Cognitive impairment supports a 60-day IRA rollover waiver

Plain-English summary

An IRA owner withdrew funds and deposited the net proceeds into a non-IRA account without completing a rollover within 60 days. During that period, the taxpayer was experiencing worsening confusion, memory loss, and other cognitive impairment, and a child was later appointed guardian and conservator. The guardian discovered the withdrawal while reviewing the taxpayer's financial accounts. The IRS found the medical condition consistent with a failure beyond the taxpayer's reasonable control and waived the 60-day deadline. The taxpayer received 60 days from the ruling date to contribute up to the distributed amount to an IRA, excluding any amount that was required to be distributed.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline because cognitive impairment prevented a timely rollover?
• Outcome: approved, with 60 days from the ruling to complete the rollover
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201709023
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND DEC 07 2016

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

Legend
Taxpayer A =

Individual B =

IRA C =
Non-IRA Account D =

Financial Institution E =
Financial Institution F =
State G =

Amount 1 =

Dear

This is in response to your request dated April 27, 2016, as supplemented by correspondence dated November 21, 2016, in which you request, through your authorized representative, 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 1 from IRA C, which was maintained by Financial Institution E. 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 Taxpayer A’s medical condition during the 60-day rollover period.

Beginning in 2013, Taxpayer A’s children noticed that Taxpayer A showed signs of confusion, memory loss, and other cognitive impairment. Taxpayer A’s symptoms worsened, and in April of 2015, Individual B, one of Taxpayer A’s children, petitioned a district court in State G to be appointed as the guardian and conservator of Taxpayer A. On September 9, 2015, Taxpayer A was evaluated by a court appointee and on December 9, 2015, the court appointed Individual B as temporary guardian and conservator for Taxpayer A. Additional testing followed, and on March 1, 2016, Individual B was appointed as his permanent guardian and conservator.

In January of 2016, Individual B in his capacity as temporary guardian and conservator, accessed Taxpayer A’s financial accounts. Individual B discovered that on July 1, 2015, Taxpayer A had withdrawn Amount 1 from IRA B and subsequently deposited Amount 1, net of Federal Income Tax withholding, into a non-IRA account, Account D, with Financial Institution F. The reason for Taxpayer A’s withdrawal is unknown.

Based on the above facts and representations, Taxpayer A requests a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Code with respect to the distribution of Amount 1 from IRA 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.

Section 408(d)(3) of the Code 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

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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 presented and documentation submitted by Taxpayer A are consistent with his assertion that the failure to complete a rollover of the distribution of Amount 1 from IRA B was due to Taxpayer A’s medical condition during the 60-day rollover period.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service waives the 60-day rollover period 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 contribute an amount not in excess of Amount 1 to an IRA. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with

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respect to such contribution, the contribution of Amount 1 into an IRA will be considered a rollover contribution within the meaning of section 408(d)(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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being sent to your authorized representative.

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

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

Ce: