Mental condition supports waiver of the 60-day IRA rollover deadline

Plain-English summary

An IRA owner withdrew a redacted amount expecting to consolidate several retirement accounts, but the credit union deposited the money into her savings account instead. Because of a diagnosed condition causing progressive memory problems, she did not realize the transfer had not been completed until her daughter reviewed the records after the 60-day rollover period expired. The funds remained unused in the savings account. The IRS found that the missed deadline resulted from circumstances beyond the taxpayer's reasonable control and waived the deadline under IRC § 408(d)(3)(I). She received 60 days from the ruling date to complete the rollover, provided all other rollover requirements were met.

Ruling snapshot

• Question: Should the taxpayer receive a waiver of the 60-day IRA rollover deadline because a mental condition prevented her from managing the transfer?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover
• Key authorities: IRC §§ 408(d)(3)(A), (D), and (I); Rev. Proc. 2003-16

Full text (IRS public release)

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

APR 26 2016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

U.I.L. 408.03-00

Legend:
Taxpayer A =
IRA X =

Amount D =
Credit Union B =
Date 1 =

Date 2 =

Dear

This is in response to your letter dated July 21, 2015, as supplemented by correspondence dated December 4, 2015, and April 12, 2016, 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 (Code).

The following facts and representations have been submitted under penalty of perjury in support of your request.

On Date 1, Taxpayer A received a distribution from IRA X totaling Amount D. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to her mental condition which affects her ability to manage her financial affairs..

Taxpayer A maintained IRA X with Credit Union B. Taxpayer A represents that she had several IRAs at Credit Union B. In August of 2014, two of her IRAs matured and were distributed. At that time, Credit Union B informed Taxpayer A that since she had several IRAs and she could roll them into one as they matured to help consolidate the accounts.

On Date 2, Taxpayer A requested that Amount D be withdrawn from IRA X. Credit Union B completed the withdrawal form which Taxpayer A signed. Due to her mental condition Taxpayer A did not realize that Amount D would be deposited into her savings account with Credit Union B.

Taxpayer A represents that she was not aware that Amount D was transferred improperly until her daughter who had a durable power of attorney was collecting Taxpayer A’s financial documents for preparation of her income tax return when she discovered that Amount D was not rolled over into an IRA. At that time, the 60-day rollover period had expired. Amount D remains in Taxpayer A’s savings account and has not been used for any other purpose.

Medical documentation shows that Taxpayer A has a diagnosed medical condition which has caused progressive memory problems over the past ten years.

Based on the facts and representations, Taxpayer A requests that the Internal Revenue Service (Service) waive the 60 day rollover requirement with respect to the distribution of 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 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 and good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement. Only distributions that occur 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, or 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 affects her ability to manage her financial affairs.

Therefore, pursuant to Code 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 rollover Amount D 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 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.