Estate denied rollover waiver for decedent's bail withdrawal

Plain-English summary

An IRA owner withdrew funds to post bail and died before the 60-day rollover period expired. The estate later recovered the amount from the bail bondsman and held it in a blocked estate account. The IRS found that the evidence did not substantiate an intent to roll the money back into an IRA. At death, the owner also lacked other assets to replace the amount, and the unresolved criminal case meant the bail funds were not necessarily available within the deadline. The IRS therefore declined to waive the 60-day rollover requirement.

Ruling snapshot

• Question: Should the IRS waive the rollover deadline because the IRA owner died after using the distribution to post bail?
• Outcome: Denied
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

201440030

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 07 2014

SE:T:EP:RA:T3

U.I.L. 408.03-00

Legend:
Decedent A = * * *
Estate S = * * *
IRA X = * * *
Amount D = * * *
Financial Institution B = * * *
Bank C = * * *
Executor E = * * *

Dear * * *:

This letter is in response to your request dated July 31, 2013, as supplemented
by correspondence dated September 30, 2013, and May 9, 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.

Executor E of Estate S represents that prior to his death Decedent A received a
distribution from IRA X totaling Amount D. Executor E asserts that Decedent A’s
failure to accomplish a rollover within the 60-day period prescribed by section
408(d)(3) of the Code was due to Decedent A’s death.

Decedent A maintained IRA X with Financial Institution B. While still alive, on

• • *, Decedent A was arrested and charged with several felony counts. On
• • , Decedent A withdrew Amount D from IRA X to post his bail and paid
    Amount D to a bail bondsman on * * . Shortly thereafter, on * * *,
    Decedent A committed suicide.

Executor E secured Amount D from the bail bondsman on June 19, 2012, and

Amount D is currently held in a blocked account at Bank C in the name of Estate
S.

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 and 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 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 in this case do not
substantiate the intent of Decedent A to rollover Amount D. In addition, at the
time of his death, within the 60-day rollover period, Decedent A did not have
alternative assets to redeposit Amount D which was paid to a bail bondsman.
Further, at the time of Decedent A’s death, the criminal case against Decedent A
had not been resolved so that Amount D would not necessarily have been
returned and redeposited into IRA X within the 60-day rollover period.

Under the circumstances presented in this case, the Service hereby declines to
waive the 60-day rollover requirement with respect to the distribution of Amount
D from IRA X.

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.

If you have any questions concerning this ruling, please contact * * ,
at * * . Any 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: