60-day rollover deadline waived for retiree who relied on separating spouse for finances

Plain-English summary

A retiree took a lump-sum distribution from her employer's qualified retirement plan and parked most of it in an ordinary (non-IRA) savings account, missing the 60-day window to roll part of it into an IRA tax-free. She said she had relied on her spouse for all financial matters and that a marital separation during that window caused the miss. Under IRC Section 402(c)(3)(B), the IRS may waive the 60-day deadline when enforcing it would be against equity or good conscience. Applying the facts-and-circumstances test from Revenue Procedure 2003-16, the IRS granted the waiver, giving her 60 more days from the ruling to complete the rollover of that portion into an IRA. If she does, that amount will be treated as a tax-free rollover instead of a taxable distribution.

Ruling snapshot

• Question: Should the 60-day rollover deadline be waived for a plan distribution the taxpayer failed to timely roll over during a marital separation?
• Outcome: Approved (waiver granted; 60 days from the ruling to complete the rollover)
• Key authorities: IRC § 402(c)(3)(A)-(B); IRC § 402(a), (c)(1)-(4), (c)(8)(B); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201835017
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

JUN 06 2018

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 402.00-00 [illegible]

Legend

Taxpayer A =
Plan B =
Account C =
Financial Institution D =
Amount 1 =
Amount 2 =
Date 1 =
Date 2 =
Date 3 =

Dear

This is in response to your request dated April 23, 2018, as supplemented by
correspondence dated May 16, 2018, and June 4, 2018, in which you request,
through your authorized representative, a waiver of the 60-day rollover
requirement contained in section 402(c)(3)(A) of the Internal Revenue Code (the
"Code").

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

Taxpayer A represents that she received a total distribution from Plan B in the
form of a check equal to Amount 1. Taxpayer A asserts that the failure to
accomplish a rollover of Amount 2, a portion of total distribution Amount 1, within
the 60-day period described in section 402(c)(3) of the Code, was due to her
reliance on her spouse for all financial and tax matters and marital difficulties
during the 60-day rollover period.

Taxpayer A participated in Plan B, a qualified plan maintained by her employer. In
, Taxpayer A retired from service with her employer. On Date 1, Taxpayer A
withdrew Amount 1 from Plan B. On Date 2, a date within the 60-day rollover
period, Taxpayer A deposited Amount 1, less amounts withheld for federal and
state income taxes, into Account C. Account C is a non-IRA savings account
maintained by Financial Institution D on behalf of Taxpayer A.

Previously, Taxpayer A relied on her spouse to handle all financial and tax
matters. However, on Date 3, Taxpayer A separated from her spouse. Thus,
Taxpayer A missed the deadline for completing a timely rollover of Amount 2, a
portion of total distribution Amount 1. Taxpayer A represents that Amount 2 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 under section 402(c)(3) of the Code with respect
to the distribution of Amount 2 from Plan B.

With respect to your ruling request, section 401(a) of the Code provides the
qualification rules applicable to retirement plans set up by employers exclusively to
benefit their employees and their beneficiaries.

Section 402(a)(1) of the Code provides that except as otherwise provided in this
section, any amount actually distributed to any distributee by any employees' trust
described in section 401(a) which is exempt from tax under section 501(a) shall be
taxable to the distributee, in the taxable year of the distributee in which distributed,
in the manner provided under section 72 (relating to annuities).

Section 402(c) of the Code provides rules governing rollovers of amounts from
exempt trusts to eligible retirement plans, including IRAs.

Section 402(c)(1) of the Code provides, generally, that if any portion of an eligible
rollover distribution from a qualified employees trust is paid to the employee in an
eligible rollover distribution and the employee 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, such distribution (to the extent so transferred) shall not be
includible in gross income for the taxable year in which paid.

Section 402(c)(2) of the Code provides that the maximum amount of an eligible
rollover distribution to which paragraph (1) applies shall not exceed the portion of
such distribution which is includible in gross income (determined without regard to
paragraph (1)). The preceding sentence does not apply to the distribution to the
extent that such portion is transferred to an eligible retirement plan described in
section 402(c)(8)(B)(i) and (ii).

Section 402(c)(3)(A) of the Code provides, generally, that section 402(c)(1) shall
not apply to any transfer of a distribution made after the 60th day following the day
on which the distributee received the property distributed.

Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60-
day requirement under subparagraph (A) 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 occur after December 31, 2001, are
eligible for the waiver under section 402(c)(3)(B).

Section 402(c)(4) of the Code defines "eligible rollover distribution" as any
distribution to an employee of all or a portion of the balance to the credit of an
employee in a qualified trust, except that such term shall not include: (A) any
distribution which is one of a series of substantially equal periodic payments (not
less frequently than annually) made -- (i) for the life (or life expectancy) of the
employee or the joint lives (or joint life expectancies) of the employee and the
employee's designated beneficiary, or (ii) for a specified period of 10 years or
more, (B) any distribution to the extent the distribution is required under section
401(a)(9), and (C) any distribution which is made upon hardship of the employee.

Section 402(c)(8)(B) of the Code defines eligible retirement plan as (i) an
individual retirement account described in section 408(a); (ii) an individual
retirement annuity described in section 408(b) (other than endowment contract);
(iii) a qualified trust; (iv) an annuity plan described in section 403(a); (v) an eligible
deferred compensation plan described in section 457(b) maintained by an eligible
employer as described in section 457(e)(1)(A); and (vi) an annuity contract
described in section 403(b).

Revenue Procedure 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
402(c)(3)(B) 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 and documentation submitted by Taxpayer A support her
assertion that the failure to accomplish a rollover of Amount 2, a portion of total
distribution Amount 1, within the 60-day period described in section 402(c)(3) of
the Code, was due to her reliance on her spouse for all financial and tax matters
and marital difficulties during the 60-day rollover 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

2. Taxpayer A has 60 days from the issuance of this letter ruling to complete the
   rollover of an amount not exceeding Amount 2 into an IRA. Provided all other
   requirements of section 402(c)(3), except the 60-day requirement, will be met with
   respect to the contribution of Amount 2 to an IRA, Amount 2 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 401(a)(9) 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.

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

Cc: