The property of the late actor, James Caan, who appeared in The Godfather and plenty of different movies and tv exhibits, misplaced a latest Tax Court docket case that has classes for different taxpayers.
The case concerned two of Caan’s IRAs. The IRAs owned pursuits in a hedge fund. The tax code permits IRAs to personal non-publicly traded property, akin to hedge funds. However many IRA custodians don’t enable these property within the IRAs they oversee. Caan had a real self-directed IRA; its custodian allowed possession of such property.
After every calendar yr, an IRA custodian should report back to the IRS and the account proprietor the worth of the account as of the top of the earlier yr. When the IRA owns an asset that isn’t publicly-traded, the custodian should decide a price and report that.
The settlement between Caan and the custodian required Caan to estimate the year-end worth of the hedge funds and supply that information to the custodian.
One yr, Caan failed to supply the values to the custodian. The custodian promptly notified Caan it now not would function custodian of his IRAs.
The custodian then distributed the IRA property to Caan and despatched each him and the IRS a Kind 1099-R reporting the distribution. The custodian distributed the hedge fund shares just by informing Caan it now not was the custodian and instructing Caan to contact the hedge fund and have it re-register the shares in his particular person title as a substitute of the custodian’s title.
Different property have been within the IRAs, and Caan transferred them to an IRA at one other dealer. However the hedge fund shares couldn’t be transferred to the opposite dealer, as a result of it didn’t settle for property that aren’t publicly-traded. Finally Caan had the hedge fund shares liquidated and transferred the money to the brand new IRA.
The switch wasn’t accomplished till after the 60-day interval for tax-free IRA rollovers. The IRS mentioned the hedge funds have been distributed to Caan, he did not roll them over to a different IRA inside 60 days, so the worth of the hedge funds needed to be included in his gross revenue.
Caan claimed the distribution was nontaxable, as a result of he didn’t take bodily management of the shares or money. He additionally requested the court docket to rule that he had an affordable excuse for lacking the deadline.
The court docket dominated that after the custodian relinquished title to the hedge fund shares, Caan had full management. It didn’t matter that he didn’t have money in hand or in his checking account. At that time, he had full discretion over the shares.
To qualify for a tax-free rollover underneath the 60-day rule, a taxpayer should roll over the identical amount of cash or property to a different IRA inside 60-days and likewise should roll over the identical kind of property that was distributed. Caan failed on each counts.
The court docket decided that Caan didn’t have an affordable foundation for not assembly the 60-day deadline. The issue basically was of his personal making, as a result of he didn’t present the custodian with the required valuation.
Additionally, after the custodian withdrew, all Caan needed to do was contact the hedge fund and have the shares re-registered within the title of a custodian that accepted such property. Nothing prevented him from doing that in a well timed method, so he didn’t have an affordable excuse for the delay.
(Property of Caan v. Commissioner, 161 T.C. No. 6)