In Uncategorized on 11/17/2016 at 16:07

No, not the much-contemned Section 1234A straddle, nor yet BOSS, Son-of-Boss, nor any other mix-and-match phony partnerships with foreign currency digital options. We have two Tax Court opinions today, one long and one short.

Judge Laro leads with Pizza Pro Equipment Leasing, Inc., 147 T. C. 14, filed 11/17/16. While the thought of pizza always delights me (and many thanks to an old friend, former boss and client for the delicious Italian buffet lunch he afforded us in honor of his birthday), this opinion is yet another reason why I avoided the college course in statistics.

The issue is whether the sole beneficiary and trustee of the Pizza Pro retirement plan overfunded same with deductible contributions, which turn out not to be deductible.

I’ll give you one sample, taken immediately before my eyes glazed over.

“Essentially, respondent applied a tripartite method to calculate the required reduction in the section 415 dollar limitation with respect to a retirement age earlier than 62.

“(1) Determine the actuarial equivalent value of each year’s respective limit payable at age 62 for life by converting that annual limit into a lump-sum value, assuming 5% interest and the probability of living each year to receive this annual benefit, and multiplying the limit by the appropriate APR.  In the table above, this requires multiplying [1] by [3].

“(2) Reduce the value derived in the first step from age 62 to age 45 by discounting it for interest only for 17 years.  In the table above, this entails multiplying [[1] × [3]] by [2].

“(3) Convert the value derived in the second step to a life annuity payable at age 45.  In the table above, this requires dividing [[1] × [2] × [3]] by [4], to arrive at the final number in [5].” 147 T. C. 14, at pp. 14-15.

The IRS won, based upon the regs at the time, which have since been completely superseded, so this full-dress T. C. is of historical interest only. Except maybe for Judge Laro holding that filing only a Form 5500 does not suffice when filing a Form 5330 is also required, as one is not a substitute for the other, and IRS couldn’t tell that the plan was overfunded with nondeductible cash until audit time. So no SOL.

And it takes Judge Laro 58 (count ’em, 58) pages to get there.

The short. A three-pager, Barry R. Skog, 2016 T. C. Memo. 210, filed 11/17/16, and you can guess who the Judge was on this one.

“Barry Skog claims that out of fear for his daughter’s financial future he withdrew money from his wife’s IRA during their divorce.  He also claims that he rolled it over into an account for the daughter’s benefit in some way that qualified as tax-free.  The Commissioner disagrees because the money seems to have disappeared.” 2016 T. C. Memo. 210, at pp. 1-2. (Footnote omitted).

So let’s look at the record.

“The stipulation shows that Skog made withdrawals from his wife’s IRA …that totaled nearly $45,000.  Skog claims that he moved this money into the Norvin A. Skog Irrevocable Trust (Trust), and that his daughter is the Trust’s beneficiary.  The Trust’s paperwork, however, does not name her as a beneficiary.  The Commissioner also subpoenaed the Trust’s investment account records.  They show some fluctuation in value and some withdrawals, but no deposits during [year at issue].  We don’t know where the money went, but these records show that it didn’t go to the Trust.” 2016 T. C. Memo. 210, at p. 2.

“Skog did not show where the money went.  If, contrary to the subpoenaed records, it did go into the Trust’s account, there is no evidence that it went there within 60 days of any of the distributions or that the Trust’s account was a qualifying retirement account.  And by Skog’s own admission, the Trust account was for the benefit of his daughter and not his soon-to-be ex-wife.” 2016 T. C. Memo. 210, at p. 3.

IRS wins.


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