Illness and death support retirement-plan rollover waiver

Plain-English summary

A retirement plan distributed funds to a participant who had suffered a stroke and who tried to establish a rollover IRA. He suffered another stroke and died within the 60-day rollover period, while another taxpayer who relied on him to handle their finances was unaware of the rollover requirement. That taxpayer used part of the distribution for personal purposes but later contributed the remaining portion to an IRA in her name after receiving professional advice. The IRS waived the 60-day deadline for the contributed portion, subject to all other rollover requirements.

Ruling snapshot

• Question: Could the taxpayer receive a waiver for the portion of a plan distribution rolled over after the participant's illness and death?
• Outcome: Approved for the portion contributed to the IRA.
• Key authorities: IRC § 402(c)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

Number: 201639020
Release Date: 9/23/2016

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 29 2016

Uniform Issue List: 408.03-00

Legend:

Taxpayer A = [redacted]
Decedent B = [redacted]
Plan X = [redacted]
Amount C = [redacted]
Amount D = [redacted]
Amount E = [redacted]
Bank F = [redacted]
Financial Institution G = [redacted]
IRA Y = [redacted]

Dear [redacted]:

This is in response to your letter, dated September 10, 2015, as
supplemented by correspondence dated May 6, 2016, submitted on your
behalf by your authorized representative, in which you request a waiver of

the 60-day rollover requirement contained in section 402(c)(3) of the Internal
Revenue Code (“Code”).

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

Taxpayer A represents that Decedent B received a distribution from
Plan X totaling Amount C. Taxpayer A asserts that Decedent B’s failure to
complete a rollover of Amount C within the 60-day period prescribed by
section 402(c)(3) of the Internal Revenue Code (“Code), was due to the
effects of his illness and death during the 60-day period.

Decedent B suffered a stroke on March 17, 2014, and another
stroke on May 5, 2014. The administrator of Plan X made a total
distribution of Amount C from Plan X on May 5, 2014, and wired it into
Taxpayer A and Decedent B’s joint checking account in Bank F.
Submission of Exhibit G shows that Decedent B attempted to establish a
rollover IRA account on May 16, 2014, with Financial Institution G. On
June 14, 2014, within the 60-day rollover period, Decedent B died. Prior to
his death, Decedent B handled his and Taxpayer A’s finances. Taxpayer A
was unaware of the need to make a rollover or of the tax issues involved
in the distribution of Amount C. Taxpayer A used Amount D for personal
purposes and on June 16, 2014, transferred Amount E into her savings
account with Bank F.

Taxpayer A received professional advice and on December 11,
2014, transferred Amount E into IRA Y with Financial Institution G,
established in the name of Taxpayer A.

Based on the facts and representations, you request a ruling that the
Service waive the 60 day rollover requirement contained in section 402(c)(3) of
the Code with respect to Amount E, a portion of Amount C.

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) 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).

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) 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.

Revenue Procedure 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 402(c)(3) 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 her assertion that Decedent B’s failure to accomplish a timely
rollover of Amount C was due to the effects of his illness and death during the
60-day period.

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 E from Plan X. Provided all other requirements of section 402(c) of the
Code, except the 60-day requirement, are met with respect to such contribution
of Amount E to IRA Y, the contribution of Amount E will be considered a rollover
contribution within the meaning of section 402(c)(3).

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.

A copy of this letter has been sent to your authorized representative in
accordance with a power of attorney on file in this office.

If you wish to inquire about this ruling, please contact [redacted].
Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

CC: