Academic journal article Journal of Accountancy

Taxpayer Wins Partial IRA Rollover Contribution Issue on Appeal: Partially Reversing the Tax Court, the Eighth Circuit Holds That a Taxpayer Made a Timely Partial Rollover Contribution to His IRA

Academic journal article Journal of Accountancy

Taxpayer Wins Partial IRA Rollover Contribution Issue on Appeal: Partially Reversing the Tax Court, the Eighth Circuit Holds That a Taxpayer Made a Timely Partial Rollover Contribution to His IRA

Article excerpt

The Eighth Circuit held that the IRS and Tax Court improperly denied a taxpayer's claim of a partial qualifying rollover contribution to his individual retirement account (IRA) by ignoring a partial repayment of a distribution made less than 60 days earlier.

Facts: Harry Haury was a software engineer and owner of two businesses developing a national alert warning system for the U.S. Department of Homeland Security. The businesses incurred nearly $4 million in development costs and lacked sufficient cash flow from their operations. In 2007, when he was under the age of 59V2, Haury transferred $434,933 to the companies from his IRA in four distributions. Each transfer was matched with an interest-bearing promissory note from the companies under which they were required to repay the IRA trustee on behalf of Haury's IRA account upon demand.

On April 30,2007, Haury's IRA trustee received and deposited into Haury's account a $120,000 check from one of the businesses. Near the end of the year, Haury demanded repayment of the notes, which an officer of the businesses refused.

Haury did not file a tax return for 2007. The IRS prepared a substitute return and issued a notice of deficiency saying he owed more than $250,000 in unpaid taxes, penalties, and interest, based partly on the IRA distributions and a 10% additional tax under Sec. 72(t). After petitioning the Tax Court, Haury filed a 2007 return claiming a bad-debt deduction for the portion of the loans not repaid to him.

Issues: Before the Tax Court, Haury argued pro se that the April 30, 2007, deposit to his IRA was a qualifying rollover contribution. The IRS, however, pointed out that the contribution amount matched a $120,000 distribution made on Feb. 15, 2007, and argued that it was not a qualifying contribution because it was not made within the 60-day time limit in Sec. 408(d)(3)(A)(i). The Tax Court agreed with the IRS. The court, citing Generes, 405 U. …

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