Medical impairment justifies partial IRA rollover waiver

Plain-English summary

A taxpayer's medical condition impaired his mental state and ability to manage financial affairs. He became convinced that his IRA adviser was stealing, closed the IRA, and moved the funds into a non-IRA investment account. His spouse discovered the withdrawal after the rollover period, and physicians provided extensive supporting records. The IRS waived the deadline because the medical condition was beyond the taxpayer's reasonable control. It allowed a rollover within 60 days only for the original distribution minus the required minimum distributions attributable to the intervening years.

Ruling snapshot

• Question: Could medical impairment excuse the late rollover of an IRA withdrawal, net of required minimum distributions?
• Outcome: Approved, with 60 days to roll over no more than the stated net amount
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

201447057

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 25 2014

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =
IRA B =
Financial Institution C =
Account D =
Individual E =
Amount 1 =
Amount 2 =
Amount 3 =
Amount 4 =
Amount 5 =

Dear:

This letter is in response to your request dated May 5, 2014, from your
authorized representatives, in which you have requested a waiver of the 60-day
rollover requirement contained in section 408(d)(3) of the Internal Revenue Code
("Code).

The following facts and representations have been submitted under penalty of
perjury in support of the ruling requested:

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Taxpayer A represents that he took a distribution of Amount 1 from
IRA B. Taxpayer A asserts that his failure to accomplish a rollover of Amount 1
within the 60-day period prescribed by Code section 408(d)(3) was due to his
medical condition which impaired his ability to manage his financial affairs.

Taxpayer A maintained IRA B, an individual retirement account (IRA) under
section 408 of the Code. Taxpayer A represents that, on October 18, 2011, he
closed IRA B by withdrawing Amount 1. But for the distribution of Amount 1 on
October 18, 2011, Taxpayer A has represented that his required minimum
distributions from IRA B for tax years 2012, 2013 and 2014, as calculated by IRA
B's custodian, would have been Amounts 2, 3 and 4, respectively.

IRA B was managed by a financial advisor with the investments department of
Financial Institution C. As a result of a medical condition affecting Taxpayer A’s
mental state, Taxpayer A grew to mistrust this individual, even falsely accusing
him of stealing funds from IRA B. Further as a result of his medical condition,
Taxpayer A feared that additional funds would be stolen, and Taxpayer A
transferred Amount 1 in IRA B to a non-IRA investment account with Financial
Institution C.

In June of 2012, Taxpayer A’s spouse (Individual E) discovered that Amount 1
had been withdrawn from IRA B. Taxpayer A represents that during the 60-day
rollover period, due to his medical condition, he was unable to understand the tax
consequences of the withdrawal of Amount 1 from IRA B. The ruling request is
supported by letters and extensive medical documentation from his physicians
that explain Taxpayer A’s medical condition and the medications he was taking
during this period.

Based on the above facts and representations, you request that the Internal
Revenue Service (“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), 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

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(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 includible 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
occurred after December 31, 2001, are eligible for the waiver under section
408(d)(3)(I) of the Code.

Revenue Procedure 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), 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 the documentation submitted by Taxpayer A is
consistent with his assertion that his failure to accomplish a timely rollover of
Amount 1 was due to his medical 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 B. Taxpayer A is granted a period of 60 days from the

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issuance of this letter ruling to transfer an amount not to exceed Amount 5
(Amount 1 less Amounts 2, 3 and 4) 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 will be considered a
rollover contribution within the meaning of section 408(d)(3) 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 ruling does not authorize the rollover of amounts that are required to be
distributed by section 408(a)(6) of the Code.

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.

A copy of this letter ruling has been sent to your authorized representatives
pursuant to a power of attorney on file in this office. If you wish to inquire about
this ruling, please contact (I.D. # ), , at ( ).

Sincerely yours,

Carlton A. Watkins
Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

cc: