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Husband not liable for tax where IRA distributions were made pursuant to forged withdrawal requests

On Behalf of | Dec 31, 2013 | IRS, Tax Controversy |

In a case of first impression, the Tax Court held that a taxpayer did not fail to report income attributable to unauthorized IRA distributions where his former wife had likely forged the withdrawal requests and where he received no economic benefit from the distributions. Roberts v. Commissioner, 141 T.C. No. 19.

In Roberts, the taxpayer’s former wife, or someone on her behalf, apparently forged the taxpayer’s signature on requests to withdraw cash from his IRA accounts and submitted these requests to ING and SunAmerica. The taxpayer never received the IRA distribution checks; rather, they were deposited into a joint account that was used exclusively by the taxpayer’s former wife. Further, the endorsements on the checks were also forged.

Under I.R.C. § 408(d)(1), amounts paid or distributed from a retirement account are only included in the gross income of the “payee” or “distributee.” The Court found that the taxpayer was not a payee or distributee for purposes of I.R.C. § 408(d)(1) because the transactions were unauthorized and completed without his knowledge, and that he did not receive a benefit, directly or indirectly, from the distributions. The Court also held that while the taxpayer did not exercise any rights he may have had under Washington law to make a claim to restore his IRA accounts, this failure did not affect the Court’s conclusion that the taxpayer was not a payee or distributee. Because the taxpayer was not liable for the tax under I.R.C. § 408(d)(1), the taxpayer was also not liable for the 10% additional tax imposed on early withdrawals.


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