Caregiver's mistaken IRA withdrawal receives rollover waiver

Plain-English summary

A permanently disabled taxpayer's sister and caregiver intended to cash a non-IRA certificate of deposit to cover medical bills. Overwhelmed by caregiving duties and her own medical problems, the sister signed a credit union form that instead withdrew funds from the taxpayer's IRA. The mistake was not discovered until the taxpayer's tax return was prepared after the 60-day rollover period. The IRS waived the deadline under IRC § 408(d)(3)(I) and allowed the taxpayer's power of attorney 60 days from the ruling letter to return the amount to a rollover IRA.

Ruling snapshot

• Question: Could a caregiver's unintended withdrawal from a disabled taxpayer's IRA qualify for a late rollover?
• Outcome: Approved, with 60 days from the ruling letter to complete the rollover
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

201447054

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 28 2014

U.I.L. 408.03-00

XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX

T:EP:RA:T3

Legend:

Taxpayer A = XXXXXXXXXXXXXX
Individual B = XXXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXXX
Credit Union C = XXXXXXXXXXXXXX
Date 1 = XXXXXXXXXXXXXX

Dear XXXXXXXXXX:

This is in response to your letter dated April 14, 2014, as supplemented by
correspondence dated July 3, 2014, submitted on your behalf by your durable
power of attorney, 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’s power of attorney represents that on Date 1, Individual B, Taxpayer
A’s sister and caregiver, unintentionally requested and erroneously received on
behalf of Taxpayer A a distribution from IRA X totaling Amount D. Taxpayer A’s
power of attorney asserts that Individual B’s failure to accomplish a rollover within
the 60-day period prescribed by section 408(d)(3) on behalf of Taxpayer A was
due to the mental state of Individual B at the time of the distribution.

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Taxpayer A has been severely and permanently disabled for many years and
was being cared for by her parents who ensured that there would be funds
available in various Certificates of Deposit (CDs) with Credit Union C for
Taxpayer A’s care. One of the CDs was in IRA X. After the passing of Taxpayer
A’s parents, several years ago, Individual B, who has a power of attorney to act
on behalf of Taxpayer A, became Taxpayer A’s primary caregiver.

In addition to her caregiving responsibilities, Individual B is also being treated for
medical problems.

Taxpayer A had an accident and broke both of her legs which resulted in even
more caregiving responsibility for Individual B. All of these events left Individual B
overwhelmed, rushing from one task to another, including doctor’s visits for
herself and Taxpayer A.

When the funds were running low because of Taxpayer A’s additional medical
bills, Individual B decided to cash in one of Taxpayer A’s CDs at Credit Union C.
Accordingly, on Date 1, Individual B, acting as an agent for Taxpayer A, went to
Credit Union C to cash in one of Taxpayer A’s non IRA CDs. The representative
of Credit Union C completed an IRA withdrawal form and gave Individual B the
form to sign. Because Individual B was overwhelmed by issues relating to
Taxpayer A’s care and her own medical problems, she did not realize that the
withdrawal was from the CD in IRA X, whereas she intended to cash in a non-
tax-deferred CD.

Taxpayer A’s power of attorney did not become aware of Individual B’s error until
Taxpayer A’s 2013 taxes were being prepared.

Based on the above facts and representations, Taxpayer A’s power of attorney
requests that the Internal Revenue Service (the Service) waive the 60-day
rollover requirement with respect to the distribution of Amount D from IRA X.

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-

3 201447054

(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 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.

4 201447054

The information presented and documentation submitted by Taxpayer A’s power
of attorney is consistent with her assertion that Individual B’s failure to
accomplish a timely rollover on behalf of Taxpayer A was caused by her mental
state at the time of distribution which prevented her from realizing that she had
taken a distribution from IRA X.

Therefore, pursuant to Code section 408(d)(3)(I), the Service hereby waives the
60-day rollover requirement with respect to the distribution of Amount D from IRA
X. Taxpayer A’s power of attorney is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount D 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 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 401(a)(9) of the Code.

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 letter 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 as precedent.

A copy of this letter is being sent to your power of attorney.

If you have any questions regarding this letter, please contact XXXXXXXXXXXXXX at
XXXXXXXXXXXXXXX. All correspondence should be addressed to SE:T:EP:RA:T:3.

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:

Deleted copy of letter ruling
Notice of Intention to Disclose