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Description: For this assignment, you will be submitting a tax research memo regarding the scenario detailed below. The purpose of this assignment is for you to research the proper taxation of IRA dis
Description:
For this assignment, you will be submitting a tax research memo regarding the scenario detailed below. The purpose of this assignment is for you to research the proper taxation of IRA distributions.SCENARIO: Phyllis maintained an IRA account at the brokerage firm ABC. On February 11 of the current year, she requested a check for the balance of her account. She received the check made out in her name and deposited it the same day in a new IRA account at the brokerage firm XYZ. Phyllis then requested a check on May 8 from XYZ, which was deposited in another new IRA account 35 days later. Is the May 8 distribution taxable to Phyllis?
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- ANSWER
Relevant Facts
From the scenario presented, Phyllis was involved in maintaining an Individual Retirement Account (IRA) in ABC. On 11th February, she made a request to the brokerage firm to know her balance. She received a check showing the balance under her name and the funds were deposited in a new IRA associated with XYZ the same day. On 8th May, she made a request to know her balance from XYZ and she received a check that was deposited after 35 days in a new IRA account.
Specific Issues
The issue under scrutiny is to find out if the funds deposited on 8th May on the IRA account are taxable on the side of Phyllis.
Conclusions
The basic statute for IRA funds provided in section 26 U.S.C. § 408(d)3(a) requires transfer of full funds paid into an appropriate retirement schedule into a separate account without being taxed. This is the case if the deposit is made within 60 days after receiving payment. By following the rule, the rollover contribution made by Phyllis on 11th February cannot be counted in the taxable proceeds of Phyllis at the conclusion of the year.
Besides, the 8th May deposit made by Phyllis can fit in the period. Yet, 26 U.S.C. § 408(d)3(B) is considered to introduce boundaries on the rollovers done within one year. 26 U.S.C. § 408(d)3(B) and the U.S. Tax Court No. 7022-11 (Bobrow vs. Commissioner) argue that an individual has a limitation of just a single nontaxable IRA contribution within 12 months. This is evident in Bobrow vs. Commissioner, where the tax court was involved in applying the limitation. This was in relation to all IRA accounts and not based on individual IRA accounts. Thus, the transfer made on 8th May would be taxable to Phyllis.
Support
26 U.S.C. § 408(d)3(B)
26 U.S.C. § 408(d)3(a)
U.S. Tax Court. No. 7022-11, TC Memo. 2014-21. January 28, 2014.
Bobrow vs. Commissioner, T.C. Memo 2014-21, 2014 WL 303234 (1-28-14)