IRS waived rollover deadline due to declining health

Plain-English summary

An IRA owner withdrew funds intending to move them to a new IRA but instead deposited part of the distribution into a non-IRA money market account. She believed she had completed a rollover and did not discover the mistake until her husband gathered records for their tax return after the 60-day deadline. Her physician documented several medical conditions, disability, and declining physical and mental health that affected her ability to manage financial affairs. The IRS waived the deadline under IRC § 408(d)(3)(I) and gave her 60 days from the ruling letter to roll the stated amount into an IRA.

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline when declining physical and mental health affected the taxpayer's ability to manage her finances?
• Outcome: Approved, with 60 days from the ruling letter to complete the rollover
• Key authorities: IRC §§ 408(d)(1) 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

MAR 3 2016

U.I.L. 408.03-00

SE:T: EP: RA:T3

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXX
IRA X = XXXXXXXXXXX
Bank M = XXXXXXXXXXX
Bank N = XXXXXXXXXXX
Amount D = XXXXXXXXXXX
Amount E = XXXXXXXXXXX
Date 2 = XXXXXXXXXXX
Date 3 = XXXXXXXXXXX
Date 4 = XXXXXXXXXXX

Dear xxxxxxxxxx:

This is in response to your letter dated July 28, 2015, as supplemented by
correspondence dated November 4, 2015, 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 (Code).

The following facts and representations have been submitted under penalty of perjury in
support of your request.

On Date 2, Taxpayer A received a distribution from IRA X totaling Amount D. Taxpayer
A asserts that her failure to accomplish a rollover within the 60-day period prescribed by
section 408(d)(3) of the Code was due to her declining physical and mental health
which affects her ability to manage her financial affairs.

Taxpayer A maintained IRA X with Bank M. Taxpayer A represents that she was not
satisfied with her IRA X account with Bank M and intended to rollover the funds in IRA X
to a new IRA with Bank N. Without consulting with her husband or CPA, on Date 2,
Taxpayer A withdrew Amount D from IRA X and on Date 3 deposited Amount E into a
non-IRA money market account, with Bank N. Amount E has not been used for any
other purpose.

Taxpayer A represents that, at all times, she believed that she had rolled over Amount E
into an IRA with Bank N. It was not until Date 4, when Taxpayer A’s husband was
collecting their financial documents for preparation of their joint income tax return
when he discovered that Amount E was not rolled over into an IRA. At that time, the 60-
day rollover period had expired.

Documentation from Taxpayer A’s physician shows that Taxpayer A has several
medical conditions and would be considered disabled, and that her physical and mental
health is declining.

Based on the facts and representations, Taxpayer A requests that the Internal Revenue
Service (Service) waive the 60 day rollover requirement with respect to the distribution
of Amount E.

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-

(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 received 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 included 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 and good conscience, including
casualty, disaster, or other events beyond the reasonable control of the individual
subject to such requirement. Only distributions that occur after December 31, 2001, are
eligible for the waiver under section 408(d)(3)(I) of the Code.

Rev. Proc. 2003-16, 2003-4 I.R. B. 359, provides that in determining whether to grant a
waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I), 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, or
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 her failure to accomplish a timely rollover was due to her
declining physical and mental health which affects her ability to manage her financial
affairs.

Therefore, pursuant to Code section 408(d)(3)(I) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of Amount E from
IRA X. Taxpayer A is granted a period of 60 days from the issuance of this letter ruling
to rollover Amount E 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 of Amount E 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 that 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 is being sent to your authorized representative pursuant to a Power
of Attorney on file with this office.

If you have any questions regarding this letter, please contact xxxxxxxxxxxxxxx,
xxxxxxxxxxxxxxxxx, at xxxxxxxxxxxxxx. All correspondence should be addressed to
SE:T:EP:RA:T:3.

Sincerely yours,

Carolyn E. Zimmerman, Acting Manager
Employee Plans Technical Group 3

Enclosures:

Deleted copy of letter ruling
Notice of Intention to Disclose

cc:
XXXXXXXXXXX