In Uncategorized on 11/10/2020 at 15:59

If you want to buy something for your IRA (or your SEP-IRA), ask the trustee to do it. Only if the trustee says no are you free to DIY. We had that lesson four (count ’em, four) years ago. See my blogpost “FBO,” 2/25/16.

But Brett John Ball, 2020 T. C. Memo. 152, filed 11/10/20, decides, after “…he ‘strived to remain compliant with his qualified plan, expending a significant amount of time and resources’ to do so….” 2020 T. C. Memo. 152, at p. 13, that he can do it himself.

Judge James S. (“Big Jim”) Halpern is not impressed.

BJ never told the trustee of his SEP-IRA, JP Morgan Chase, to do anything but fund a business checking account with the same name as BJ’s SEP-IRA but not itself an IRA of any kind. BJ ran the account, funded a couple investments (hi, Judge Holmes), and repaid his SEP-IRA.

Taishoff notes that there’s no mention of what happened with the investments; did they make money above the purchase prices funded by BJ’s SEP-IRA? If so, where did the profits go? Who held record title to the investments?

BJ claims he was just a conduit for his SEP-IRA.

“This Court has previously found in certain circumstances that an otherwise taxable IRA distribution was not includible in a taxpayer’s gross income when the taxpayer was acting as an agent or conduit on behalf of the IRA’s custodian to carry out an investment. But we have also found that, when a distributee had unfettered control over an IRA distribution, he could not claim that he was acting as a mere conduit or an agent for the IRA custodian with respect to the distributed funds.

“Our difficulty with petitioner’s argument is that we cannot conclude that Ball LLC was acting as an agent or conduit on behalf of Chase (as custodian of the SEP-IRA) when Ball LLC received and made use of the distributions. Chase had no knowledge of the disposition of the $209,600 that it deposited into the Ball LLC account other than that it made the deposits at petitioner’s direction. Petitioner controlled Ball LLC, and nothing in the record convinces us that he did not have unfettered control over the $209,600 Ball LLC received from Chase. Yes, petitioner caused Ball LLC to lend the distributions nominally for the benefit of ‘The Ball SEP Account’, but he could just as well have made the loans in Ball LLC’s name or in his own name.”  2020 T. C. Memo. 152, at pp. 8-9. (Citations omitted).

There’s some argy-bargy about whether BJ was a Section 408(d)(1) distributee or payee, since the money went into Ball LLC.  Except caselaw says that the nominal payee isn’t always the real payee; see my blogpost “Common Sense?” 12/30/13.

Since, on his 1040, BJ claimed the money wasn’t taxable, he got an AUR-issued CP2000 mismatch form from IRS, because Chase said it was taxable. Since he did not respond thereto, he got an electronic SNOD, so no Section 6751 Boss Hoss needed. And BJ’s protestations that he really tried to comply don’t cut off the five-and ten chop. He should have filed a Form 8275 Disclosure Form, a/k/a Please Audit Me.


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