Cancer treatment supports waiver of rollover deadline

Plain-English summary

A retirement-plan participant received a partial lump-sum distribution after recurrent cancer and aggressive treatment forced her to retire. A plan counselor did not explain the tax consequences, and the participant was too stressed and distracted by her illness to understand the 60-day rollover deadline. The funds remained unused in her bank account, and medical records confirmed treatment before and during the rollover period. The IRS waived the deadline and gave her 60 days from the ruling date to contribute the amount to a rollover IRA, provided the other rollover requirements were met.

Ruling snapshot

• Question: Whether serious illness justified waiving the 60-day rollover deadline
• Outcome: Approved, with a new 60-day period to complete the rollover
• Key authorities: I.R.C. §§ 401(a)(9), 402(c)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
JUN 30 2015
U.I.L 402.08-00
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Legend:
Taxpayer A = XXXXXXXXXXXX
Plan X = XXXXXXXXXXXX
Bank B = XXXXXXXXXXXX
Amount D = XXXXXXXXXXXX
Date 1 = XXXXXXXXXXXX
Date 2 = XXXXXXXXXXXX
Date 3 = XXXXXXXXXXXX
Date 4 = XXXXXXXXXXXX

Dear xxxxxxxx:

This letter is in response to your request dated January 31, 2015, as
supplemented by correspondence dated May 5, 2015, May 7, 2015, and May
19, 2015, submitted on your behalf by 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 (the “Code”).

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

Taxpayer A received a distribution of Amount D from Plan X on Date 3. Taxpayer
A asserts that her failure to accomplish a rollover of Amount D within the 60-day

201539036

T: EP. RATE

2 201539036

period prescribed by section 402(c)(3) of the Code was due to her medical
condition.

Taxpayer A was a participant in Plan X. Taxpayer A represents that she was first
diagnosed with cancer in 2003. On Date 1, Taxpayer A was advised by her
doctor that her test showed a recurrence and spreading of the cancer, which was
originally treated in 2003. Taxpayer A further represents that recurrence and
spreading of the disease required aggressive and frequent treatment.

Although, Taxpayer A had no plans to retire, she concluded early in the treatment
program that she would not have the physical or mental strength to continue in
her employment. Accordingly, on Date 2, she resigned from her employment

and retired. At the time of retirement, Taxpayer A elected a partial lump sum
payment, an option provided by Plan X, so that she could have some
contingency cash available for her medical expenses.

Taxpayer A represents that she sought advice about getting a lump sum
payment from Plan X’s benefit counselor, but he did not advise Taxpayer A about
the tax consequences of the distribution.

Taxpayer A was stressed and distracted by the very serious concerns for her
health at the time she received the distribution from Plan X and did not
understand the 60-day rollover requirement. It was only on Date 4, when
Taxpayer A’s father passed away and she discussed the distribution from Plan X
with her brother who told her about the 60-day rollover period. Taxpayer A
requests a waiver of Amount D and represents that Amount D has not been used
for any other purpose and remains in her account with Bank B.

Medical document from Taxpayer A’s doctor shows that Taxpayer A had been
treated for her medical condition prior to and during the 60-day rollover period.

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

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 included
in gross income for the taxable year in which paid.

201539036

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) of the Code.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary
may waive the 60-day requirement under section 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) of the Code provides the rules for governing “direct transfers
of eligible rollover distributions’.

Section 1.401(a)(31) 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.

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 402(c)(3),
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 rollover within the
60-day period was due to her medical condition.

Therefore, pursuant to section 402(c)(3) of the Code, the Service hereby waives
the 60-day rollover requirement with respect to the distribution of Amount D from
Plan 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 402(c)(3), 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 402(c)(3) of the Code.

201539036

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 transactions 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 is being sent to your authorized representative pursuant to a
Power of Attorney on file with this office.

If you have any questions concerning this letter, please contact xxxxxxXXXXXXXX,
XXXXXXXXXXXXXXX, At XXXXXXXXXXXXXXX. All correspondence should be addressed
to SE:T EP RA:T:2.

Sincerely yours,

Sherri M. Edelman, Manager
Employee Plans Technical Group 2
Enclosures:

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

XXXXXXXXXXXXXX