Depressed Individual Entitled to Hardship Waiver from Rollover Requirement (Trimmer, TC)

An individual, who failed to timely roll over two retirement account distributions while suffering from a major depressive episode, was entitled to a hardship waiver of the 60-day rollover requirement. Further, the imposition of an early distribution penalty was not appropriate since the individual was entitled to a hardship waiver. The IRS’s argument that its examination division did not have the authority to consider the individual’s hardship waiver request was rejected. Nothing in Rev. Proc. 2003-16, 2003-1 CB 359, as modified by Rev. Proc. 2016-47, I.R.B. 2016-37, 346, purports to limit or constrain an IRS examiner’s ability to consider a hardship waiver during an examination and no such constraint can be found in Code Sec. 402(c)(3)(B).

Moreover, the IRS’s position was contrary to the Internal Revenue Manual, under which examiners have the authority to recommend the proper disposition of all identified issues, including any issues raised by the taxpayer. The examining agent’s authority to consider a hardship waiver during an examination strongly implies that the taxpayer may request the waiver as it would be anomalous if the examiner could consider the relief only if the taxpayer did not request it.

In addition, while the individual did not expressly cite Code Sec. 402(c)(3)(B), his letter left no doubt that he was requesting a hardship waiver. Further, the IRS agent did not decline to consider the individual’s waiver request, did not request additional information and did not advise the individual that he was required to submit a private letter ruling request or do anything else in particular to have his hardship waiver request considered. On the contrary, the agent denied the individual’s requested relief, not on the basis that he had requested it in the wrong manner or provided insufficient information, but on the basis of a cursory and incomplete legal analysis that failed to take into account the hardship waiver provisions under Code Sec. 402(c)(3)(B).

J.C. Trimmer, Dec. 60,880

Other References:

Code Sec. 402

CCH Reference – 2017FED ¶18,207.229

Tax Research Consultant

CCH Reference – TRC RETIRE: 42,454



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