IRA rollover waiver granted after illness impaired financial decisions

Plain-English summary

Shortly after hospitalization for possible amnesia, a taxpayer experienced months of dizziness, headaches, and confusion and moved maturing IRA certificates of deposit into a taxable non-IRA account despite a credit union representative's warning. The funds remained intact, and the taxpayer discovered the missed rollover while preparing her tax return. The IRS found that her medical condition impaired her ability to handle financial affairs, waived the 60-day deadline, and gave her 60 days to move the amount into a rollover IRA if all other requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline because illness impaired her financial decision-making?
• Outcome: Approved, with 60 days to complete the rollover.
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

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

MAY 06 2014

U.I.L. 408.03-00

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Legend:

Taxpayer A = XXXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXX
Account E = XXXXXXXXXXXXXX
Credit Union F = XXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXX

Dear XXXXXXXXXX:

This letter is in response to your request dated August 16, 2013, as supplemented by correspondence dated January 17, 2014, submitted on your behalf by 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 (the “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 from IRA X totaling Amount D. 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 during the 60-day rollover period which affected her ability to handle her financial affairs.

On January 10, 2012, Taxpayer A was hospitalized and the doctor told her that she may have suffered some type of amnesia. Following her discharge from the hospital on January 13, 2012, Taxpayer A represents that she suffered from dizziness, headaches and confusion for approximately nine months after her discharge from the hospital. As a result, Taxpayer A avoided interactions with other persons and made some irrational decisions.

On January 16, 2012, Taxpayer A’s IRA X Certificates of Deposit (CDs) matured and she decided to move the funds to Account E, a non-IRA account with Credit Union F. A representative of Credit Union F told Taxpayer A that moving the funds from IRA X to Account E would be a taxable transaction, but Taxpayer A demanded that Amount D be transferred to Account E. Documentation shows that Taxpayer A did not comprehend what was happening and thought the distribution was a required minimum distribution when it clearly was not. Taxpayer A illogically noted on the withdrawal form from IRA X that the distribution would be taxed on her 2011 income tax return. Taxpayer A also incorrectly dated the withdrawal form as February 25, 2012, rather than the correct date of February 2, 2012. Amount D is intact in Account E with Credit Union F.

Taxpayer A represents that she first became aware of her failure to complete a timely rollover when her 2012 income taxes were being prepared.

Based upon the facts and representations, you request a ruling that the Internal Revenue Service waive the 60-day rollover requirement contained in section 408(d)(3) of the Code with respect to the distribution of Amount 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 received 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)).

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 included 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 occur 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, 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 her assertion that her failure to accomplish a timely rollover was due to her medical condition during the 60-day rollover period which affected her ability to handle her financial affairs.

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 D. Taxpayer A is granted a period of 60 days from the issuance of this letter ruling to contribute Amount D into a rollover IRA. Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, the contribution of Amount D 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 transactions described herein under the provisions of any other section of either the Code or regulations, which may be applicable thereto.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited by others as precedent.

A copy of this letter is being sent to your authorized representative pursuant to a power of attorney on file in this office.

If you have any questions concerning this ruling, please contact xxxxxxxxxxxx. All correspondence should be addressed to SE:T:EP:RA:T3.

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted copy of letter ruling
Notice 437

cc:
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