Stroke and bad advice support IRA rollover waiver

Plain-English summary

An IRA owner who had suffered a stroke relied on his spouse to manage their financial affairs. Acting on an accounting firm's advice, she withdrew both the IRA and qualified-plan required minimum distributions from the IRA, then learned after the 60-day period that the plan's distribution still had to be taken separately. The advice caused an excess amount to be withdrawn from the IRA, while the taxpayer's medical condition impaired his ability to manage or communicate about the transaction. The IRS waived the rollover deadline for the excess amount and granted 60 days to transfer it to a rollover IRA.

Ruling snapshot

• Question: Could the taxpayer roll back an excess IRA distribution caused by medical impairment and incorrect professional advice?
• Outcome: Approved, with 60 days from the ruling to complete the rollover.
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

Number: 201639019
Release Date: 9/23/2016

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 30 2016

Uniform Issue List: 408.03-00

Legend

Taxpayer A = [redacted]
IRA B = [redacted]
Financial Institution C = [redacted]
Company D = [redacted]
Plan E = [redacted]
Individual F = [redacted]
Amount 1 = [redacted]
Amount 2 = [redacted]
Amount 3 = [redacted]
Amount 4 = [redacted]

Dear [redacted]:

This is in response to your request dated October 18, 2015, as amended by
correspondence dated March 23, and May 30, 2016, 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 equal to Amount 2 from IRA B, which was maintained by
Financial Institution C. Taxpayer A asserts that his failure to accomplish a
rollover within the 60-day period prescribed by section 408(d)(3)(A) of the Code
was due to his medical condition which impaired his ability to complete the
rollover.

Taxpayer A maintained IRA B and was also a participant in Plan E. Taxpayer A
is married to Individual F who manages their financial affairs because of a stroke
suffered by Taxpayer A in 2012. In 2015, Individual F contacted Company D, an
accounting firm, to inquire about how to best take Taxpayer A’s minimum
required distribution (“RMD”) for the [redacted] tax year. For 2015, Taxpayer A’s
RMD from Plan E and IRA B was Amount 3 and Amount 4, respectively. A
representative of Company D advised that Taxpayer A could take the entire RMD
for both IRA B and Plan E from IRA B. Acting on this advice, on Taxpayer A’s
behalf, Individual F requested a distribution of Amount 2 from IRA B, with the
intention of later withdrawing the balance of the RMD from Plan E. In September
of 2015, Individual F was informed by the plan administrator that Taxpayer A had
not yet taken his RMD from Plan E. After the 60-day period had expired,
Taxpayer A received the required RMD from Plan E. Due to the stroke suffered
by Taxpayer A in 2012, he was unable to communicate with Individual F
concerning his RMD. As a result, Individual F acted on the bad advice from
Company D and Amount 1 was taken in excess from IRA B for 2015.

Based on the above facts and representations, you request a ruling that the
Service waive the 60-day rollover requirement under section 408(d)(3) of the
Code as to the distribution of Amount 1 and that Taxpayer A be given a period of
60 days from the issuance of the ruling to complete the rollover of Amount 1.

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 defines, and 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 and documentation submitted are consistent with Taxpayer A’s
assertion that the failure to accomplish a rollover of Amount 1 within the 60-day

period was due to Taxpayer A’s ongoing medical condition which impaired his
ability to manage his financial affairs.

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 B. 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.

If you wish to inquire about this ruling, please contact [redacted].

Sincerely yours,

Manager
Employee Plans Technical Group 1

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