Medical condition supports late IRA rollover waiver

Plain-English summary

A taxpayer surrendered an IRA annuity, and its value was mistakenly deposited into her ordinary checking account. A serious medical condition impaired her ability to manage her finances, and an advisor initially told her that the resulting Form 1099-R was erroneous and the distribution was not taxable. She later learned that advice was wrong, sought legal help, and represented that the funds had not been used for another purpose. The IRS waived the 60-day rollover deadline and gave her 60 days from the ruling date to contribute the full amount to an IRA.

Ruling snapshot

• Question: Would the IRS waive the 60-day rollover deadline when a taxpayer's medical condition impaired her financial management?
• Outcome: Approved, with 60 days from the ruling date to complete the rollover.
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 16 2015

Uniform Issue List: 408.03-00

Legend

Taxpayer A =

IRA B =

IRA Annuity C =

Account D =

Financial Institution E =

Financial Institution F =

Financial Institution G =

Amount 1 =

Dear                 :

This is in response to your request dated May 8, 2015, as supplemented by
correspondence dated September 16, 2015, and October 1, 2015, 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 she received a distribution equal to Amount 1 from
IRA Annuity C, which was issued by Financial Institution F. Taxpayer A asserts
that her 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.

Taxpayer A suffered from a serious medical condition that impaired her ability to
handle her financial affairs. After consulting with her financial advisor, on August
8, 2014, Taxpayer A requested a form to surrender her IRA Annuity C, an IRA
annuity contract issued by Financial Institution F and held in IRA B. IRA B was
maintained by Financial Institution E. On August 26, 2014, Financial Institution F
transferred the surrender value of IRA Annuity C, equal to Amount 1, to non-IRA
Account D. Account D was Taxpayer A’s checking account maintained by
Financial Institution G.

In February of 2015, Taxpayer A received a Form 1099-R for the distribution of
Amount 1, which alerted her to the fact that the distribution was a taxable
distribution. Taxpayer A contacted her advisor who assured her that the
distribution was not taxable and the Form 1099-R was issued in error. On further
investigation, Taxpayer A learned that her advisor was incorrect, and contacted
an attorney to help her rectify the mistake. Subsequently, on May 19, 2015,
Taxpayer A was diagnosed with several other serious illnesses. Taxpayer A
represents that Amount 1 has not been used for any other purpose.

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 Annuity C.

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 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).

Effective January 1, 2015, all of an individual's IRAs are aggregated for purposes
of applying the one rollover per year limit set forth in section 408(d)(3)(B) of the
Code.

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 her assertion that the failure to complete a rollover of the


distribution of Amount 1 from IRA Annuity C 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
Annuity C. Taxpayer A is granted a period of 60 days from the issuance of this
letter ruling to contribute Amount 1 to an IRA. Provided all other requirements of
section 408(d)(3), except the 60-day requirement, are met with 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