UNITED STATES TAX COURT
J. KELLY ANDERSON AND MARTHA L. ANDERSON, Petitioners v
.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10760-00. Filed July 19, 2002.
Joe K. Gordon
, for petitioners.
Denise G. Dengler
, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge
: Petitioners petitioned the Court to redetermine respondent’s determination of a $63,949 deficiency in their 1997 Federal income tax. We must decide whether petitioners’ 1997 taxable income should include the $200,000 distribution that J. Kelly Anderson (Mr. Anderson) received from his individual retirement account (IRA) and reported as nontaxable on his tax return. We hold it does. Unless otherwise indicated, section references are to applicable versions of the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Many facts were stipulated, and we incorporate by this reference the parties’ stipulation of facts and the accompanying exhibits. Mr. Anderson and Martha L. Anderson (Mrs. Anderson) are husband and wife, and they filed a joint 1997 Federal income tax return. They resided in Fort Worth, Texas, when their petition was filed with the Court. Mr. Anderson was born in 1932 and holds a bachelor’s degree in commerce.
In 1993, Mr. Anderson retired from General Dynamics. In
June 1994, Mr. Anderson rolled over $217,847.83 of his funds in the General Dynamics Salaried Employee Plan to an IRA account with National Financial Services Corporation (NFSC). Before establishing the account with NFSC, an NFSC portfolio representative explained to Mr. Kelly the significance of an IRA, including its investment options. Mr. Kelly’s application for the account with NFSC stated at the top that it was an “IRA Account Application”.
On June 2, 1997, Mr. Anderson closed his IRA account with
NFSC by withdrawing the balance of $200,688.97; he closed the Generally, a distribution from an IRA is includable in an individual’s gross income in the year in which the distribution in received. Sec. 408(d); see sec. 1.408-4(a), Income Tax Regs.; see also Schoof v. Commissioner , 110 T.C. 1, 7 (1998); Gallagher v. Commissioner , T.C. Memo. 2001-34. A distribution may be taxexempt if the funds distributed from an IRA to the individual for whose benefit the account is maintained are rolled over to another IRA for the benefit of such individual, provided certain criteria are met. Sec. 408(d)(3)(A). Those criteria are: (i) the entire amount received (including money and any other property) is paid into an individual retirement account or individual retirement annuity (other than an endowment contract) for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; (ii) no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution (as defined in section 402) from an employee’s trust described in section 401(a) which is exempt from tax under section 501(a) or from an annuity plan described in section 403(a) (and any earnings on such contribution), and the entire amount received (including property and other money) is paid (for the benefit of such individual) into another such trust or annuity plan not later than the 60th day on which the individual receives the payment or the distribution; or (iii)(I) the entire amount received (including money and other property) represents the entire interest in the account or the entire value of the annuity, (II) no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution from an annuity erroneously credited the transfer of the IRA funds to a non-IRA account. Id.
at 117. The Court held that Merrill Lynch’s bookkeeping error did not disqualify the taxpayer’s transfer of his IRA funds as a valid IRA rollover. Id.
at 122. The Court stated that Congress did not intend “to deny rollover benefits to taxpayers on the basis that a financial institution or other qualified IRA trustee made a mistake in recording a transaction.” Id.
at 122.
We believe that the case of Wood is factually distinguishable from the instant case. Whereas the taxpayer in Wood established a valid IRA, Mr. Anderson never established, nor instructed the bank officer to establish, a valid IRA (or trust) account with Arlington in which the transferred IRA funds could have been deposited. Additionally, unlike Wood , which involved “procedural defects in the execution of the rollover”, the case here, as was true in Schoof v. Commissioner , supra at 11, “involves the failure of a fundamental element of the statutory requirements for an IRA rollover contribution”. Mr. Anderson’s failure is that he never created an IRA trust in which the transferred funds could be placed.
Lastly, unlike the taxpayer in Wood
, petitioners did not exercise the necessary due diligence in creating an IRA account. We note in this regard that Mr. Anderson is a business-minded, college-educated man who we believe (on the basis of our observation of him during his testimony) would have (or at least should have through minimal diligence) noticed the fact that the Arlington accounts were in his and his wife’s names rather than the name of a trust or an IRA. Mr. Anderson also has rolled over his IRA once before. His writing of “rollover” on his withdrawal form also demonstrates his awareness of the need to roll over the distribution into an eligible account.
We have considered all arguments and find those not discussed herein to be without merit. Accordingly, Decision will be entered for respondent.