Attorney-at-Law

THE IRA TRAP

In Uncategorized on 07/08/2020 at 17:11

Early draws from IRAs are traps, even for the wary. For Tamecca Seril a.k.a Tamecca Tillard, 2020 T. C. Memo. 101, filed 7/8/20, confronting a collapsing marriage, and a son about to go to college with problems at school that could stall his dream, it’s a series of IEDs.

Judge Albert G (“Scholar Al”) dissects Tamecca’s problems filling out her 1040 for the year at issue. She tried; she got the IRA draw right, and the 10% whatever-it-is, but blew the 60-day deadline to roll over an excess. She estimated son’s college bill based on the college’s acceptance letter, but she actually paid much less for the year at issue.

As for blowing the 60-day rollover, “Petitioner has not alleged any error by a financial institution that prevented her from effecting a timely rollover. She did not substantiate her contention that a postal error caused the delay, and she has alleged no disability or the like as a contributing cause. While she contends that it was always her intention to roll over the $15,000, she produced no evidence that she set the money aside (e.g., in a separate account) for that purpose.  Petitioner produced no evidence to establish what she did with the funds or how she used them.” Order, at p. 8 (Citation omitted, but see my blogpost “The Guys From the Hood,” 4/20/17, for the Trimmer case cited here).

So Tamecca owes the tax and the 10%  whatever-it-is.

But she doesn’t get the 20% five-and-ten understatement chop. IRS plays the “penalty electronic” gambit to avoid Boss Hossery, but Judge Scholar Al is letting Tamecca off the chop altogether so he doesn’t have to go there.

“Petitioner prepared her [year at issue] return during a very tumultuous time in her life. We found credible her testimony that she attempted to report her tax liability correctly. She reported the full amount of the IRA distributions she received ($54,500), but treated $15,000 as nontaxable because she intended to roll over that amount. She reported $24,660 of her distributions as subject to the 10% additional tax, correctly believing that she was entitled to some exemption for qualified education expenses. Although she did not calculate the exemption amount correctly, we find that she exercised good faith in her reporting. Considering all these facts, we find that petitioner has demonstrated reasonable cause for her underpayment.” Order, at p. 13.

 

 

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