Widow's medical condition supports 60-day rollover waiver

Plain-English summary

A widow received an eligible rollover distribution of employer stock from her late spouse's employee stock ownership plan. Her medical and emotional condition following his death impaired her ability to manage her financial affairs, and she deposited the rollover portion into an IRA after the 60-day deadline. The IRS found the documentation consistent with her account and waived the deadline under section 402(c)(3)(B), so the contribution would qualify as a rollover if all other requirements were met.

Ruling snapshot

• Question: Should the 60-day rollover deadline be waived when a widow's medical and emotional condition impaired her ability to manage her financial affairs?
• Outcome: Approved, the 60-day deadline is waived for the distribution of Amount 6
• Key authorities: IRC § 402(c)(3)(B); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 2 0 1 5 2 9 0 1 6

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION APR 2 4 2015

Uniform Issue List: 402.00-00

T:EP:RA:T1

Legend:

Taxpayer A =

Taxpayer B =

Company C =

Plan D =

Financial Institution E =

IRA F =

Financial Institution G =

Financial Advisor H =

Amount 1 =

Amount 2 =

Amount 3 =

Amount 4 =

Amount 5 =

Amount 6 =

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Dear :

This is in response to a request for a private letter ruling dated October 17, 2014, as supplemented by correspondences dated January 5, and February 24, 2015, from your authorized representative, in which you request a waiver of the 60-day rollover requirement contained in section 402(c)(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:

Taxpayer A represents that she received a distribution of Amount 1 from Plan D. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) of the Code was due to a medical condition she experienced following the death of her spouse which impaired her ability to manage her financial affairs.

Taxpayer A's spouse (Taxpayer B) worked for Company C and participated in Plan D, a qualified employee stock ownership plan under section 409(a) of the Code, maintained with Financial Institution E. Taxpayer B died in late 2008. On February 4, 2010, Taxpayer A received an eligible rollover distribution of Amount

1. The distribution consisted of Federal taxes withheld totaling Amount 2 and
   shares of Company C stock (Amount 3) with a market value of Amount 4. While suffering from her medical condition following the death of her husband, Taxpayer A was unsure what to do with Amount 3. In May of 2010, Taxpayer A consulted Financial Advisor H at Financial Institution G. He recommended that she deposit shares of Company C stock (Amount 5) representing Taxpayer B's after-tax employee contributions to Plan D into a regular brokerage account. In addition, he advised Taxpayer A to deposit the remaining shares of Company C stock (Amount 6) into IRA F, a newly created IRA with Financial Institution G.

On June 3, 2010, after the expiration of the 60-day period, Taxpayer A contributed Amount 6 to IRA F. The ruling request is accompanied by letters from Taxpayer A's physicians which describe her medical and emotional condition during her rollover period. Taxpayer A further asserts that Amount 6 has not been used for any purpose and remains in IRA F.

Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60 day rollover requirement in section 402(c)(3) of the Code with respect to the distribution of Amount 6.

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

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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 402(c)(4) of the Code provides that an eligible rollover distribution shall not include any distribution to the extent such distribution is required under section 401(a)(9).

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. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 402(c)(3)(B) of the Code.

Section 401(a)(31) provides the rules for governing “direct transfers of eligible rollover distributions”.

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and Answer-15, provides, in relevant part, that an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover is a distribution and rollover, and not a transfer of assets and liabilities.

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 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 the documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover of Amount 6 was due to her medical and emotional condition following the death of her husband which impaired her ability to manage her financial affairs.

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 6. Provided all other requirements of section 402(c) of the Code, except the 60-day requirement, are met with respect to Taxpayer A's contribution of Amount 6 into IRA F on June 3, 2010, such contribution will be considered a rollover contribution within the meaning of section 402(c) of the Code.

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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.

A copy of this letter ruling has been sent to your authorized representative 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: