IRS written determination 201437034

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
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
JUN 18 2014
Uniform Issue List: 401.06-00, 4974.01-00
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Legend:
Decedent A
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Taxpayer B
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Individual C
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Individual 0
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IRAW
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Annuity X
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Annuity Y
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Annuity Z
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Financial Institution
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Court
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20.1437034

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201437034
Dear***,
This is in response to your request dated February 1, 2011, as supplemented by
correspondence dated January 29, 2013, August 22, 2013, August 23, 2013, November
15,2013, November 21, 2013, and January 30,2014, in which you request rulings
under sections
401 (a)(9) and 4974 of the Internal Revenue Code (the "Code") related to
the disposition
of the assets of an IRA of Decedent A.
The following facts and representations have been submitted under penalties of perjury
in support of the rulings requested. Decedent A was the owner of IRA W. Taxpayer 8
was a long-time friend
of Decedent A. Individual C was the former wife of Decedent A.
Within IRA W, Decedent A purchased Annuity
X, Annuity Y, and Annuity Z.
Decedent A had originally designated Taxpayer 8 as the primary beneficiary of IRA W,
Annuity
X, Annuity Y, and Annuity Z. Additionally, pursuant to a divorce judgment,
Decedent A was required to maintain Individual C as the beneficiary
of a percentage of
some of the funds used to fund IRA W.
After Decedent A underwent a major surgery, Individual D began to partly live at
Decedent A's residence to care for his medical needs. Decedent A later changed the
beneficiary designations for Annuity X to 50% for Taxpayer 8 and 50% for Individual
D,
and for Annuity Y and Annuity Z to 100% for Individual D.
Decedent A died on January 20, 2006, at age 77, after his required beginning date.
Individual D received her entire interest
in Annuity X in 2006. Taxpayer 8 and Individual
C filed suit
in the Court challenging the beneficiary designation of Individual D, resulting
in the freezing of all of the assets of IRA W, including the undistributed assets of Annuity
X, Annuity Y, and Annuity Z.
During the course of the litigation, Financial Institution, which issued Annuity Z,
requested that it be allowed to pay the assets from Annuity Z into the Court, for the
Court to hold pending the outcome
of the litigation. Pursuant to an order of the Court,
the assets from Annuity Z were eventually transferred from Financial Institution to IRA
W.
On June 16, 2010, a stipulation of settlement was signed by Taxpayer 8, Individual C,
and Individual D, and approved by the Court, whereby Individual D released any claims
to any undistributed assets
of IRA W, including Annuity X, Annuity Y, and Annuity Z.
Prior to the June 16, 2010, stipulation of settlement, Individual D had not disclaimed
entitlement to IRA W, Annuity
X, Annuity Y, or Annuity Z. After the stipulation was
signed, you represent that there were
delays getting final waivers from Individual D as
well as the need to make a final allocation determination between Taxpayer 8 and
Individual
C. Taxpayer 8 was however able to receive her entire interest in Annuity X in
2010. Taxpayer 8 received her entire interest in Annuity Yin 2013.

