Attorney-at-Law

THE SOURCE

In Uncategorized on 09/07/2017 at 22:04

Kevin Harris seems perplexed. This is not an uncommon situation for those in the toils of the Internal Revenue Code, its Regulations and its sometimes idiosyncratic judicial interpretations. Even if Kev is a retired KS lawyer, he is not alone among his brethren and sisteren.

Judge Morrison has this one, and is somewhat befuddled by Ken’s litigating position in Kevin C. Harris and Teresa A. Harris, 2017 Sum. Op. 72, filed 9/7/17.

Kev is running four (count ‘em, four) IRAs with his bank. But he only reports distributions from one thereof. His claim is that two $5K contributions to the others came from money he inherited via his late father’s conservator, who distributed same from Daddy’s IRA ro settle said estate.

Judge Morrison, as aforesaid, is befuddled by Ken’s approach.

“Contributions to an IRA are tax deductible for the year contributed (within certain limits as to the amount). Sec. 219 (a) and (b). When a distribution is made from an IRA, the recipient must include it in income for the year of the distribution. Sec. 408(d)(1). If the owner of an IRA dies and the decedent’s estate or a beneficiary receives a distribution from the IRA, the estate or beneficiary must include the distribution in income under the income-in-respect-of-a-decedent rule of section 691(a)(1). See Estate of Kahn v. Commissioner, 125 T.C. 227, 231-232 (2005). This perhaps explains why the conservator of Kevin Harris’ father’s estate might have paid income tax on distributions from the father’s IRA. However, it is difficult to understand why this tax payment would affect the taxability of distributions from Kevin Harris’ own IRAs. It is undisputed that he funded his IRAs with tax-deductible contributions. The distributions should be included in the Harrises’ income, see sec. 408(d)(1), unless an exception applies, such as the exception for rollovers, see sec. 408(d)(3).” 2017 T. C. Sum. Op.73, at pp. 4-5.

OK, a common blunder, making IRA beneficiary the estate, or nobody. This guarantees a first-class tax disaster. A person other than a spouse can get the five-year payout on an inherited IRA, but it seems Daddy didn’t do that.

Well, “the sins of the fathers” and all that.

But Kev still has Judge Morrison befuddled, so Judge Morrison asked for briefing, and Kev comes up short.

“Although Kevin Harris is a retired lawyer, the Harrises’ brief did not cite any legal authority for their argument about the relevance of the source of the two $5,000 contributions. We are not persuaded that their legal theory is correct. in addition, Kevin Harris’ testimony about the source of the two $5,000 contributions was vague and unsupported by any documentation. His testimony about this matter therefore does not support any findings of fact.” 2017 T. C. Sum. Op. 73, at p. 5.

Meanwhile, only Kev petitioned the SNOD, Teri standing mute. So IRS assessed Teri the whole $1500 deficiency. But then Teri got religion and signed aboard, so IRS sent her a letter saying the assessed deficiency was scrubbed.

Kev yells “Hey, Judge Morrison, we’re off the hook! IRS scrubbed Teri’s deficiency!”

Negatory, says Judge Morrison.

“Once a taxpayer files a petition with the Tax Court, the IRS is barred by section 6503(a)(1) from assessing the deficiency until 60 days after the Tax Court’s decision becomes final. The IRS assessed the deficiency against Teresa Harris individually after she did not sign her husband’s Tax Court petition. Once she ratified the petition and became a party to the case, the IRS reversed its assessment in recognition of section 6503(a)(1). Neither the reversal of the assessment, nor the September 2015 letter reflecting the reversal, suggests that Teresa Harris’ deficiency was zero. After our decision becomes final, the IRS is permitted to reassess the deficiency. See Pavich v. Commissioner, T.C. Memo. 2006-167, 92 T.C.M. (CCH) 120, 121 (2006); Connell Business Co. v. Commissioner, T.C. Memo. 2004-131, 87 T.C.M. (CCH) 1384, 1387-1388 (2004); Pfeifer v. Commissioner, T.C. Memo. 1983-437, 46 T.C.M. (CCH) 857 (1983).” 2017 T. C. Memo. 73, at p. 6.

Beside, the billet doux IRS sent to Teri scrubbing the deficiency wasn’t a stipulation spread upon the record in open court, wasn’t a closing agreement, wasn’t nuthin’.

And since y’all didn’t ask IRS to abate interest before raising the issue in Tax Court, Judge Morrison can’t review their action in slugging y’all therewith.

 

 

 

 

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