Doesn’t Cut It in Tax Court

That’s the bad news Judge Haines has for Ronald Craig Fish, 2015 T. C. Memo. 176, filed 9/10/15. Ron is a semi-retired patent attorney, so he tries the public policy gambit when IRS nails him for taking losses in his trad IRA against a distribution, without liquidating the entire IRA.

“Petitioner advances various tax policy arguments which he believes support this position. For example, he contends that restricting an IRA holder’s ability to deduct a loss that occurs when an investment held by the IRA is sold thwarts congressional intent to encourage individuals to save for retirement. He also claims that requiring retirees to completely liquidate their IRAs in order to recognize a deductible loss is ‘unreasonable, arbitrary, capricious and completely unworkable for savers dependent upon IRA/SEP income for their retirement.’

“While petitioner may not agree with the way the law is written and may have reasons that he believes support changing the law, we cannot do that for him. Tax policy is within Congress’ purview, not within this Court’s. We decide cases on the basis of the law enacted by Congress rather than a taxpayer’s policy arguments as to how the law should have been written.” 2015 T. C. Memo. 176, at pp. 4-5.

Take it up with Congress, Ron, and the best of luck to you.

Ron tries to equate a trad IRS with a passthrough, but that doesn’t pass. It’s a tax-exempt, not a passthrough (which is taxable).

Judge Haines: “Transactions occurring within the IRA do not result in taxable events which are reported on the holder’s individual income tax return. An IRA is a tax-exempt entity, not a passthrough entity. Sec. 408(e)(1). The law is clear that distributions from and payments out of an IRA trigger income tax consequences for the payee or distributee. Sec. 408(d).” 2015 T. C. Memo. 176, at p. 5.

And Ron can’t avoid the 20% five-and-ten chop, either. His arguments aren’t authority.

Another case of a lawyer enmeshed in the toils of Tax Court. The “small court” isn’t so easy.