IRS waives rollover deadline after illness and incarceration

Plain-English summary

A taxpayer received a retirement-plan distribution under a divorce settlement but did not complete the rollover within 60 days. During the rollover period, she experienced severe depression, injuries, excess alcohol use, six hospitalizations, and a short incarceration, followed by a longer incarceration soon afterward. She later deposited most of the distribution into an IRA, apart from an amount used for the ruling-request fee, while federal tax had also been withheld. The IRS found that her medical problems and incarceration interfered with managing her finances and waived the deadline for the stated distribution amount. It also granted 60 additional days to contribute the withheld amount to a rollover IRA, subject to all other rollover requirements.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day rollover deadline because medical problems and incarceration prevented timely action?
• Outcome: Approved, with 60 additional days to contribute the withheld amount.
• Key authorities: IRC §§ 401(a)(9) and 402(c)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

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

JUN 02 2016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

201635011

Uniform Issue List: 402.00-00

SE:T:EP:RA:T1

Legend:

Taxpayer A =
Plan B =
IRA C =

Bank D =

Amount 1 =
Amount 2 =
Amount 3 =
Amount 4 =
Amount 5 =

Amount 6 =

Dear

This letter is in response to a request for a letter ruling, dated October 13, 2015,
in which you request a waiver of the 60-day rollover requirement contained in

section 402(c)(3)(B) of the Internal Revenue Code ("Code"), regarding the
distribution of Amount 1 from Plan C.

The following facts and representations have been submitted under penalty of

perjury in support of the ruling requested.

2 201635011

Taxpayer A represents that she received a distribution of Amount 1 from Plan B.
Taxpayers A asserts that her failure to accomplish a rollover of Amount 1, within
the 60-day period prescribed by section 402(c)(3) was due to her medical
condition and incarceration. Taxpayer A further represents that, with the
exception of Amount 4, Amount 1 has not been used for any purpose.

Taxpayer A became divorced from her husband in August, 2014. Taxpayer A’s
divorce settlement provided that she would receive Amount 1, approximately
50% of her husband’s account balance in the Plan B. On December 22, 2014,
Taxpayer A received a disbursement of Amount 1 from Plan B. Federal Taxes of
Amount 2 were withheld from Amount 1 resulting in a check for Amount 3.
Taxpayer A’s 60-day rollover period was December 22, 2014 to February 21,
2015. Taxpayer A used Amount 4 for the filing expense related to the waiver
request. On May 6, 2015, Taxpayer A deposited Amount 5 into IRA C with Bank
D.

Coinciding with the payment of Amount 1, Taxpayer A experienced a fragile
mental state due to depression, injuries suffered in an automobile accident and
excess alcohol. On six separate occasions between November, 2014 and
January, 2015, Taxpayer A was hospitalized for severe depression and alcohol
abuse. In addition, Taxpayer A committed a crime and was incarcerated for 6
days from January 7 through January 12, 2015. During the rollover period, she
was unable to manage her financial affairs. After the rollover period, Taxpayer A
is incarcerated for 90 more days beginning on February 24, 2015. The ruling
request is accompanied by documentation of her medical problems and
incarceration.

Based on the above facts and representations, you request that the Internal
Revenue Service (“Service”) waive the 60-day rollover requirement contained in
section 402(c)(3)(A) 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
includible in gross income for the taxable year in which paid. Section
402(c)(3)(A) of the Code 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).


3 201635011

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) of the Code 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.

Rev. Proc. 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 sections 408(d)(3)(I) and 402(c)(3)(B) 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 problems and incarceration which interfered
with the management of 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 from Plan C. Provided all other requirements of section 402(c)(3) of
the Code, except the 60-day requirement, were met with respect to Taxpayer A's
contribution of Amount 5 into IRA C on May 6, 2015, such contribution will be
considered a rollover contribution within the meaning of section 402(c)(3) of the
Code. In addition, Taxpayer A is granted a period of 60 days from the issuance
of this letter ruling to transfer Amount 2 into a rollover IRA. Provided all other
requirements of section 402(c) 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 402(c) of the Code.

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.


4 201635011

If you wish to inquire about this ruling, please contact
(I.D. # ), , at or ( )

Sincerely yours,

Carlton A. Watkins

Manager

Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437