Spouse's medical crisis and late notice support rollover waiver

Plain-English summary

A former employee chose a lump-sum pension distribution during a short election window. The initial election notice did not explain rollover options, and the required IRC § 402(f) notice was dated only shortly before the deadline. His spouse underwent surgery the day before that notice and needed continuing care during both the election window and the later 60-day rollover period. The IRS found that the combination of the plan's truncated notice and the spouse's medical situation caused the missed deadline. It waived the deadline under IRC § 402(c)(3)(B) and gave the taxpayer 60 days from the ruling date to contribute the distribution to a rollover IRA, excluding any required distribution under IRC § 401(a)(9).

Ruling snapshot

• Question: Could the taxpayer receive a waiver after receiving late rollover information while caring for a seriously ill spouse?
• Outcome: Approved
• Key authorities: IRC §§ 402(c)(3)(B) and 402(f); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201451062

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

SEP 26 2014

Uniform Issue List: 402.03-00

T:EP:RA:T3

Legend:

Taxpayer =
Plan =

Amount =

Dear ,

This is in response to your submission, dated April 6, 2013, in which you
requested a waiver of the 60-day rollover requirement contained in section
402(c)(3)(A) 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 represents that in September 2012, he received notice from his
former employer of a one-time opportunity to elect to receive from Plan a single
lump sum of his accrued benefit, monthly annuity payments beginning December
1, 2012 or if no election was made Taxpayer would receive monthly annuity
payments commencing at his 65th birthday. Taxpayer had a window between
October 3, 2012, and November 1, 2012, to make his decision. This notice did
not provide any information with regard to a rollover of his account balance.
Taxpayer elected to receive the lump sum distribution and received a distribution
of Amount. Taxpayer represents that Amount has not been used for any other

purpose.

Taxpayer asserts that his failure to accomplish a rollover within the 60-day
period was due to his distraction with the illness and surgery of his wife, and the
fact that he did not receive within a reasonable period of time before the date on

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which he was required to make an election, the required notice informing him of
the option and time frame within which to roll over the distribution or of his ability

to make a direct rollover.

Taxpayer received the notice, which was dated October 18, 2012,
required under section 402(f) of the Code, explaining the options available to him
concerning his accrued benefit. However, Taxpayer's spouse underwent surgery
on October 17, 2012. Thus, the notice was available to Taxpayer for only a short
time prior to the election date of November 1, 2012, a time during which
Taxpayer was preoccupied with the care of his spouse. During the 60-day period
following receipt of the distribution, Taxpayer was similarly distracted by his
spouse’s medical situation. In addition, Taxpayer's spouse was suffering from
another chronic medical condition during this period. Taxpayer has submitted
documentation from his spouse's physicians documenting her treatment.

Based on the facts and representations, you request a ruling that the
Internal Revenue Service waive the 60-day rollover requirement, with respect to
the distribution of Amount, contained in section 402(c)(3) of the Code.

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) 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 1.402(c)-2, Q&A 11, of the regulations further states that because
the amount withheld as income tax under section 3405(c) of the Code is
considered an amount distributed under section 402(c), 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.

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

Section 402(f) of the Code provides for a written explanation to recipients
of distributions eligible for rollover treatment. Section 402(f)(1) provides, in
pertinent part, that the plan administrator of any plan shall, within a reasonable

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period of time before making an eligible rollover distribution, provide a written
explanation to the recipient of the provisions under which the recipient may have
the distribution directly transferred to an eligible retirement plan and of the
provisions under which the distribution will not be subject to tax if transferred to
an eligible retirement plan within 60 days after the date on which the recipient

received the distribution.

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 is
consistent with his assertion that his failure to accomplish a timely rollover was
caused by Taxpayer's distraction with his spouse's medical issues, and her
required care, during both the 60-day rollover period and the truncated period of
time in which to make his benefit election, caused by the failure of Plan to inform
Taxpayer, in the manner required by section 402(f) of the Code, of his ability and
time frame within which to roll over Amount to an IRA or of his ability to make a

direct rollover.

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 from Plan. Taxpayer is granted a period of 60 days from the issuance of
this ruling letter to contribute Amount into a Rollover IRA. Provided all other
requirements of section 402(c)(3) of the Code, except the 60-day requirement,
are met with respect to such contribution, Amount will be considered a 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 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 who requested it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.

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If you wish to inquire about this ruling, please contact *.. Please
address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Jason E. Levine, Manager,
Employee Plans Technical Group 2

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