In Uncategorized on 02/25/2016 at 05:45

The Magic Letters

Raymond S. McGaugh, 2016 T. C. Memo. 28, filed 2/24/16, wanted to buy some stock for his IRA. Although the purchase wasn’t a prohibited transaction, the trustee refused to buy. So Ray told the trustee to wire the purchase price directly to the corporation; and Ray told the corporation to issue the stock certificate thus: “Raymond McGaugh IRA FBO Raymond McGaugh.”

FBO = For Benefit Of.

The stock certificate is apparently MIA; the trustee claims they only got the stock certificate in the following tax year (which isn’t before the Court), and tried to mail the stock certificate to Ray twice. It bounced back both times. But the trustee claims Ray got the stock certificate the next year.

Ray says he never got the stock certificate, the trustee issued Ray a 1099-R for the purchase price, and Ray petitions.

“No cash, check, or wire transfer ever passed through Mr. McGaugh’s hands, and he was therefore not a literal ‘payee or distributee’ of any amount.” 2016 T. C. Memo. 28, at p. 9.

Even if the trustee wired the purchase price at Ray’s direction, so what?

“The owner of an IRA is entitled to direct the investment of the funds without forfeiting the tax benefits of an IRA. Even acknowledging that Mr. McGaugh pulled all the strings, it remains true that the funds the IRA released went straight to the investment and resulted in the stock shares’ being issued straight to the IRA.” 2016 T. C. Memo. 28, at p. 9.

I’m not sure what “stock shares” are, but let that pass.

But even if Ray got the money constructively, he was a mere conduit. He had no claim of right to the money. The delay in issuing and delivering the stock certificate was not on Ray’s watch. And Judge Gustafson isn’t going to discuss what effect the delivery in the next year has, as the next year is not before the Court.

Ray wins.

And the winning counsel is one who was somewhat rudely handled in the past. See my blogposts “You Have to Fulfill The Requirements”, 8/20/13, and “Blowing the Joint”, 6/24/14.

Eric Onyango wins one. Good job, Eric.

Not so fortunate is Mark Vandenbosch and Julie Vandenbosch, 2016 T. C. Memo. 29, filed 2/24/16.

Mark actually got his hands on the cash and ran it through several bank accounts, to all of which he had unfettered access.

But Mark relied on his CPA, with whom he had a twenty-year relationship, so he avoids the substantial understatement chop.

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