Rollover waiver granted after former spouse's death

Plain-English summary

A taxpayer received a retirement plan account under a qualified domestic relations order after her divorce. The plan automatically distributed the account after 180 days, but the check arrived around the date her former husband died suddenly, and she did not open the letter until after the 60-day rollover deadline. After unsuccessfully challenging the distribution, she deposited the full amount, including an amount equal to the tax withheld, into an IRA. The IRS waived the deadline under IRC § 402(c)(3)(B) because the death impaired her ability to complete a timely rollover.

Ruling snapshot

• Question: Will the IRS waive the 60-day deadline for rolling a qualified plan distribution into an IRA after a death delayed the taxpayer's response?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(31), 402(c), 414(p), and 3405(c); Treas. Reg. §§ 1.401(a)(31)-1 and 1.402(c)-2; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

201443029

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 28 2014

Uniform Issue List: 402.08-00

T:EP:RA:T1

Legend:

Taxpayer A =
Plan X =
Individual B =

Company C =

Amount 1 =
Amount 2 =
Amount 3 =
Date 1 =

IRA Y =

Dear :

This is in response to your request dated December 11, 2013, from your
authorized representative, in which you request a waiver of the 60-day rollover

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requirement contained in section 402(c)(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 Plan X totaling
Amount 1. Taxpayer A asserts that her failure to accomplish a rollover within the
60-day period prescribed by section 402(c)(3) of the Code was due to the death
of Individual B which impaired Taxpayer A’s ability to make a timely rollover.
Taxpayer A further represents that Amount 1 has not been used for any other
purpose.

Taxpayer A divorced her husband, Individual B, in July 2010. Prior to the
divorce, Individual B handled all of the couple’s financial affairs. After the
divorce, the divorced couple remained on good terms and Individual B continued
to assist Taxpayer A with her financial affairs.

Individual B was a participant in Plan X, a plan that is subject to section
414(p) of the Code. As a result of a qualified domestic relations order signed on
November 13, 2012, Taxpayer A was entitled to receive a distribution from Plan
X. Taxpayer A represents that she knew that “the paperwork stated that an
account was set up in my name.”

On May 31, 2013, Plan X issued a full distribution of Taxpayer A’s
account, Amount 1, in the form of a check for Amount 2 and automatic 20
percent withholding of Amount 3. Taxpayer A received the letter with the check
around Date 1, the date Individual B died suddenly. Due to the death, Taxpayer
A was busy with planning and family arrangements (Taxpayer A and Individual B
had two children). Consequently, Taxpayer A did not open the letter until the
weekend of August 17, 2013, after the expiration of the 60-day rollover period,
and learned of the automatic distribution and 20 percent withholding. Taxpayer A
states that she did not want a distribution.

On August 23, 2013, Taxpayer A filed a claim with Plan X regarding the
distribution of the account. On September 13, 2013, the Office of the Plan
Administrator denied her claim stating that it had reviewed how the distribution
was handled and determined that it was handled in accordance with the terms of
Plan X. Specifically, an account was established for Taxpayer A on December 3,
2012, and Company C, acting on behalf of the Plan Administrator of Plan X, had
sent a letter dated December 5, 2012, addressed to Taxpayer A at the same
mailing address as the check, notifying her that a Plan X account had been
established for her on December 3, 2012, as an alternate payee. The December
5, 2012, letter notified Taxpayer A that if she did not request a full distribution
within 180 days of December 3, 2012, the balance would be paid out
automatically, and further stated that income tax would be withheld at a 20

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percent rate. A Special Tax Notice Regarding Plan Payments was included in
compliance with section 402(f) of the Code. The December 5, 2012, letter stated
that it was the final communication to her regarding her Plan X account.
Taxpayer A represents that she did not receive the December 5, 2012, letter.

Taxpayer appealed on September 25, 2013, and Plan X denied the
appeal on November 26, 2013. Taxpayer A deposited the check for Amount 2
into her personal account on November 27, 2013. On December 9, 2013,
Taxpayer A set up IRA Y and deposited Amount 1.

Based on the facts and representations, you request a ruling that the
Internal Revenue Service (the “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) of the Code states that such rollover must be
accomplished within 60 days following the day on which the distributee received
the property. An individual retirement account (“IRA”) constitutes one form of
eligible retirement plan.

Section 402(c)(4) of the Code provides that an eligible rollover distribution
shall not include any distribution to the extent such distribution is required under
section 401(a)(9) of the Code.

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

Section 3405(c) of the Code provides that the payor of an eligible rollover
distribution shall withhold from the distribution an amount equal to 20 percent of
the distribution unless the distributee elects under section 401(a)(31)(A) of the
Code to have the distribution paid directly to an eligible retirement plan.

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

Section 1.401(a)(31)-1, Q&A-15 of the Income Tax Regulations
(“Regulations”) 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

Section 1.402(c)-2, Q&A-12 of the Regulations provides that the eligible
rollover distribution rules of section 402(c) of the Code also apply to distributions
to a former spouse who is an alternate payee under a qualified domestic
relations order (as defined in section 414(p)).

Section 1.402(c)-2, Q&A-11 of the Regulations provides that because the
amount withheld as income tax under section 3405(c) of the Code is considered
an amount distributed under section 402(c) of the Code, an amount equal to all
or any portion of the amount withheld can be contributed as a rollover to an
eligible retirement plan within the 60-day period, in addition to the net amount of
the eligible rollover distribution actually received by the employee.

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 402(c)(3) 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 documentation submitted by Taxpayer A
are consistent with her assertion that her failure to accomplish a timely rollover
was caused by the death of Individual B which impaired Taxpayer A’s ability to
make a timely rollover. Due to the death of her ex-husband shortly after
distribution, Taxpayer A did not open the letter with the check for Amount 2 until
after July 30, 2013, the end of the 60-day rollover period for the May 31, 2013,
distribution. Amount 3 was withheld due to failure to act prior to May 31, 2013,
but Taxpayer A would have had the option of finding other funds to contribute
during the 60-day rollover period pursuant to Section 1.402(c)-2, Q&A-11 of the
Regulations if she had opened the letter.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service
hereby waives the 60-day rollover requirement with respect to the distribution of
Amount 1 from Plan X. Provided all other requirements of section 402(c)(3) of
the Code, except the 60-day requirement, were met with respect to such

Page 5 201443029

contribution, the contribution of Amount 1 to IRA Y will be considered a valid
rollover contribution within the meaning of section 402(c)(3) of the Code.

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

No opinion is expressed as to the tax treatment of the transaction
described in this ruling under the provisions of any other section of either the
Code or regulations which may be applicable.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter
is being sent to your authorized representative.

If you wish to inquire about this ruling, please contact

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

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

cc: