Mental impairment qualifies for IRA rollover relief

Plain-English summary

An elderly widow withdrew money from a traditional IRA while experiencing anxiety, clinical depression, and impaired financial judgment. She mistakenly believed the account was a Roth IRA and relied on general advice that Roth IRA distributions were not taxable. Her doctor documented her condition, and her daughter began overseeing health and business decisions under powers of attorney. The IRS found that the taxpayer's mental condition prevented her from making sound financial decisions and caused the missed rollover deadline. It waived the 60-day rule and gave her 60 days from the ruling date to contribute the distribution to a rollover IRA.

Ruling snapshot

• Question: Could the taxpayer receive rollover relief when mental impairment caused her to misunderstand and withdraw from a traditional IRA?
• Outcome: Approved, the taxpayer received 60 days to complete the rollover.
• Key authorities: IRC §§ 408(d)(1) and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

201519041

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 10 2015

U.I.L. 408.03-00

T:EP:RA:T3

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXX
Bank C = XXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXX

Dear XxXxxXXXXXX:

This is in response to your request dated October 11, 2013, as supplemented by
correspondence dated December 22, 2014, submitted on your behalf, by 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 under penalty of
perjury in support of the ruling requested.

On September 11, 2013, Taxpayer A received a distribution of Amount D from
IRA X. Taxpayer A asserts that her failure to accomplish a rollover of Amount D
within the 60-day period prescribed by section 408(d)(3) of the Code was due to
her mental condition which impaired her ability to make sound financial
decisions.

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Taxpayer A is an elderly widow who relied on her husband to make all of their
financial decisions. Following the death of her husband, Taxpayer A was
diagnosed with anxiety and clinical depression as documented in a letter from
her doctor. Her mental state had deteriorated to the point where her psychiatrist
recommended extreme therapy. Due to Taxpayer A's inability to make sound
decisions regarding her health and business, her daughter began to oversee
Taxpayer A’s activities in accordance with a Heath Care Proxy and Durable

Power of Attorney.

Taxpayer A had IRA X with Bank C. IRA X was a traditional IRA and was
invested in a five-year certificate of deposit (CD) that was due to expire in
September 2012. Taxpayer A incorrectly believed that IRA X was a Roth IRA
and was told by an accountant and an estate planning attorney that distributions
from a Roth IRA are non-taxable. Based on this information and without
informing her family, on September 11, 2012, Taxpayer A withdrew Amount D
from IRA X and put the funds in her checking account. Due to her mental state,
Taxpayer A lacked an understanding regarding the type of IRA she possessed.

During March 2013 Taxpayer A went to her tax preparer for the preparation of
her tax return for the 2013 taxable year. At that time she was informed that IRA X
was a traditional IRA and the distribution of Amount D was a taxable distribution.

Based on the foregoing 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 Amount D.

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 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

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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 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, 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 documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover was
due to her mental condition which impaired her ability to make sound financial
decisions.

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
D from IRA X. Taxpayer A is granted a period of 60 days from the issuance of
this letter ruling to contribute Amount D into a rollover IRA. Provided all other
requirements of Code section 408(d)(3), except the 60-day requirement, are met

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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 408(a)(6) of the Code.

No opinion is expressed as to the tax treatment of the transactions described
herein under the provisions of any other section of either the Code or regulations,
which may be applicable thereto.

A copy of this letter is being sent to your authorized representative pursuant to a
power of attorney on file in this office.

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.

If you have any questions concerning this ruling, please contact xxxxxxxxxxx, at
XXXXXXXXXXXXXXXXXX All correspondence should be addressed to SE:T:EP:RA:T.

Sincerely yours,

Sherri M. Edelman

Sherri M. Edelman, Manager
Employee Plans Technical Group 7576

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

cc:
XXXXXXXXXXXXX.