2011 U.S. Tax Ct. LEXIS 34
Tax Ct.2011Background
- Paschall sought to restructure his traditional IRAs into Roth IRAs via Grant Thornton and Kruse Mennillo; a large intercompany transfer carried about $1.272 million from a traditional IRA into a Roth via Telesis/West Star/ Baum Roth IRA; the IRS determined excise tax under §4973 for excess Roth contributions for 2002–2006 and §6651(a)(1) additions for failure to file Form 5329; timeline issues argued over statute of limitations for 2002–2004; Paschall did not file Form 5329 in any relevant year; the court held Pascall liable for the excise tax and additions, and conceded 2005 income tax/penalty issue upon finding §4973 liability; the court deemed Form 5329 a separate return from Form 1040 and relied on substance-over-form to deny the excess contribution treatment bases
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statute of limitations for §4973 excise tax | Paschall contends 3-year limit ran from 1040 filings | IRS may assess §4973 any time due to no Form 5329 filed | Statute not triggered by 1040 filings; Form 5329 required; liability timely assumed |
| Excess Roth IRA contributions under §4973 for 2002–2006 | Contributions were proper; Roth restructuring legal | $1,272,801.96 transfer constituted excess contribution | Paschall liable for §4973 deficiencies based on end-of-year FMV of Baum Roth IRA |
| Additions to tax under §6651(a)(1) for failure to file Forms 5329 | Reliance on advisers constitutes reasonable cause | Failure to file Form 5329 shows willful neglect or lack of reasonable cause | Adds sustained; reliance on advisers insufficient to establish reasonable cause |
| 2005 tax year treatment of Baum Roth IRA and related penalties | Conceded to the extent §4973 liability exists; 2005 income tax and 6662 penalty conceded |
Key Cases Cited
- Commissioner v. Lane-Wells Co., 321 U.S. 219 (1944) (statute of limitations when returns are insufficient to reveal liability)
- Springfield v. United States, 88 F.3d 750 (9th Cir. 1996) (insufficient information in one return does not start SOL for another)
- Atlantic Land & Improvement Co. v. United States, 790 F.2d 853 (11th Cir. 1986) (critical inquiry is whether the return shows liability information)
- Gregory v. Helvering, 293 U.S. 465 (1935) (substance over form in tax transactions)
- Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43 (2000) (three-prong test for reliance on adviser in reasonable cause)