In Uncategorized on 09/23/2014 at 22:59

No, not the 1968 outré memoirs of Quentin Crisp, but rather the story of Dennis R. Bohner, 143 T. C. 11, filed 9/23/14, a day of ten (count ‘em, ten) opinions, burying the poor blogger.

I chose Dennis R. because, of the three T.C.s this date, his was the only opinion that one might argue needed a T.C. Gerd Topsnik, 143 T. C. 12, filed 9/23/14, covers an issue I dealt with in my blogpost “He’s Here Because He’s Here”, 8/26/14, and James C. Cooper and Lorelei M. Cooper, 143 T. C. 10, filed 9/23/14, has to do with the blown hand-off of IP, which I discussed in my blogpost “For Whom The (Telephone) Bell Tolls”, 9/17/14, and a dicey bad-debt deduction (goes off on year of worthlessness; nothing new here).

Anyway, Dennis is a retired civil servant, ex-Social Security Administration, who was offered a one-off chance to add to his retirement booty by making a single-shot contribution of $17K to CSRS. I didn’t know what that was either, but it’s the Civil Service Retirement System.

Dennis emptied his bank account, but came up short, so he borrowed the diff from a chum, and paid back the chum and funded his checking account with two draws from a Trad IRA he had.

He wanted CSRS to treat the money he sent as an IRA rollover, but never told CSRS what he wanted. CSRS said nothing.

Of course, he never reported the income on the 1099-R his Trad IRA trustee sent him, so IRS slapped him with a deficiency.

This is a first impression, as rollovers into CSRS never came up before, but Judge Kerrigan, nowise daunted, jumps right in. And it isn’t good news for Dennis.

First, CSRS doesn’t permit pre-tax contributions, unlike Trad IRAs (subject to limitations). And there is no specific Code provision dealing with trustee refusal to accept rollovers.

“To assure that income will be taxed only once, the Internal Revenue Code deems an annuity, such as one for a CSRS participant, to have two components: one taxable, one not. The employing agency withholds a mandatory contribution from the employee’s salary, and that withheld amount is after-tax income because it is taxable for the year in which it is withheld. On distribution that portion is nontaxable because it was already subject to tax. The amount contributed by the employing agency and any interest earned on the employee’s investment are not taxed to the employee until distributed. This portion of the distribution is the taxable component.” 143 T. C. 11, at pp. 5-6 (Citations omitted).

Great, says Dennis, but I will be double-taxed if my $17K isn’t a rollover, because everything I get from my CSRS pension is taxable.

No it isn’t says Judge Kerrigan. Remember dear old Section 72. What was taken out of your pay was taxed in the year taken out, and therefore is nontaxable. You’re taxed on what SSA matched during your tenure there, plus any interest earned.

But, says Dennis, you can roll over an IRA distribution into a “qualifying trust”, CSRS is a qualifying trust under Section 402(c)(8)(a), and IRS agrees.

Judge Kerrigan strips Dennis’ cloak. “Respondent contends, however, that petitioner’s deposit to CSRS does not constitute a rollover contribution under section 408(d)(3) because CSRS does not, and is not required to, accept rollovers.” 143 T. C. 11, at p. 8 (Footnote omitted, but it says that while you can roll from CSRS to an IRA, you can’t roll from an IRA to CSRS.)

Remember my blogpost “The Case of the Reluctant Trustee”, 6/6/14. You can’t roll if the trustee won’t play.

IRS also claims that the contribution of the loaned funds, followed by repayment, isn’t qualified rollover money, but Judge Kerrigan blows IRS off, saying you don’t need to roll identical dollars to what you took out, as long as the amount and timing are correct, and anyway, the reluctant trustee ends matters.

And even though the CSRS annuity is defined benefit and not defined contribution, mox nix. Dennis never told CSRS he was trying for a rollover, and CSRS couldn’t accept a rollover under its statutory authority (no Congressional grant of authority to CSRS).

So Dennis is totally stripped. Ch J Thornton, and JJ. Colvin, Gale, Goeke, Paris, Lauber, and Nega agree.

Judge Vaquez concurs, solely on the lack of authority of CSRS to accept a rollover, and cites the Dabney case, which I blogged in my blogpost “The Case of the Reluctant Trustee”, op.cit., as my expensive colleagues say. Judge Lauber agrees.

Judge Buch dissents. The majority says there is no specific Code provision concerning whether trustees accept or reject rollovers. We interpret the law and regs, but don’t invent them. CSRS is a qualified trust, and whether or not CSRS has statutory authority to accept or reject a rollover is nothing to the point. Dabney had to do with whether the rollover was a permitted investment by the trustee, not whether taxpayer could roll over an IRA distribution.

We nail taxpayers with harsh Code provisions (especially in child support cases), and Judge Buch cites a bushelbasketful of them (many of which I’ve blogged). But when the Code doesn’t prohibit a transaction, why do we not follow the plain words of the Code and allow the rollover?

Timing of the two draws prompts Judge Halpern to write his own dissent, agreeing in the main with Judge Buch.

Also agreeing with Judge Buch: JJ. Alpern, Foley, Holmes (of course), Gustafson, and Morrison.









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