In Uncategorized on 11/22/2011 at 16:20

I’ve not posted recently because there’s been nothing out of USTC but cases that shouldn’t have been there in the first place. If I don’t see the cite for INDOPCO or Neonatology Associates or Cohan again for a couple of weeks, I won’t be sorry. I know that what seems obvious to some of us is not obvious to others (and Christy & Swan Profit-Sharing Plan, 2011 T.C. Mem. 62, filed 3/15/11 and my blogpost “Maybe Not So Obvious”, 8/28/11, are engraved in my memory). That said, the recent cases on which I’ve avoided commenting haven’t a shred of a reason for adjudication–the taxpayers are wasting their time and the Court’s.

I’m only commenting on Lori Menefee, 2011 T.C. Sum. Op. 130, filed 11/21/11, because it shows, in conjunction with Benny Nipps, 2011 T.C. Mem. 267, filed 11/10/11 (see my blogpost “”Ignorance is Bliss?” 11/10/11), what a monumental trap for the unwary has been created by the rollover and distribution rules in the pension and retirement fruit salad in the 400s of the Code.

The trustees of the several plans, of course, state that they are giving no tax advice, and require distributees to sign a declaration in conjunction with any distribution, that they have consulted their own tax advisers. Yeah, right. Benny and Lori probably think that EA stands for Enough Already. And there are millions like them. And as our boomers start to bust and their beneficiaries and distributees get their hands on whatever’s left of boomer’s nest egg, there will be plenty of busted rollovers and missed 60-day deadlines.

Lori, unlike Benny, was only contesting inclusion of the money she got from her late Mom’s 403(b) with the Hartford Board of Education in her gross income. Lori took the check directly in her own name, and waited 90 days before depositing the money in an IRA she opened.

So far, same as Benny. Result is the same–60-day rollover deadline irretrievably blown, IRS’ determination of deficiency sustained. Penalty not mentioned or adjudicated, so no inquiry into Lori’s education, knowledge or experience, but I doubt either she or Benny was a candidate for the editorial board of the Journal of Taxation. Little to note nor long to remember here.

But I do fault Landmark Bank in Benny’s case, and ING in Lori’s. I know their lawyers told them not to give tax advice, and get written disavowals of such before handing over Penny One to anybody. I know I’d give the same advice to any trustee of any plan. There’s nothing to gain if the tax advice is correct, and a lot to lose if it’s wrong, so don’t do it, and get written disavowals.

But couldn’t the trustees be required to give a “cigarette pack” warning? Caution- taking any of this money may be hazardous to your tax health.

The Loris and the Bennys are utterly clueless as to 401(k), 403(b) and IRA distributions. Telling them to consult a tax adviser may get the trustee off the hook, but it doesn’t mean the distributee will do it. I know we can’t protect everyone against everything, but this is a problem that will only grow.


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