Mental incapacity supports a late IRA rollover waiver

Plain-English summary

A taxpayer withdrew funds from a SEP-IRA to purchase real estate but did not restore the money within the normal 60-day rollover period. Medical and court documentation showed that a mental illness impaired the taxpayer's ability to manage property during that period, and a guardian was later appointed after the taxpayer was found totally incapacitated. The real estate was sold, and the funds were available for redeposit. The IRS waived the 60-day deadline under IRC § 408(d)(3)(I) and gave the taxpayer 60 days from the ruling letter to contribute the amount to an IRA. The waiver did not authorize rollover of any required minimum distribution.

Ruling snapshot

• Question: Should mental incapacity excuse the taxpayer's failure to complete a SEP-IRA rollover within 60 days?
• Outcome: Approved, with 60 days from the ruling to complete the rollover
• Key authorities: IRC §§ 401(a)(9) and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201445030

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 11 2014

Uniform Issue List: 408.03-00

T:EP:RA:T1

Legend:

Taxpayer A =
SEP-IRA X =
Financial Institution B =
Amount 1 =
Individual C =

State D =

Dear:

This is in response to your request dated October 7, 2013, as supplemented by correspondence dated December 16, 2013, May 5, 2014, and July 12, 1014, 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 (the “Code”).

The following facts and representations have been submitted on your behalf by your guardian, Individual C, under penalty of perjury in support of the ruling requested.

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Taxpayer A represents that he received distributions from SEP-IRA X totaling Amount 1. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to Taxpayer A's mental condition which impaired his ability to manage his financial affairs.

Taxpayer A maintained SEP-IRA X with Financial Institution B. On December 10, 2012, Taxpayer A withdrew Amount 1 from SEP-IRA X to make a purchase of real estate. Taxpayer A provides documentation indicating that on the date of the distribution, and throughout the 60-day rollover period, he suffered from mental illness that impaired his ability to manage his property. Taxpayer A represents that he forged his wife’s signatures on the real estate purchase documents and that, after the purchase, he left State D and could not be located by his wife, Individual C, until January 31, 2013.

On March 6, 2013, Taxpayer A was found to be a totally incapacitated person without capacity to manage his property and Individual C was named as permanent guardian of Taxpayer A. Taxpayer A represents that the real estate has been sold and that he has the money available for redeposit to SEP-IRA X.

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 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) 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 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, except that the maximum amount which may be paid into

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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).

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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) of the Code do not apply to any amount required to be distributed under section 408(a)(6) of the Code.

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 documentation submitted by Taxpayer A are consistent with his assertion that his failure to accomplish a timely rollover was caused by Taxpayer A's mental condition which impaired his ability to manage his 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 1 from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount 1 into an 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.

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 ruling 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: