Mental impairment supports an IRA rollover waiver

Plain-English summary

A taxpayer requested a full distribution when a long-term IRA certificate of deposit matured, then left the check in a savings account after depositing it outside the 60-day rollover period. He later became confused about where the IRA money had gone. Medical records showed cognitive and mental impairment that interfered with his ability to manage financial and personal matters, and his daughter obtained a durable power of attorney. The IRS found that the impairment caused the missed deadline and waived the 60-day requirement. It gave the taxpayer 60 days from the ruling to contribute no more than the distributed amount to a rollover IRA, provided all other rollover rules were met.

Ruling snapshot

• Question: Could mental and cognitive impairment justify waiving the 60-day IRA rollover deadline?
• Outcome: Approved, with a new 60-day period to complete the rollover.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY\nINTERNAL REVENUE SERVICE 201636049

WASHINGTON, D.C. 20224

TAX EXEMPT AND JUN 09 2016

GOVERNMENT ENTITIES

DIVISION

Uniform Issue List: 408.03-00
T:EP:RA:T2

Legend:
Taxpayer A =

Individual B =
IRA X =

Amount B

Financial Institution C

Bank B =
Dear

This is in response to your letter, dated July 30, 2015, as
supplemented by correspondence dated October 7, 2015, December 9, 2015,
and May 13, 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
(the "Code").

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

Taxpayer A represents that he received a distribution from IRA X
totaling Amount B. Taxpayer A asserts that his failure to complete a rollover of
Amount B, within the 60-day period prescribed by section 408(d)(3) of the
Code, was due to a mental condition which impaired his ability to make
financial decisions.


201636049

Taxpayer had a 10-year Individual Retirement Account Certificate
of Deposit with Financial Institution C (IRA X). On April 25, 2014,
Financial Institution C sent a letter to Taxpayer A informing him that the
certificate of deposit would mature on May 27, 2014. Taxpayer A
contacted Financial Institution C and requested an entire distribution from
IRA X. On June 5, 2014, Financial Institution C sent a check to Taxpayer
A in Amount B. On August 4, 2014, Taxpayer A deposited the check into
his savings account at Bank B. Amount B has not been used for any other
purpose and remains in Taxpayer A’s savings account.

In November 2014 Taxpayer A contacted Financial Institution C
inquiring about IRA X and was told that it was closed and the money had
been sent to him. Taxpayer asked his daughter, Individual B, for help
because he was confused and wanted to know where his money went.
Individual B was unaware of the distribution from IRA X, became
concerned about her father’s mental condition, and received a diagnosis
from Taxpayer A’s physician. On December 3, 2014, Individual B
obtained a durable power of attorney to take control of Taxpayer A’s
finances.

Medical documentation submitted shows that Taxpayer A has
developed a state of mental and cognitive impairment that interferes with
his ability to adequately manage his financial and personal matters.

Upon discovery of the distribution Individual B took steps to consult
with a tax professional and requested this ruling.

Based on the facts and representations, you request a ruling that
the Internal Revenue Service (the "Service") waive the 60-day rollover
requirement contained in section 408(d)(3) of the Code with respect to the
distribution of Amount B.

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--


201636049

(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 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 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 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 (January 27, 2003) provides
that 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
is consistent with his assertion that his failure to accomplish a timely rollover


was due to a mental condition which impaired his ability to make adequate
financial and personal decisions.

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 B from IRA X. Taxpayer A is granted a period of 60 days from the
issuance of this ruling letter to contribute an amount not to exceed Amount B
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.

A copy of this letter is being sent to your authorized representative
pursuant to a power of attorney on file in this office.

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.

If you wish to inquire about this ruling, please contact
Please address

all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1