In Uncategorized on 07/26/2012 at 17:03

And “can’t be deduced from first principles.” Some might rephrase the foregoing to read “can’t be deduced from any principles whatever.” This is the lesson for Charles Grant Beech and Elizabeth A. Beech, in an eponymous Summary Op throwaway, T.C. Sum. Op. 2012-74, filed 7/26/12.

Elizabeth A. got money from Momma’s IRA when Momma died. So this is yet another IRA busted play, where the beneficiary, who is not the decedent’s spouse, gets the distribution in hand on decedent’s death, and puts the money into his or her own IRA within 60 days. Of course, that triggers income eo instante. Not spouse, no rollover, says Section 408(d)(3)(C).

One can, of course, do a trustee-to-trustee, a financial forward pass whereby the beneficiary never puts paw to money. Caselaw and a Rev. Rul., cited in the decision, so provide. But Elizabeth A. got the check in hand, so game over.

IRS “professionally and honorably”, in Judge Holmes’ phrase, concedes the accuracy penalty.

Elizabeth A. argues substantial compliance, but that avails her not. STJ Dean: “The Court cannot find that petitioners substantially complied with section 408(d)(3)(A)(i) because section 408(d)(3)(C) expressly denies rollover treatment to an inherited IRA. ’Many parts of the tax code are compromises, and all parts reflect the need for lines that can’t be deduced from first principles. * * * The Code’s lines are arbitrary. * * * Congress has concluded that some lines of this kind are appropriate. The judiciary is not authorized to redraw the boundaries.’ Kim v. Commissioner, 679 F.3d 623, 625-626 (7th Cir. 2012), aff’g T.C. Dkt. No. 11902-10 (May 20, 2011) (bench opinion).”

See my blogposts “Ignorance is Bliss?” 11/10/11, and “A Long Dry Spell”, 11/22/11.

So I’ll repeat what I said last November 22: “(W)hat 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.”

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