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201437034
While the litigation was still ongoing and until the allocation between Taxpayer Band
Individual C was determined, you represent that required minimum distributions were
not
able to be made to Taxpayer B for 2007, 2008, and 2009, and that less than the full
amount
of required minimum distributions were made in 201 0. While awaiting the
outcome
of this ruling request, Taxpayer B received required minimum distribution
payments for
2011, 2012, and 2013.
Based on the facts and representations, you request the following rulings:
(1) that the Internal Revenue Service (the "Service") allow Taxpayer B to begin taking
her required minimum distributions for IRA W (which includes Annuity X and Annuity
Y,
and the proceeds of Annuity Z) in the year in which this ruling request is granted rather
than
in 2007, which is the year after Decedent A's death;
(2) that the Service waive the excise tax under section 4974(a)
of the Code for
Taxpayer
8 for failure to take the required minimum distributions for 2007, 2008, 2009,
and 2010 for IRA W (which includes Annuity X and Annuity Y, and the proceeds of
Annuity Z); and
(3) that Taxpayer 8 may receive required minimum distributions from IRA W (which
includes Annuity X and Annuity
Y, and the proceeds of Annuity Z) based upon her life
expectancy, rather than the life expectancy
of Individual C.
With respect to your first and second rulings, section 401 (a)(9)(A) of the Code provides
that a trust shall not constitute a qualified trust under the Code unless the plan provides
that the entire interest
of each employee:
(i) will be distributed to such employee not later than the required beginning
date, or
(ii) will be distributed, beginning not later than the required beginning date
over the life
of such employee or over the lives of such employee and a
designated beneficiary (or over a period not extending beyond the life
expectancy
of such employee or the life expectancy of such employee and
a designated beneficiary).
Section
401 (a)(9)(B)(i) of the Code provides that a trust shall not constitute a qualified
trust under the Code unless the plan provides that if the distribution
of the employee's
interest has begun
in accordance with section 401 (a)(9)(A)(ii), and the employee dies
before his entire interest has been distributed to him, the remaining portion
of such
interest will be distributed at least as rapidly
as under the method being used under
section
401 (a)(9)(A)(ii) as of the date of death.
Section 408(a)(6) and (b)(3)
of the Code provides that rules similar to the rules of
section 401 (a)(9) of the Code shall apply to distributions from an IRA.
Section 4974(a)
of the Code provides that if the amount distributed during the taxable
year of the payee under any qualified retirement plan (defined under such section to

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201437034
include IRAs) is less than the required minimum distribution (under sections 401 (a)(9),
408(a)(6), and 408(b)(3)
of the Code) for such taxable year, a tax equal to 50% of the
amount by which such required minimum distribution exceeds the
actual amount
distributed during the taxable year is imposed and paid by the payee.
Section 4974(d)
of the Code provides, in part, that if the taxpayer establishes that the
failure to distribute the required minimum distribution during any taxable year was
due
to reasonable error and reasonable steps are being taken to remedy the shortfall, the
Secretary may waive the 50% excise tax imposed by section 4974(a)
of the Code for
the taxable year.
You have represented that because litigation was still ongoing and there were further
delays in getting final waivers and in determining the allocation between Taxpayer 8
and Individual
C, the required minimum distributions were not able to be made to
Taxpayer 8 for 2007, 2008, and 2009, and less than the full amount
of required
minimum distributions was made
in 2010.
Therefore, with respect to your first and second ruling requests, we conclude that
(i) pursuant to section 4974(d)
of the Code, it was due to a reasonable error
that required minimum distributions were not
able to be fully made to
Taxpayer 8 for 2007, 2008, 2009, and 2010 related to IRA W;
(ii) pursuant to section 4974(d) of the Code, reasonable steps to remedy the
shortfall would be for Taxpayer 8 to take the shortfall
in required minimum
distributions for 2007, 2008, 2009, and 2010
related to IRA W by the end
of2014;and
(iii) assuming Taxpayer 8 does take the shortfall in required minimum
distributions for 2007, 2008, 2009, and 2010 related to IRA W by the end
of 2014, the· Service hereby waives the 50% excise tax imposed on
Taxpayer 8 under section 4974(a) for the
shortfall
in those years related to
IRAW.
We note that, generally, a taxpayer may apply for a waiver of the tax imposed under
section 4974(a) by completing IRS Form 5329 and attaching it to his
or her tax return.
Taxpayer 8 should include a copy
of this letter ruling with her Form 5329.
With respect to your third ruling request, as stated above sections
401 (a)(9)(A)(ii),
401 (a)(9)(8)(i), 408(a)(6), and 408(b)(3) of the Code, provide for the required minimum
distributions rules for IRAs if distribution
of the IRA owner's interest has begun and the
IRA owner has died before his entire interest has been distributed.
Section
401 (a)(9)(E) of the Code provides that the term "designated beneficiary" means
any individual designated as a beneficiary by the employee.
Section 1.401 (a)(9)-4
of the Final Income Tax Regulations ("Regulations"), Q&A-1,
provides that a designated beneficiary is
an individual designated under the plan, either
by the terms
of the plan, or by an affirmative election by the employee specifying the

