In Uncategorized on 01/28/2014 at 20:44

If not to your health, then to your wealth or your psychic well-being. Two cases in point from Tax Court today.

Leading off is (or maybe, are) Alvan L. Bobrow and Elisa S. Bobrow, 2014 T. C. Memo. 21, filed 1/28/14. Al is a lawyer specializing in taxation, as he tells Judge Nega several times, and that is his undoing.

Al and Elisa had several IRA accounts between them, and in the year at issue they were playing put-and-take, but claiming all the backs-and-forths were rollovers; rollovers, you remember, are the 60-day free kick a distributee gets to throw a distribution from one IRA into another. A trustee-to-trustee transfer is not a rollover, as distributee never puts paw to paydirt.

Al claims that he gets his once-a-year free kick for each IRA account. No, says Judge Nega, read Section 408(d)(3)(B). “The reference to ‘any amount described in subparagraph (A)(i)’ refers to any amount characterized as a nontaxable rollover contribution by virtue of that amount’s being repaid into a qualified plan within 60 days of distribution from an IRA or individual retirement annuity. The one-year limitation period begins on the date on which a taxpayer withdraws funds from an IRA or  individual retirement annuity and has no relation to the calendar year. Thus, for example, a taxpayer may not make a nontaxable rollover on December 31 in one calendar year and make another nontaxable rollover on January 1 in the next calendar year.” 2014 T. C. Memo. 21, at pp. 8-9.

“Any” means any.

Al ripostes with “… Tech. Adv. Mem. 9010007 (Dec. 14, 1989) and Zaklama v. Commissioner, T.C. Memo. 2012-346 for the position that a taxpayer’s use of funds between the time he takes a distribution from an IRA and the time he makes a repayment of the funds is irrelevant to determining whether the transaction qualifies as a rollover contribution. While we agree with petitioners that the use of funds is irrelevant where the funds include only money and no other distinguishable property, neither Tech. Adv. Mem. 9010007 nor Zaklama bears any relevance to petitioners’ argument that a taxpayer may make more than one tax-free rollover contribution per year.” 2014 T. C. Memo. 21, at pp. 9-10. (Footnote omitted, but read it; it says that Tech Adv. Mems. “…may not be used or cited as precedent and are afforded little weight in this Court.” 2014 T. C. Memo. 21, at p. 9, footnote 3).

Digging into legislative history, Judge Nega finds that the original 1974 version of ERISA limited rollovers to one every three years, but in 1978 Congress scaled that back to one per year. The concern was that there would be too much backing-and-filling, destabilizing the program (and letting taxpayers play games).

Al claims the trustee blew one of the transfers, so it came in a day late for the 60-day saver. But he has no evidence when he or Elisa ordered the transfer, or what the trustee did wrong. And they never applied for the Rev. Proc. 2003-16, 2003-1 C.B. 359 waiver, or tried to use the automatic waiver set forth therein.

Al and Elisa are looking at tax, penalty and interest. Big time.

Al seeks to deflect the penalty. But he has no substantial authority for his position, and didn’t disclose it on their return.

However, hope springs eternal. “Petitioner husband is an attorney specializing in tax law, a fact which petitioners state several times throughout their briefs as support for the position taken on their 2008 tax return. In support of their argument that section 6664(c) should negate any penalty assessed under section 6662(a), petitioners assert that petitioner husband ‘analyzed the transactions at issue in the light of the provisions of section 408(d)(3), and concluded that the three transactions should all be treated as nontaxable.’ It appears that petitioners would have us conclude that petitioner – husband’s career as a tax attorney is proof that they acted with reasonable cause and in good faith.” 2014 T. C. Memo. 21, at pp. 26-27.

I’m giving Al a Taishoff  “good try”, second class. Judge Nega, however, is much less generous.  Understatement 20% chop sustained.

Next up is (or are) Michael & Heather Lloyd, Docket No. 30691-12L, filed 1/28/14, but the order is only tangentially about Mike and Heather. Judge James S. (“Big Jim”) Halpern dealt with Mike and Heather last week, when he gave IRS summary judgment.

Mike’s and Heather’s lawyer, Louis Samuel, Esq., tried to put in answering papers at the time, but Judge Big Jim bounced them, because they weren’t e-filed.

See my blogpost “(Old) Technophobes, Rejoice”, 12/18/13.

Louis Samuel, Esq., re-files his paper papers as an appendage to two different motions with two different captions, apparently seeking indulgence from the e-filing requirements and trying to get his paper papers back in the record.

Too late, says Judge Big Jim, time for vacation. That is, a motion to vacate the earlier order. But that has to be filed electronically.

Louis Samuel, Esq., “…claims as good cause that he has been an attorney for almost 40 years and for the entire time has filed pleadings by paper. He further claims that, at the time this litigation started, he was not ready nor fully equipped to file papers electronically.” Order, at p. 2.

But unlike William J. (“Old Bill”) Wise, Esq., hero of my blogpost aforementioned, whose Tax Court career stretches back to 1959, and thereby earns Ch J “Iron Mike” Thornton’s exemption from e-filing (and he asked before his clients lost), Louis Samuel, Esq., is not one of the chosen few.

Judge Big Jim: “The mandatory aspect of our e-filing rule indicates our intent that counsel equip themselves to comply with the rule. There remains time for petitioners to move to vacate our order and decision. Counsel therefore has time to equip himself to comply with our e-filing requirements. We do not see good cause to exempt him from complying with those requirements.” Order, at p. 2.

So Louis Samuel, Esq.’s, papers go back to him yet again. And a copy of the order gets served directly upon his clients.

Judge Big Jim knows how to hurt a guy.

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