Court Rulings and Legislative Updates
Court Opinions, Advisories, Rulings
For your convenience below are relevant materials that affect IRAs:
Swanson v. Commissioner, 106 T.C. 76 (U.S. Tax Ct. 1996) - In this case, an individual set up a domestic international sales corporation (DISC) and an IRA, and then directed the custodian of the IRA to purchase all the original issue stock of the DISC. The DISC was not a "disqualified person" because the newly issued stock was not owned by anyone at the time of the sale. Thus, the sale of stock to the IRA was not a sale or exchange of property between a plan (the IRA) and a disqualified person within the meaning of Code Section 4975(c)(1)(A). Moreover, the payment of dividends by the DISC to the IRA was also not a prohibited transaction under Code Section 4975(c)(1)(D) because the dividends did not become IRA assets until they were paid.
Harris v. Commissioner, 76 T.C.M. 748 (U.S. Tax Ct. 1994) - The owner of an IRA account is considered a “disqualified person” for purposes of the prohibited transaction rules of Code Section 4975. Therefore, the use of IRA funds by an IRA owner for the acquisition of a personal residence is a "prohibited transaction" under section 4975(c)(1)(D).
Keenan v. Commissioner, 76 T.C.M. 748 (U.S. Tax Ct. 1998) - In order to receive tax-free treatment on a distribution from an IRA, the funds must be transferred to a qualified retirement plan. Transfer of such distribution to a series of foreign trusts does not qualify for tax-free rollover treatment pursuant to Code Section 402(a)(5) or Section 408(d)(3) and is, therefore, includible in the IRA owner’s income with respect to the year of distribution.
In re Hughes, 293 B.R. 528 (M.D. Fl. Bankr. Ct. 2003) - A loan from an IRA to an IRA owner was a prohibited transaction and such IRA ceased to be an IRA as of the first day of such taxable year irrespective of whether the IRA owner subsequently repaid the loan to the IRA. Repaying the loan two months later does not cause the IRA to be reinstated. According to the Hughes decision, the loan repayment merely relieved the IRA owner who engaged in the prohibited transaction from the excise taxes imposed under Code Section 4975(a).
Ancira v. Commissioner, 119 T.C. 135 (U.S. Tax Ct. 2002) - In this case, the owner of a self-directed IRA exercised his right, under the IRA agreement, to direct the investments of certain IRA assets in the stock of a privately held company. Because of the custodian’s policy not to purchase securities that are not publicly traded, the IRA owner acted as a conduit for the custodian in arranging the investment. Acting as an agent for the IRA and its custodian did not cause an improper distribution to be made from the IRA to the IRA owner.
Rousey v. Jacoway, 544 U.S. 320 (U.S. Supreme Ct. 2005) - In this case, the U.S. Supreme Court held that under the provisions of Section 522(d)(10)(E) of the Bankruptcy Code certain payments from an IRA could be exempt from the bankruptcy estate.
IRS Letter Rulings
Please Note: The information presented below is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with legal, tax, and accounting professionals.
It is important to note that IRS Private Letter Rulings have limited precedential value. Any opinion or position expressed by the IRS in a Private Letter Ruling may only be relied upon by the particular party or parties who have requested the Private Letter Ruling, and may not be relied upon by the general public as a whole. Therefore, the IRS Private Letter Rulings listed below are contained for educational purposes and are merely intended to provide you with insight regarding some of the opinions and positions that the IRS has taken in the past regarding certain IRA investments and transactions.
IRS Private Letter Rulings 200732026 and 200732027: In these two letters, the IRS held that shares of exchange-traded funds (ETFs) that hold gold and/or silver do not constitute an acquisition of a collectible if they are acquired in an IRA. As a result, the IRS did not consider money invested in shares of gold and silver ETFs within an IRA to be a distribution subject to an early withdrawal penalty.
IRS Private Letter Ruling 200705032: Allocation of IRAs to a trust upon the death of IRA owner should not be treated as an inherited IRA to decedent's spouse. Thus the rollover of the entire amount into IRAs maintained in the spouse's name would be permissible if accomplished within 60 days and the funds attributable to decedent's IRAs would not be included in gross income of either the trust or the spouse. Additionally, neither the spouse nor the trust was required to withdraw any required minimum distributions with respect to any calendar years prior to rollover.
IRS Private Letter Ruling 200652028: The assignment of IRAs to two separate charities upon the death of IRA Owner in satisfaction of their share of the residue of the Trust as established by decedent will not be considered a transfer under Section 691(a)(2) of the Internal Revenue Code.
IRS Private Letter Ruling 200650023: A surviving spouse may rollover the account balances from her deceased husband's profit sharing plan and SEP-IRAs into an IRA in decedent's name from which she can then receive penalty-free distributions prior to attaining age 59 and a half in accordance with Section 72(t)(2)(A)(ii) of the Internal Revenue Code.
IRS Letter Ruling 199929029, April 27, 1999: IRA Investment in Subchapter S terminates "s" status
IRS Letter Ruling 200008044, December 3, 1999: Division of Inherited IRA to Four Separate Trusts Did Not Count as Distribution
IRS Letter Ruling 200027061, April 12, 2000: IRA funds acquired from estate of deceased spouse still qualify for non taxable rollover into survivors IRA
IRS Letter Ruling 200151049, August 21, 2001: Married couple acting in good faith granted extension in Recharacterization of Roth IRA back to Traditional IRA
IRS Private Letter Ruling 200217059, January 31, 2002: The IRS ruled that the transfer of the physical possession of bullion coins and bullion bars from the possession of the IRA custodian to a non-bank entity that provides precious metals administration and safekeeping services would render the coins and bars collectibles under Code Section 408(m)(3) because the coins and bullion would not be in the "physical possession" of the IRA custodian. As a resule, an IRA that deposits such bullion coins and bullion bars with such a non-bank entity would have to treat such deposit as a distribution from the IRA.
IRS Letter Rulings
IRS Revenue Ruling 2000-2: An executor may elect under Code Section 2056(b)(7) to treat an IRA and a trust as qualified terminable interest property (QTIP), when the trustee of the trust is the named beneficiary of the decendent's IRA. The surviving spouse can compel the trustee to withdraw from the IRA an amount equal to all the income earned on the IRA assets at least annually and to distribute that amount to the spouse, and no person has a power to appoint any part of the trust property to any person other than the spouse.
IRS Revenue Ruling 2008-5: If an individual sells stock for a loss and causes his or her IRA or Roth IRA to purchase substantially identical stock or securities within 30 days before or after such sale, the IRS will disallow the individual’s loss on the sale of such stock as a wash sale.
DOL Advisory Opinions
DOL Advisory Opinion 2006-09A - Investment by a self-directed IRA in notes being offered by an entity that is over 87% owned by the IRA owner's son-in-law would be a prohibited transaction.
DOL Advisory Opinion 2006-01A - Investment by a self-directed IRA in a limited liability company pursuant to an understanding that the LLC will than invest in a corporation that is a disqualified person would constitute a prohibited transaction.
DOL Advisory Opinion 2000-10A - IRA Investment in Limited Partnership Not a Prohibited Transaction.
DOL Advisory Opinion 1993-33A - A sale and lease back arrangement between an IRA and the daughter and son-in-law of the IRA Owner would be a prohibited transaction.
DOL Advisory Opinion 1990-23A: A personal guarantee by the IRA owner on the loan made to an IRA would be a prohibited transaction under Code Section 4975.