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20143?034
beneficiary, who is entitled to a portion of the plan's benefit, contingent on the
participant's death
or other specified event. The fact that an employee's interest under
the plan passes to a certain individual under a will or otherwise under applicable state
law does not make that individual a designated beneficiary unless the individual is
designated a beneficiary under the
plan.
Section 1.401 (a)(9)-4
of the Regulations, Q&A-4(a), provides that in order to be a
designated beneficiary, that beneficiary must be a beneficiary as
of the date of the
employee's death. The designated beneficiary will generally be determined based on
the beneficiaries designated as of the date
of death who remain beneficiaries as of
September 30 of the calendar year following the calendar year of death. Consequently,
any person who was a beneficiary as
of the date of the employee's death, but is not a
beneficiary as
of the September 30 of the following calendar year (e.g., because the
person receives the entire benefit to which the person is entitled before that September
30) is not taken into account in determining the employee's designated beneficiary for
purposes
of determining the distribution period for required minimum distributions after
the employee's death. Accordingly,
if a person disclaims entitlement to the employee's
benefit, pursuant to a disclaimer that satisfies section 2518
of the Code by that
September 30 thereby
allowing other beneficiaries to receive the benefit in lieu
of that
person, the disclaiming person is not taken into account
in determining the employee's
designated beneficiary.
Section 1.401 (a)(9)-5 of the Regulations, Q&A-5(a), provides that if an employee dies
after distribution has begun (generally on or after the employee's required beginning
date),
in order to satisfy section 401 (a)(9)(B)(i), the applicable distribution period for the
distribution calendar years after the distribution calendar year containing employee's
date of death is, if the employee has a designated beneficiary as of the date determined
under section 1.401 (a)(9)-4
of the Regulations, Q&A-4, the longer of the remaining life
expectancy
of employee's designated beneficiary or the remaining life expectancy of the
employee.
Section 1.408-8
of the Regulations, Q&A-1 (a), provides that, in order to satisfy section
401 (a)(9) of the Code for purposes of determining required minimum distributions for
IRAs, the rules
of section 1.401 (a)(9)-1 through 1.401 (a)(9)-9 of the Regulations must
be applied, except as otherwise provided
in section 1.408-8.
Section 1.408-8
of the Regulations, Q&A-9, provides, in part, that the required minimum
distribution must be
calculated separately for each IRA.
You have represented that at the time
of Decedent A's death, the beneficiary
designation for Annuity X was 50% for Taxpayer B and 50% for Individual
D, and the
beneficiary designations for Annuity Y and Annuity Z were 100% for Individual
D. You
have also represented that Individual D received her entire interest
in Annuity X in 2006,
but that she did not disclaim her interest
in Annuity Y and the proceeds of Annuity Z
until 2010.

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201437034
Therefore with respect to your third ruling request, we conclude that, since Individual D
received her entire interest
in Annuity X prior to September 30th of the year following
Decedent A's death, Taxpayer 8 was the designated beneficiary
of Annuity X for
purposes
of determining the distribution period for required minimum distributions after
Decedent A's death, pursuant to section 1.401 (a)(9)-4
of the Regulations, Q&A-4. We
note that Taxpayer 8 received her entire interest in Annuity X in 2010.
We also conclude that, since Individual D did not disclaim her interest in Annuity Y and
the proceeds
of Annuity Z prior to September 30 of the year following Decedent A's
death,
Individual D was the designated beneficiary for Annuity
Y and Annuity Z solely
for purposes
of determining the distribution period for required minimum distributions
after Decedent A's death pursuant to section 1.401 (a)(9)-4
of the Regulations, Q&A-4.
Accordingly, Taxpayer 8 may receive minimum distributions related to her allocated
interest
in Annuity Y and Annuity Z based upon the life expectancy of Individual D.
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 611 O(k)(3)
of the
Code
pr_ovides that it may not be used or cited as precedent.
Pursuant to the 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:T2.
Jas Levi , Manager,
Em loyee lans Technical Group 2
Enclosures:
Deleted copy
of ruling letter
Notice
of Intention to Disclose
cc:
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