In Uncategorized on 03/03/2016 at 18:17

Nor is a non-explanation from your IRA trustee, or non-mailing of a 1099-R. And that’s even when IRS doesn’t understand you can’t hit someone with the Section 72(t) 10% early-out chop when you grab their IRA to pay Court-ordered restitution.

I wish I could feel sympathy for Syed Navaid, 2016 T. C. Memo. 37, filed 3/3/16. But he used a VA pharmacy to provide inventory for his own, went down, and did time. Stealing from veterans doesn’t endear anyone to me, Sy. But I’m sure you’ll survive without my sympathy. And I won’t waste my contempt.

Sy got hit with a restitution order. After he got out, IRS went after his assets, found his IRA and grabbed it.

His IRA trustee, one of the banks in the whirlwind of mergers, didn’t mention the turnover order out of USDCNDIL. While they sent IRS what they claimed was a 1099-R for Sy, they never sent Sy one.

Sy didn’t tell his CPA about the turnover order or his Federal rap. He says he was ashamed; no comment. And he had no 1099-R for the IRS’ grab to give the CPA.

Sy concedes owing tax, but wants to fight the 20% chop.

IRS claims the plain language of the USDCNDIL turnover order, which Sy did get (although he claims it gave him no knowledge of tax implications), tells all.

No, says Judge Paris, it’s ambiguous.

“On its face, the sentence ‘[t]his court-ordered distribution shall not be subject to any additional tax or penalty’ is ambiguous. A precise application of Murillo v. Commissioner, T.C. Memo. 1998-13, 1998 WL 6462, at *1, aff’d without published opinion, 166 F.3d 1201 (2d Cir. 1998), would state that when a defendant forfeits funds in his retirement plan account as part of the terms of a criminal plea, the distribution shall not be subject to the 10% additional tax under section 72(t). See United States v. Novak, 476 F.3d 1041, 1063 n.25 (9th Cir. 2007). Accordingly, the Court finds that petitioner’s interpretation of the ‘Turnover Order’ was not unreasonable or negligence per se.

“Furthermore, it should be noted that the IRS itself made a mistake in regard to the tax treatment of the ‘Turnover Order’. Initially the IRS determined that petitioner was liable for a section 72(t) 10% additional tax on his court-ordered IRA distribution, and only later conceded that petitioner should not have been liable for the section 72(t) additional tax as the Government had seized his IRA. The IRS’ actions show that neither the ‘Turnover Order’ nor an accurate application of Murillo was overwhelmingly obvious. The Court finds that petitioner reasonably believed that the ‘Turnover Order’ was not a tax document.” 2016 T. C. Memo. 37, at pp. 13-14.

Is Sy off the hook?

No, Judge Paris says. The mere fact that his IRA disappeared while he and his fellow-thieves still owed restitution should have made him check further.

“… petitioner should have disclosed the IRA liquidation even if he did not understand the tax ramifications. Even though petitioner did not receive a Form 1099-R, his nonreceipt of any Form 1099 did not convert a taxable item to a nontaxable item. See Vaughn v. Commissioner, T.C. Memo. 1992-317, aff’d without published opinion, 15 F.3d 1095 (9th Cir. 1993). The liquidated IRA itself was enough to put petitioner on notice that he had a duty to report the information on his tax return. Additionally, petitioner did not act with reasonable cause and in good faith when he failed to inform his paid preparer about his dividend income and his interest income for 2010. Therefore, the Court finds that on the basis of these facts, although petitioner did not act negligently per se, he did not act with reasonable cause and good faith when he did not adequately disclose in the return the relevant facts affecting the item’s tax treatment.” 2016 T. C. Memo. 37, at pp. 15-16.

Sy gets the chop.


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