Surviving spouse receives a 60-day IRA rollover waiver

Plain-English summary

A surviving spouse received a distribution from her deceased spouse's individual retirement annuity and deposited it in a non-IRA bank account. She and her investment adviser had believed the annuity was life insurance, and she did not learn that the payment came from an IRA until she received Form 1099-R after the 60-day rollover deadline. She represented that she had not used the funds for another purpose. The IRS found that her reliance on the adviser and confusion about the annuity supported equitable relief. It waived the deadline and gave her 60 days to transfer up to the distributed amount into a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: May a surviving spouse roll an inherited IRA annuity distribution into an IRA after missing the 60-day deadline because she misunderstood the account's nature?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

201603046

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

OCT 21 2015

Uniform Issue List: 408.03-00

Legend

Taxpayer A =
Taxpayer B =

IRA C =

Insurance Company D =
Bank E =

Amount 1 =

Dear

This is in response to your request, dated February 26, 2015, from 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.

Taxpayer A represents that on October 31, 2014, she received a
distribution of Amount 1 from her spouse’s (Taxpayer B) IRA, IRA C, an
individual retirement annuity described in section 408(b) of the Code. Taxpayer A
asserts that her failure to accomplish a rollover within the 60-day period
prescribed by section 408(d)(3)(A), was due to her reliance on her investment
advisor and confusion regarding the nature of IRA C in her spouse’s estate.
Taxpayer A further represents that she has not used the funds for any other
purpose.

Taxpayer A’s spouse, Taxpayer B, owned IRA C, which was maintained by
Insurance Company D. Taxpayer B died in August, 2014, after a long period of
intensive care stemming from an accident in 2013. In handling the estate created
after Taxpayer B’s death, Taxpayer A and her investment advisor in charge of
the estate, determined that only life insurance proceeds would be distributed to
her. Taxpayer A and the investment advisor were unaware that the annuity held
with Insurance Company D was an IRA annuity. Taxpayer A, with the help of her
investment advisor, received a distribution of Amount 1 from IRA C on October
31, 2014. Amount 1 was deposited into a non-IRA account with Bank E.
Taxpayer A discovered that the distribution was an IRA distribution when she
received a Form 1099-R in 2015, after the 60-day rollover period had expired.

Based on the above facts and representations, Taxpayer A requests that
the Internal Revenue Service waive the 60-day rollover requirement with respect
to the distribution of Amount 1 from IRA C.

Section 408(a) of the Code defines an IRA to mean a trust created or
organized in the United States, and requires that the trustee be a bank or an
approved non-bank trustee.

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.

Section 408(d)(3) of the Code provides the rules applicable to IRA rollovers.

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) 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 or 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

(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 of the Treasury
may waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D)
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.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359, provides that the Service will issue
a ruling waiving the 60-day rollover requirement in cases 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 taxpayer.
In determining whether to grant a waiver of the 60-day rollover requirement
pursuant to section 408(d)(3)(I) 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 A are
consistent with Taxpayer A’s assertion that the failure to complete a timely
rollover of the distribution of Amount 1 from IRA C was her reliance on her
investment advisor and the confusion regarding the nature of IRA C in deceased
Taxpayer B’s estate.

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 C. Taxpayer A is granted a period of 60 days from the issuance of
this letter ruling to transfer an amount not to exceed Amount 1 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.

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 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 * at * Please address all correspondence to
SE:T:EP:RA:T2.

Sincerely yours,

Sherri M. Edelman, Manager
Employee Plans Technical Group 2

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

CC: