Source: https://openjurist.org/956/f2d/270/rini-v-commissioner-of-internal-revenue
Timestamp: 2019-12-16 02:52:56
Document Index: 239956947

Matched Legal Cases: ['§ 62', '§ 408', '§ 61', '§ 62', '§ 219', '§ 219', '§ 1', '§ 408', '§ 408', '§ 408', '§ 408']

956 F2d 270 Rini v. Commissioner of Internal Revenue | OpenJurist
956 F. 2d 270 - Rini v. Commissioner of Internal Revenue
956 F2d 270 Rini v. Commissioner of Internal Revenue
Gusty A. RINI, Plaintiff-Appellant,
No. 91-1774.
A thorough understanding of the issues on appeal requires a brief explanation of the statutory background. An IRA is a tax deferment device. Funds contributed to an IRA are not taxed until they are withdrawn. See 26 U.S.C. §§ 62(a)(7), 408(d)(1). Once a taxpayer withdraws the funds, however, he may avoid taxation of the funds only if he deposits the funds in another IRA (rolls over the account) within sixty days of the withdrawal. See 26 U.S.C. § 408(d)(3)(A).
Rini's argument that the funds never became income taxable to him lacks merit. Gross income includes all income from whatever source derived. 26 U.S.C. § 61(a). Rini's gross income for each year, therefore, included any amounts he contributed to the Prudential IRA during that year. Rini misconceives the way that amounts contributed to IRA's are treated. Under 26 U.S.C. § 62(a)(7), taxpayers are allowed to deduct retirement savings from gross income, in compliance with 26 U.S.C. § 219, to arrive at adjusted gross income. Under 26 U.S.C. § 219, an individual may deduct up to $2,000 per year if he contributes that amount to a qualified retirement plan, such as an IRA. Thus, the effect of contributing income to an IRA is not to prevent it from becoming income; the contribution merely qualifies the taxpayer for a statutory deduction from gross income, effectively deferring taxation until withdrawal.
Fetzer Refrigerator Co. v. Commissioner, 437 F.2d 577, 579 (6th Cir.1971) (quoting Treas.Reg. § 1.451-2(a)).
There is one statutory provision that extends the sixty-day rollover window if the funds in a taxpayer's IRA become a "frozen deposit." See 26 U.S.C. § 408(d)(3)(F). Because Rini stipulated that Prudential was neither bankrupt nor insolvent, however, the Tax Court correctly concluded that the funds did not qualify for treatment as a frozen deposit. Except for this limited tolling provision, which applies only if the custodial financial institution is bankrupt or insolvent, there is no statutory provision that permits extension of the sixty-day rollover period under Rini's circumstances.
Tax treatment of distributions from IRA's is controlled by 26 U.S.C. § 408(d), which states that, "[e]xcept as otherwise provided in this subsection, any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee...." A narrow exception to this general rule is provided by 26 U.S.C. § 408(d)(3)(A):
Under the Internal Revenue Code, qualified persons may contribute up to $2,000 per year to an IRA. See 26 U.S.C. § 408(a)(1). Income tax on this amount is deferred, and the interest that accumulates over the ensuing years is not taxed as it is earned. As the taxpayer begins to withdraw the funds at retirement, he becomes liable for income taxes on the amounts contributed and the interest accumulated. If the taxpayer withdraws any of the funds before he reaches age 59 1/2, he incurs a penalty. If the taxpayer wishes to move the account from one custodian to another (roll over the account), the Internal Revenue Code allows sixty days after the withdrawal of the funds from the old account. If the taxpayer fails to deposit the funds in another IRA within that time, the withdrawal becomes a taxable event