Medical impairment supports late IRA rollover waiver

Plain-English summary

A taxpayer withdrew the full balance of her IRA after a serious medical event left her physically and mentally impaired. She deposited the net distribution in a non-IRA bank account but did not complete a rollover within 60 days. Her doctor stated that she could not make financial decisions, and her daughter had assumed control of her financial affairs. The IRS found that her medical condition impaired her ability to manage those affairs, waived the rollover deadline, and allowed her 60 days from the ruling to contribute up to the original distribution amount to a traditional IRA.

Ruling snapshot

• Question: Would the IRS waive the 60-day rollover deadline when a taxpayer's medical condition prevented her from managing her financial affairs?
• Outcome: Approved, the taxpayer received 60 days from the ruling to complete the rollover.
• Key authorities: IRC §§ 72, 401(a)(9), and 408(d)(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

DEC 16 2015

Uniform Issue List: 408.03-00

Legend

Taxpayer A =

IRA B =

Financial Institution C =

Bank D =

Amount 1 =
Amount 2 =
Amount 3 =

Dear                 :

This is in response to your request, dated May 4, 2015, as supplemented
by correspondence dated August 19, October 5, and October 27, 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 she received a distribution of Amount 1 from
IRA B, which was maintained by Financial Institution C. Taxpayer A asserts that
her failure to accomplish a rollover within the 60-day period prescribed by section
408(d)(3), was due to her medical condition which impaired her ability to manage
her financial affairs. Taxpayer A further represents that Amount 1 has not been
used for any other purpose.

Taxpayer A maintained IRA B with Financial Institution C. In early 2014,
Taxpayer A requested a full distribution of IRA B and the distribution occurred on
February 10, 2014. On March 3, 2014, Taxpayer A deposited Amount 3 (Amount
1 less withholding of Amount 2) in a non-IRA account with Bank D. Taxpayer A
did not understand the consequences of the distribution because in 2012 she
suffered a serious medical event which left her both physically and mentally
impaired. The request for relief is accompanied by a statement from her doctor
that she suffers from a serious medical condition and is unable to make financial
decisions for herself. Taxpayer A’s daughter has assumed control of her
financial affairs.

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 B.

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 B was due to her medical
condition which impaired her ability to manage her financial affairs.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service waives
the 60-day rollover period with respect to the distribution of Amount 1 from IRA B.
Taxpayer A is granted a period of 60-days from the issuance of this ruling letter
to contribute an amount up to Amount 1 into a traditional IRA. Provided all other
requirements of section 408(d)(3), 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).

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 *******.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: