IRS written determination 201436054

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Legend:
Taxpayer A
Decedent
8
IRA X
Individual C
Decedent D
Custodian E
Custodian F
Account Y
Amount 1
Amount 2
Amount 3
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
JUN 13 2014
Uniform Issue List: 408.03-00
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201436054

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201436054
Dear
This is in response to your request dated November 16, 2012, from your
authorized representative, in which Taxpayer
A, the Estate of Decedent D, requests
rulings under section 408 of the Internal Revenue Code (the "Code"). Individual C is the
executor of the Estate of Decedent
D.
The following facts and representations have been submitted under penalty of
perjury in support of the rulings requested.
Prior to her death, Decedent B maintained Individual Retirement Account ("IRA")
X held with Custodian
E. Decedent D, then still alive, was the husband of Decedent B
and was the named beneficiary
of IRA X.
Decedent B predeceased Decedent D. Decedent B died on January 3, 2001,
without having reached age 70
%. Individual C was executor of Decedent B's estate.
The value of IRA X as of January
3, 2001, was Amount 1.
On April 18, 2001, Decedent D, then still alive, was declared to be an
incapacitated person in need of plenary guardianship services for his personal and
financial needs.
Individual C was named Plenary Guardian of the Estate of Decedent
D.
As described below, the funds of IRA X were transferred to Account Y at
Custodian F without proper authorization. On August 9, 2002, Individual C signed the
IRA X transfer forms as "Individual
C, Executrix," in her capacity as executor of
Decedent B's estate, rather than in her capacity as
Plenary Guardian of the Estate of
Decedent
D, on behalf of Decedent D, then still alive, the sole beneficiary of IRA X.
Decedent B's estate was not a beneficiary of IRA X and the executor had no authority to
transfer the funds.
In addition, IRA X was transferred to an account incorrectly titled in the name of
the Estate of Decedent
B. Individual C completed the IRA X transfer forms to
improperly provide for Account Y with Custodian F to be an IRA titled: "Estate of
Decedent B for the benefit of Decedent D." Taxpayer A represents that the transfer
form listed the Employer ID number for the Estate of Decedent
B. On August 22, 2002,
Individual
C, listing her occupation as "Attorney," completed
an
"IRA Account
Application" with Custodian
F. Individual C listed "Individual C, Executrix" as the
Account Holder. Under the Type of IRA, Individual C selected "Inherited IRA" rather
than the other option of "Spousal Rollover IRA."

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201436054
On September 3, 2002, the funds from IRA X were transferred in a direct transfer
from Custodian E to Account Y at Custodian
F. Taxpayer A represents that in 2002
neither Custodian E nor Custodian F recognized the errors in the improper transfer, and
Custodian F treated Account Y as if it were an IRA.
Prior to his death, Decedent D did not take any distributions from Account Y.
Decedent D died on August
4, 2008, without having reached age 70 ¥2. Individual C
was the executor of Decedent D's estate. The Estate of Decedent D treated Account Y
as an asset of Decedent
D. The first distribution from Account Y was for Amount 2 on
March 21, 2011, and the second distribution was made on December 22, 2011, for
Amount 3. Custodian F reported the two
2011 distributions on one Form 1 099-R as
being made to the Estate of Decedent B. Taxpayer A, however, had reported Amount 2
as other income for the Estate of Decedent
D.
Based on the facts and representations, you request the following rulings:
1. That the transfer of IRA X from Custodian E to Custodian F was not a
distribution or payment as those terms are used in section
408(d) of the Code and
instead was a trustee-to-trustee transfer that satisfied the requirements of
Revenue
Ruling 78-406, 1978-2 C.B. 157 ("Rev. Rul. 78-406");
2. That the trustee-to-trustee transfer of IRA X from Custodian E to Custodian F
constituted an election by Decedent D to treat IRA X as his own IRA pursuant
to section
1.408-8, Q&A-5(a) of the Income Tax Regulations ("Regulations"); and
3.
In the event that the transfer of IRA X from Custodian E to Custodian F did not
constitute an election by Decedent D to treat IRA X as his own, that Decedent D was
deemed to have elected to treat IRA X as his own on December 31, 2006, pursuant to
section 1.408-8, Q&A-5(b)(1) of the Regulations.
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.
For purposes of section 408(d)(3) of the Code, a rollover contribution is an
amount that meets the requirements of sections 408(d)(3)(A) and (B).
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 and any other property) is paid
into an
IRA or individual retirement annuity (other than an endowment contract) for the

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201436054
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 or individual retirement annuity other
than an endowment contract) 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)(8) 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
or individual
retirement annuity which was not includible
in gross income because of the application
of section 408(d)(3).
Section 408(d)(3)(C)(i) of the Code provides, in summary, that in the case of an
inherited
IRA, section 408(d}(3) shall not apply to any amount received
by an individual
from such account (and no amount transferred from such account to another IRA
or
individual retirement annuity shall be excluded from income by reason of such transfer),
and such inherited account shall not be treated as an IRA
or individual retirement
annuity for purposes of determining whether any other amount is a rollover contribution.
Section 408(d)(3)(C)(ii) of the Code provides that an IRA shall be treated as an
"inherited IRA
.. if the individual for whose benefit the IRA is maintained, other than the
IRA owner's spouse, acquired the IRA by reason of the death of another individual.
Section 1.408-8, Q&A-S(a) of the Regulations provides that a surviving spouse
of
an IRA owner may elect to treat the spouse's entire interest as a beneficiary in an
individual's IRA as the spouse's own IRA. In order to make this election, the spouse
must be the sole beneficiary of the IRA and have an unlimited right to withdraw amounts
from the IRA.
Section 1.408-8, Q&A-S(b) of the Regulations provides that the election
described in paragraph A-S( a) is made by the surviving spouse redesignating the
account as an account in the name of the surviving spouse
as IRA owner rather than as
beneficiary. Alternatively, a surviving spouse will be deemed to have made the election
if, at any time, either of the following occurs:
(1) Any amount in the
IRA that would be required to be distributed to the
surviving spouse as beneficiary under section
401 (a)(9)(8) of the Code is not distributed
within the time period required under section
401 (a)(9)(8); or

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201436054
(2) Any additional amount is contributed to the IRA which is subject, or
deemed
to be subject, to the lifetime distribution requirements of section 401 (a)(9)(A) of
the
Code.
Section 408(a)(6) of the Code provides, under regulations prescribed by the
Secretary, rules similar to the rules of section 401 (a)(9) of the Code and the incidental
death benefit requirements
of section 401 (a) shall apply to the distribution of the entire
interest of
an individual for whose benefit an IRA trust is maintained.
Section 1.408-8,
Q&A-1 (a) of the Regulations, provides that, except as otherwise
provided, for purposes
of determining required minimum distributions for calendar years
beginning
on or after January 1, 2003, IRAs are subject to the regulations regarding
required minimum distributions
from defined contribution plans under sections
1
.401 (a)(9)-1 through 1.401 (a)(9)-9, and 1.401 (a)(9)-6.
Section
401 (a)(9)(8) of the Code provides that if an IRA owner dies before the
distribution of
his interest has begun in accordance with section 401 (a)(9)(A)(ii)
(triggered
by the IRA owner's required beginning date), his entire interest in the IRA
must be distributed either (a) within 5 years of the IRA owner's death (under section
401 (a)(9)(B)(ii)); or (b) over the life (or over a period not extending beyond the life
expectancy) of a designated beneficiary
commencing not later than 1 year after the
death of the IRA owner (under section 401 (a)(9)(B)(iii)).
Section
1.401 (a)(9)-3, Q&A-2 of the Regulations, provides that in order to satisfy
the 5-year rule contained in section 401 (a)(9)(8)(ii) of the Code, the IRA owner's entire
interest must
be distributed by the end of the calendar year which contains the fifth
anniversary of
the IRA owner's death.
Section
401 (a)(9)(C) of the Code provides, in relevant part, that, for purposes of
section
401 (a)(9)(A)(ii), the term "required beginning date" means April1 of the calendar
year
folloWing the calendar year in which the IRA owner attains age 70%.
Section
1.401 (a)(9)-4, Q&A-1 of the Regulations defines "designated beneficiary''
as any individual designated as a beneficiary under the IRA.
Rev. Rul. 78-406 addressed the direct transfer of funds from one IRA trustee to
another IRA trustee
where both IRAs were held by the same IRA owner, and provided
that the transfer did not constitute a payment
or distribution includible in the gross
income of
the IRA owner.
With respect to ruling request 1, Taxpayer A requests a ruling that the transfer of
IRA X from Custodian E to Custodian F was not a distribution or payment as those
terms are
used in section 408(d) of the Code and instead the transfer of IRA X was a

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201436054
trustee-to-trustee transfer that satisfied the requirements of Rev. Rul. 78-406. 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. Taxpayer A
has not provided a basis for the transfer to fall under the exceptions in section 408( d) of
the Code. Among other things, Rev. Rul. 78-406 does not support transfer of IRA X
to
an individual or entity without ownership rights. Decedent D, then still alive, had rights
as beneficiary of
IRA
X. However, the Estate of Decedent 8 had no ownership rights to
IRA X. Thus, the unauthorized transfer of Decedent 8's IRA X with named beneficiary
Decedent
D, to Account Y for the benefit of the Estate of Decedent 8 for the benefit of
Decedent D, was not a trustee-to-trustee transfer within the scope of Rev. Rul. 78-406.
Thus, the Service concludes that the transfer of IRA X from Custodian E to Custodian F
constituted a distribution
or payment as those terms are used in section 408{d) of the
Code and did not constitute a trustee-to-trustee transfer that satisfied the requirements
of Rev.
Rul. 78-406.
With respect to
ruling request 2, section 1.408-8, Q&A-S(a) of the Regulations
provides that prior to his death, Decedent
D, the surviving spouse of IRA owner
Decedent 8, could have elected to treat Decedent D's entire interest as a beneficiary in
IRA X as Decedent D's own IRA. Section 1.408-8, Q&A-5{b) of the Regulations
provides that the election would have been made by Decedent
D, the surviving spouse,
redesignating IRA X as an account in the name of Decedent D as IRA X owner rather
than as beneficiary. However, there was no such election
or action by Decedent D or
by Individual C in her capacity as his guardian; rather, Individual C acted in her capacity
as executor of Decedent
8's estate and affirmatively elected to establish Account Y as
an "inherited IRA" of Estate of Decedent 8 rather than selecting a "spousal rollover
IRA," Decedent D's own IRA. Thus, with respect to requested ruling 2, the Service
concludes that the transfer of the funds of
IRA X from Custodian E to Custodian F did
not constitute an election by Decedent D to treat IRA X as his own IRA pursuant to
section 1.408-8, Q&A-5{a) of the Regulations.
With respect to
ruling request 3, section 1.408-8, Q&A-5{b) of the Regulations
provides that Decedent D, a surviving spouse, would have been deemed to have made
the election redesignating IRA X as an account in the name of Decedent D as IRA
owner rather than as beneficiary if, at any time, any amount in IRA X that would be
required to be distributed to Decedent D as beneficiary under section
401 (a)(9)(8) of the
Code was not distributed within the time period required under section
401 (a)(9)(8).
Taxpayer A requests that the Service rule that Decedent D was deemed to have elected
to treat IRA X as his own on December 31, 2006, pursuant to section 1.408-8, Q&A-
5(b)(1) of the Regulations. Since the funds
in IRA X were transferred from Custodian E
to Account Y maintained with Custodian F on September 3, 2002, there were no assets
in IRA X on December 31, 2006, and accordingly no assets were subject to the required
minimum distribution rules of section
401 {a){9){8) of the Code. Thus, with respect to
requested ruling 3, the Service concludes that Decedent D would not be deemed to

201436054
have elected to treat IRA X as his own on December 31, 2006, pursuant to section
1.408-8, Q&A-5(b)(1) of the Regulations.
No opinion is expressed as to the tax treatment of the transactions described in
this ruling under the provisions of any other section of either the Code or regulations
which may be applicable.
This letter
is directed only to the taxpayer who requested it. Section 611 O(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 is
being sent to your authorized representatives.
If
you wish to inquire about this ruling, please contact (ID
) at ( )
Please address all correspondence to
SE:T:EP:RA:T1.
Enclosures:
Deleted copy of ruling letter
Notice
of Intention to Disclose
cc:
Sincerely yours,
~n ~ t<Jdiktn$
Carlton A. Watkins, Manager
Employee Plans Technical Group 1