Robert Ancira was the owner of a self-directed IRA. The assets were held by Pershing, the IRAs custodian. The taxpayer asked Pershing to buy $40,000 of stock in S.K., a nonpublicly-traded corporation, using existing IRA assets. Company policy prohibited Pershing from buying non-publicly-traded stock, so it arranged an indirect purchase by sending to Ancira a $40,000 check payable to S.K. The taxpayer then sent the check to S.K. to complete the purchase.
S.K. issued a stock certificate listing the IRA as owner of the shares. At a much later date, S.K. mailed the certificate to Ancira, who delivered it to Pershing. The taxpayer received a 1099-R for 1998 from Pershing in the amount of $40,000; he did not report the amount on his 1998 tax return. The IRS assessed a $17,383 deficiency, which included the 10% penalty tax under IRC section 72(t). Ancira petitioned the Tax Court for relief.
Result. For the taxpayer. The Tax Court concluded no distribution had occurred since the taxpayers only role in the transaction was that of a conduit. It based this finding on the following facts: The check was payable to S.K., it negotiated the check, the IRA was the owner of the stock and the taxpayers only action was to deliver the stock to Pershing.
The court could not find any legal, administrative or judicial authority prohibiting a taxpayer from being a conduit for IRA transactions. Furthermore, the court held the taxpayer was not in constructive receipt of the $40,000 since he was not a holder of the check nor could he negotiate it under state law. The Tax Court also distinguished the facts of this case from those of Lemishaw v. Commissioner, 110 TC 110, which determined that a distribution from an IRA to the taxpayer had occurred. In Lemishaw the taxpayer withdrew money from his IRA, used it to buy stock and then contributed the stock to the IRA. The Tax Court differentiated Lemishaw from this case since Ancira never received any cash.
In addition the court concluded the delay in delivering the stock certificate to Pershing did not constitute a transfer of ownership to the taxpayer since the delay did not change the underlying nature of the transaction. Previously, the court had held that a bookkeeping error by an IRA trustee did not change the nature of an IRA transaction (see Wood v. Commissioner, 93 TC 114). The Tax Court said the rationale of the two situations was similar. Also, the court noted that the 60-day limitation on rollovers of IRA distributions did not apply since there was no distribution to Ancira.
With this case it appears the court has extended the concept in Wood that errors by IRA trustees do not affect the substance of a transaction to mistakes made by third parties.
Robert Ancira v. Commissioner, 119 TC
no. 6.
Prepared by Charles J. Reichert, CPA, CIA, professor of accounting at the University of Wisconsin, Superior.
