McGaugh v. Comm'r

McGaugh v. Comm'r

Opinion

 [*2]  MEMORANDUM OPINION

GUSTAFSON, Judge: The Internal Revenue Service ("IRS") issued to petitioner, Raymond S. McGaugh, a statutory notice of deficiency pursuant to section 6212¹ on March 17, 2014, for Mr. McGaugh's 2011 Federal income tax. In the notice the IRS determined a deficiency in tax of $13,538 arising from a distribution from Mr. McGaugh's individual retirement account ("IRA") and an accuracy-related penalty of $2,708 under section 6662(a). The matter is currently before the Court on Mr. McGaugh's motion for summary judgment pursuant to Rule 121, which the Commissioner has opposed.

The issue for decision is whether a transaction involving the removal of $50,000 from Mr. McGaugh's IRA to purchase stock for his IRA constituted a distribution that was not rolled over within the 60-day period allowed in section 408(d)(3) [*3]  and is thus taxable income. For the reasons stated [**2]  below, we will grant summary judgment in Mr. McGaugh's favor.

Background

The facts set forth below are based on the pleadings and other pertinent materials in the record and are not in dispute. See Rule 121(b). Mr. McGaugh's petition alleges an address in Illinois.

Since 2002 Mr. McGaugh has maintained a self-directed IRA with custodian Merrill Lynch, and the IRA held 10,000 shares of stock in First Personal Financial Corp. ("FPFC"). The Commissioner asserts, and we assume, that Mr. McGaugh is a member of the board of directors of FPFC, but the Commissioner has not denied that FPFC stock is permitted to be an asset in the IRA. In the summer of 2011, Mr. McGaugh requested that Merrill Lynch use funds from his IRA to purchase an additional 7,500 shares of FPFC stock. However, for reasons the record does not show, Merrill Lynch would not purchase the shares directly on Mr. McGaugh's behalf.

Consequently, Mr. McGaugh requested that Merrill Lynch initiate a wire transfer of $50,000 directly to FPFC. On October 7, 2011, Merrill Lynch initiated and FPFC received the wire transfer. (There is no evidence that Mr. McGaugh requested an IRA distribution to himself.) On November 28, 2011, FPFC issued  [*4]  the stock [**3]  certificate not in Mr. McGaugh's name but instead in the name of "Raymond McGaugh IRA FBO Raymond McGaugh", as Mr. McGaugh had requested. FPFC claims that the stock certificate was mailed to Merrill Lynch on or about the same day as the November 28, 2011, issuance date on the certificate; but because Merrill Lynch states that the stock certificate was not received until "early 2012", we treat the timing of the transmittal of the stock certificate to Merrill Lynch as being in dispute and assume it was in 2012. Thereafter Merrill Lynch attempted to mail the stock certificate to Mr. McGaugh, but it was returned by the postal service at least twice. The record does not show where the original stock certificate is currently located; but we assume (as the IRS asserts) that Mr. McGaugh holds it (an assertion he denies).²

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