Executor gets an IRA rollover waiver after the account owner's cognitive decline

Plain-English summary

An IRA owner withdrew cash while experiencing severe cognitive impairment and did not roll it over within 60 days. Medical evidence showed a persistent decline, and the owner's son was later appointed guardian and became executor after the owner's death. The executor discovered the distribution, filed the missing tax return, and represented that the money had not been used for another purpose. The IRS found that the missed deadline resulted from an acute medical condition beyond the owner's reasonable control. It waived the 60-day requirement and gave the executor 60 days from the ruling to contribute up to the distributed amount to an IRA in the decedent's name, assuming the executor has authority under state law and the other rollover requirements are met.

Ruling snapshot

• Question: Should the IRS waive the 60-day rollover deadline for an IRA distribution missed because of the account owner's severe cognitive impairment?
• Outcome: Approved (executor receives 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
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 10 2018

Number: 201849018
Release Date: 12/7/2018

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend

Decedent A = [redacted]

Executor B = [redacted]

Individual C = [redacted]

Individual D = [redacted]

IRA E = [redacted]

Financial Institution F = [redacted]

State G = [redacted]

Amount 1 = [redacted]

Year 1 = [redacted]

Year 2 = [redacted]

Date 3 = [redacted]

Date 4 = [redacted]

Date 5 = [redacted]

Date 6 = [redacted]

Date 7 = [redacted]

Date 8 = [redacted]

Dear [redacted]:

This is in response to your request dated July 20, 2018, as supplemented by
correspondence dated August 20, 2018, and August 23, 2018, 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.

Executor B, the son and personal representative of Decedent A, and the sole
executor of Decedent A’s estate, represents that Decedent A, at age [redacted], received
a distribution in cash equal to Amount 1 from IRA E, which was maintained by
Financial Institution F. Individual B asserts that Decedent A failed to accomplish a
rollover within the 60-day period prescribed by section 408(d)(3)(A) of the Code
because of an acute medical condition that caused severe cognitive impairment.

Prior to his death, Decedent A owned IRA E with Financial Institution F. Beginning
in Year 1, Decedent A’s family observed signs of Decedent A’s mental decline. On
Dates 4, 5, and 6, Decedent A was diagnosed by three different physicians as
suffering from significant cognitive impairment, which had worsened over time and
had occurred in a persistent pattern over a period of several years. During this
period, on Date 3 of Year 2, Decedent A withdrew Amount 1 from IRA E.

On Date 7, Executor B was appointed by a circuit court in State G to serve as
Decedent A’s guardian. On Date 8, Decedent A passed away. Decedent A was
survived by his three children: Executor B, Individual C, and Individual D.

After being appointed as the guardian of Decedent A, Executor B discovered that
Decedent A failed to file a federal income tax return for Year 2. Executor B
promptly filed the return to report the distribution. Executor B represents that
Amount 1 has not been used for any other purpose.

Based on the above facts and representations, you request a ruling that the
Service waive the 60-day rollover requirement under section 408(d)(3) of the Code
as to the distribution in cash of Amount 1.

Section 408(a) of the Code defines an individual retirement account 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(b) of the Code defines an individual retirement annuity to include an
annuity contract that is issued by an insurance company and satisfies certain
requirements.

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)(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 and documentation submitted are consistent with Executor B’s
assertion that Decedent A failed to accomplish a rollover within the 60-day period
prescribed by 408(d)(3)(A) of the Code due to an acute medical condition that
caused severe cognitive impairment.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service waives the 60-
day rollover requirement with respect to the distribution in cash equal to Amount 1.
Executor B has 60 days from the issuance of this letter ruling to contribute cash in
an amount not exceeding Amount 1 into an IRA established in the name of
Decedent A. Provided all other requirements of section 408(d)(3) of the Code,
except the 60-day requirement, will be met with respect to the contribution of
Amount 1, such contribution will be considered a rollover contribution within the
meaning of section 408(d)(3).

We note that the scope of Executor B’s authority as executor of Decedent A’s
estate is a matter of state law. This ruling assumes that Executor B’s actions
relevant to the ruling request contained herein are in accordance with the laws of
State G and taken pursuant to Executor B’s authority.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 408(a)(6) of the Code, and it does not address any other
issues relating to sections 408(a)(6) and 401(a)(9).

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 [redacted]. 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

cc: