: 408.03-00

XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXKXXKX

Legend:

Taxpayer A = XXXXXXXXXXXXKX
IRA B = XXXXXXXXXXXXKXX
Financial Institution C = XXXXXXXXXXXXKX
Account D = XXXXXXXXXXXXKXX
Bank E = XXXXXXXXXXXXXXK
Amount 1 = XXXXXXXXXXXXXXK

Dear XXXXXXXXXXXXXX:

This is in response to your letter dated May 15, 2013, as supplemented by
correspondence dated August 26, 2013, 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 he received a distribution from IRA B totaling Amount 1.
Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period
prescribed by section 408(d)(3) was due to his medical condition, which impaired his
ability to manage his financial affairs. Taxpayer A further represents that Amount 1 has
not been used for any other purpose.

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Taxpayer A maintained IRA B, an individual retirement annuity under section 408(d)(3)
of the Code, with Financial Institution C. Taxpayer A has been under permanent
disability since 2005 and needs lots of medical attention and treatment. In 2013,
Taxpayer A contacted a representative of Financial Institution C and thought he was
informed that a distribution from IRA A would not be taxable to anyone who is disabled.
In September 2012, Taxpayer A, while dealing with pain and stress due to his medical
condition, contacted Financial Institution C and requested that the balance of his IRA,
Amount 1, be distributed directly to him intending to roll it into a self-directed IRA or
401(k) plan. On September 12, 2012, Amount 1 was transferred from IRA B at
Financial Institution C into a non-IRA account, Account D at Bank E. However, due to
his medical condition, Taxpayer A was unable to complete the rollover. Taxpayer A
represents that Amount 1 has not been used for any purpose.

Taxpayer A has suffered from a chronic medical condition. Taxpayer A has been
permanently disabled since 2005 and has been receiving treatment including both
therapy and medication. In September 2012, Taxpayer A was diagnosed with a new
condition and subsequently had surgery to address the condition. Taxpayer A has
submitted medical records including a letter from his physician documenting that his
state of physical and mental health at the time of the distribution and during the 60-day
period following the distribution of Amount 1 prevented him from attending to his
financial affairs, including completing a rollover.

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,

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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.

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)(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), 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 his assertion that his failure to accomplish a timely rollover was caused by his
medical condition which impaired his ability to manage his 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, the contribution of Amount 1 will be considered a rollover contribution
within the meaning of section 408(d)(3) of the Code.

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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 ruling does not authorize the rollover of any amounts that are required to be
distributed by section 401(a)(9) of the Code.

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 XXXXXXXXXXXX (ID XXXXXXXX)
at (XXX) XXX-XXXX. Please address all correspondence to SE:T:EP:RA:T1.

Sincerely,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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