Dementia supports waiver of three IRA rollover deadlines

Plain-English summary

An IRA owner closed three retirement accounts and deposited the checks into ordinary checking and savings accounts at banks closer to his home. He did not understand that the distributions had to be placed in other IRAs, and medical records showed dementia, limited memory, impaired judgment, and an inability to make financial decisions independently. The funds remained unused in the non-IRA accounts. The IRS waived the 60-day rollover deadline and gave him 60 days from the ruling date to contribute amounts up to the three distributions into rollover IRAs, provided the other rollover requirements were met.

Ruling snapshot

• Question: Should the IRS waive the 60-day deadline for three IRA distributions missed because of the taxpayer's diminished mental capacity?
• Outcome: Approved, with 60 days to complete the three rollovers
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY                                      201628024

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND

GOVERNMENT ENTITIES APR 14 2016

DIVISION

U.I.L. 408.03-00 SE:T:EP:RA:T3

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Legend:

Taxpayer A = XXXXXXXXXXX
IRA X = XXXXXXXXXXX
IRA Y = XXXXXXXXXXX,
IRA Z = XXXXXXXXXXXX
Bank B = XXXXXXXXXXXX
Bank E = XXXXXXXXXXXX
Bank F = XXXXXXXXXXXX
Bank G = XXXXXXXXXXXX
Amount L = XXXXXXXXXXXX
Amount M = XXXXXXXXXXXX
Amount N = XXXXXXXXXXXX

Date 1 = XXXXXXXXXXXX


2 201628024

Dear XXXXXXXXXX:

This letter is in response to your request dated August 5, 2015, as
supplemented by correspondence dated December 21, 2015, submitted 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

(the “Code”).

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

Taxpayer A asserts that his failure to accomplish a rollover of Amounts L, M and
N within the 60-day period prescribed by section 408(d)(3) of the Code was due
to his diminishing mental capacity which affected his ability to understand and
handle his financial transactions.

Taxpayer A had three IRA accounts with Bank B. (IRA X, IRA Y and IRA Z).

On Date 1, Taxpayer A closed all three IRA accounts and received three checks.
Amount L was distributed from IRA X. Amount M was distributed from IRA Y.
Amount N was distributed from IRA Z. Also, on Date 1, Taxpayer A deposited
Amount L into his checking account at Bank G. Amount M was deposited into his
savings account at Bank E. Amount N was deposited into his checking account
at Bank F. Taxpayer A wanted to move the funds in his IRA accounts to banks
that were closer to his home. Taxpayer A did not understand that the distribution
checks needed to be rolled over into another IRA account, but was only
concerned about moving the funds to banks closer to his home.

Amounts L, M and N have not been used for any other purpose and remain in
Taxpayer A’s checking and savings accounts at Banks E, F and G.

It was not discovered until , when Taxpayer A was having his federal tax
return prepared, that Taxpayer A received distributions from IRAs X, Y and Z.

Medical documentation submitted shows that Taxpayer A has limited memory
retention and diagnosed dementia which causes problems with his judgment. His
physician noted that Taxpayer A is not competent to make financial decisions on
his own.

Based on the foregoing facts and representations, you request that the Internal
Revenue Service (Service) waive the 60-day rollover requirement contained in
section 408(d)(3) of the Code with respect to Amounts L, M and N.


3 201628024

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 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
408(d)(3)(I) of the Code.


4 201628024

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, 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 on behalf of Taxpayer A
is consistent with the assertion that his failure to accomplish a timely rollover
during the 60-day period was due to his medical condition and mental capacity
which affected his ability to understand and handle his financial transactions.

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
Amounts L, M and N from IRA X, IRA Y and IRA Z respectively. Taxpayer A is
granted a period of 60 days from the issuance of this letter to contribute amounts
up to, but not exceeding Amounts L, M and N into rollover IRAs. Provided all
other requirements of Code section 408(d)(3), except the 60-day requirement,
are met with respect to such contributions, the contributions of Amounts L, M and
N will be considered rollover contributions 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.

A copy of this letter is being sent to your authorized representative pursuant to a
power of attorney on file with this office.

5 201628024

If you have any questions concerning this ruling, please contact xxxxxxxxxxxxx,
xxxxxxxxxxxxx, at xxxxxxxxxxxxx. All correspondence should be addressed to
SE:T:EP:RA:T3.

Sincerely yours,

[signature]
for Edward R. Baier, Manager
Employee Plans Technical Group 3

Enclosures:

Deleted copy of letter ruling
Notice of Intention to Disclose

cc:
XXXXXXXXXXXX