Wood v. Comm'r of Internal Revenue, Docket No. 20039-87.
| Decision Date | 31 July 1989 |
| Docket Number | Docket No. 20039-87. |
| Citation | 93 T.C. 114,11 Employee Benefits Cas. 1401,93 T.C. No. 12 |
| Parties | WILLIAM WOOD AND LOIS WOOD, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
P received a lump-sum distribution of cash and stock from a profit-sharing plan. In furtherance of his plan to avoid tax on the distribution, P established an IRA with a large brokerage company as trustee. P delivered the cash and stock to the trustee with instructions that all of the cash and stock be held in the IRA. The records of the trustee properly reflected the transfer of the cash to the IRA within the 60-day period required by sec. 402(a)(5)(C), I.R.C., but mistakenly recorded the stock as having been transferred to another of P's accounts. Approximately 4 months after the expiration of the 60-day period, the trustee corrected its records to reflect the transfer of the stock to the IRA.
HELD: The substance of the transaction wherein P transferred cash and stock to the trustee controls and the trustee's bookkeeping error will be disregarded. P made a timely rollover to his IRA. Joseph G. Kinder, for the petitioners.
Michael P. Breton, for the respondent.
Respondent determined a deficiency in petitioner's Federal income tax for taxable year 1983 in the amount of $12,143.92 and an addition to tax under section 6661 1 in the amount of $3,035.98. In his reply brief, respondent has waived the addition to tax under section 6661.
The issues for decision are: (1) Whether a portion of the lump- sum distribution received in 1983 from a profit-sharing fund is includable in gross income for 1983, and (2) whether respondent's Motion for Leave to Amend the Answer and to Conform the Pleadings to the Proof and for Increased Deficiency should be granted.
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioners William and Lois Wood resided in Warwick, Rhode Island when they filed their petition in this case.
William Wood (hereinafter petitioner) retired from employment with Sears, Roebuck and Company (hereinafter Sears) in 1983 at age 63. Petitioner had been actively employed by Sears for 33 years. Two years prior to his retirement, petitioner suffered a heart attack and was on disability leave thereafter until he retired.
On July 14, 1983, petitioner received a lump-sum distribution in the amount of $79,516.60 from the Savings and Profit Sharing Fund of Sears Employees. The distribution consisted of $37,662.54 in cash and 1,994 shares of Sears stock with an average aggregate cost of $20.99 per share, or $41,854.06 in the aggregate. Eleven thousand two hundred thirty-eight dollars and eighty-two cents of the distribution was attributable to voluntary deposits made by petitioner and was not taxable upon distribution.
The manager of the Sears store where petitioner had worked personally delivered to petitioner a check and stock certificates constituting the entire lump-sum distribution. The store manager advised petitioner to make sure that the lump-sum distribution was ‘rolled over‘ within 60 days. Section 405(a)(5) generally provides that a lump-sum distribution that is transferred to another eligible retirement account within 60 days will not be included in taxable income. The 60-day period for rollover treatment on petitioner's lump-sum distribution expired on September 12, 1983.
Petitioner wanted to roll over the distribution into an individual retirement rollover account (hereinafter IRA rollover account). He contacted Merrill Lynch regarding the rollover, and was referred to an account executive. Petitioner already had an account with Merrill Lynch which was known as the Merrill Lynch Ready-Asset Security Account (the Ready-Asset account) and had previously dealt with the same account executive. The account number of this account was 867 79549. Petitioner met with the account executive in order to open an IRA rollover account with Merrill Lynch. At this meeting, petitioner signed documents to establish his IRA rollover account. Petitioner instructed the account executive to deposit the lump-sum distribution check and stock certificates into his IRA rollover account. Petitioner physically delivered the lump-sum distribution check and stock certificates to the account executive at that time. Petitioner was assured by the account executive that the rollover would be carried out.
The records of Merrill Lynch show that petitioner's lump-sum distribution check and stock certificates were deposited to his Ready-Asset account on August 12, 1983 and August 17, 1983, respectively. The Merrill Lynch account statement records these transactions as follows:
+------------------------------------------------------------+
¦Ready-Asset Account No. 867 79549 ¦
+------------------------------------------------------------¦
¦DATE ¦TRANSACTION ¦DESCRIPTION ¦PRICE ¦AMOUNT ¦
+------+--------------+------------------+-------+-----------¦
¦*** ¦ ¦ ¦ ¦ ¦
+------+--------------+------------------+-------+-----------¦
¦08 12 ¦FUNDS RECEIVED¦FUNDS RECEIVED ¦ ¦$37662.54CR¦
+------+--------------+------------------+-------+-----------¦
¦*** ¦ ¦ ¦ ¦ ¦
+------+--------------+------------------+-------+-----------¦
¦08 17 ¦RECEIVED ¦1994 SEARS ROEBUCK¦ ¦ ¦
+------------------------------------------------------------+
The records of Merrill Lynch show that petitioner's IRA rollover account was set up on August 26, 1983 as account number 867 88714. The Merrill Lynch account statement records this transaction as follows:
+-----------------------------------------------------+
¦IRA Rollover Account No. 867 88714 ¦
+-----------------------------------------------------¦
¦DATE ¦TRANSACTION ¦DESCRIPTION ¦PRICE ¦AMOUNT ¦
+------+---------------+-------------+-------+--------¦
¦08 26 ¦ ¦SET UP FEE ¦ ¦$30.00 ¦
+------+---------------+-------------+-------+--------¦
¦08 26 ¦CLOSING BALANCE¦ ¦ ¦$30.00DR¦
+-----------------------------------------------------+
The records of Merrill Lynch show that on September 8, 1983, $26,423.18 was transferred from petitioner's Ready-Asset account to petitioner's IRA rollover account. This amount represents the taxable portion of the cash lump-sum distribution. 2 The Merrill Lynch account statements record this transaction as follows:
+-------------------------------------------------------+
¦Ready-Asset Account No. 867 79549 ¦
+-------------------------------------------------------¦
¦DATE ¦TRANSACTION ¦DESCRIPTION ¦PRICE ¦AMOUNT ¦
+------+--------------+-------------+-------+-----------¦
¦*** ¦ ¦ ¦ ¦ ¦
+------+--------------+-------------+-------+-----------¦
¦09 08 ¦WITHDRAWAL ¦CHECK H ¦ ¦$26423.18 ¦
+------+--------------+-------------+-------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+-------------------------------------------------------¦
¦IRA Rollover Account No. 867 88714 ¦
+-------------------------------------------------------¦
¦DATE ¦TRANSACTION ¦DESCRIPTION ¦PRICE ¦AMOUNT ¦
+------+--------------+-------------+-------+-----------¦
¦*** ¦ ¦ ¦ ¦ ¦
+------+--------------+---------------------+-----------¦
¦09 08 ¦FUNDS RECEIVED¦ROLLOVER DEPOSIT ¦$26423.18CR¦
+-------------------------------------------------------+
The Merrill Lynch records do not show any other deposits or transfers to petitioner's IRA rollover account prior to the expiration of the 60-day rollover period that expired on September 12, 1983.
The first monthly IRA account statement received by petitioner after the expiration of the 60-day rollover period on September 12, 1983 was dated September 30, 1983. This statement and succeeding monthly statements through December 1983 indicated that the 1,994 shares of Sears stock had not been transferred into petitioner's IRA account. Petitioner failed to recognize this.
The Merrill Lynch records for January 1984 pertaining to petitioner's two aforementioned accounts reflect that the 1,994 shares of Sears stock that petitioner had received as a lump-sum distribution were transferred from his Ready-Asset account to his IRA rollover account. The Merrill Lynch account statements for January 1984 record this as follows:
+---------------------------------------------------+
¦Ready-Asset Account No. 867 79549 ¦
+---------------------------------------------------¦
¦DATE ¦TRANSACTION ¦DESCRIPTION ¦PRICE ¦AMOUNT ¦
+------+-------------+-------------+-------+--------¦
¦*** ¦ ¦ ¦ ¦ ¦
+------+-------------+---------------------+--------¦
¦01 27 ¦JOURNAL ENTRY¦1994 SEARS ROEBUCK ¦ ¦
+------+-------------+---------------------+--------¦
¦ ¦ ¦ROLLOVER DEP ¦ ¦ ¦
+------+-------------+-------------+-------+--------¦
¦ ¦ ¦VS 8678 8714 ¦ ¦ ¦
+------+-------------+-------------+-------+--------¦
¦ ¦ ¦ ¦ ¦ ¦
+---------------------------------------------------¦
¦IRA Rollover Account No. 867 88714 ¦
+---------------------------------------------------¦
¦DATE ¦TRANSACTION ¦DESCRIPTION ¦PRICE ¦AMOUNT ¦
+------+-------------+-------------+-------+--------¦
¦*** ¦ ¦ ¦ ¦ ¦
+------+-------------+---------------------+--------¦
¦01 27 ¦JOURNAL ENTRY¦1994 SEARS ROEBUCK ¦ ¦
+------+-------------+---------------------+--------¦
¦ ¦ ¦ROLLOVER DEP ¦ ¦ ¦...To continue reading
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