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In response to the March 28, 1990, letter, petitioner
Richard Childs requested tax advice from Martin F. Malarkey III,
Chief of the Quality Assurance Branch of the IRS. In
anticipation of a forthcoming ruling concerning the tax
consequences of the Transfer Refund, Mr. Malarkey advised
petitioners to apply for an extension of time to file their 1989
Federal income tax return. Mr. Malarkey further advised
petitioners to withdraw all funds from their IRA's prior to the
extended due date for filing and to include the amounts withdrawn
in their gross income for 1989.
On April 12, 1990, petitioners applied for and received an
automatic, 4-month extension of time to file their 1989 income
tax return. Petitioners' return for that year was therefore due
on or before August 15, 1990.
On July 10, 1990, the IRS issued a ruling (the IRS ruling)
in which the IRS concluded that Transfer Refunds did not
generally qualify for tax-free rollover treatment.
Petitioners were aware that the IRS ruling required them to
include the taxable portion of petitioner's Transfer Refund,
i.e., $311,534.81, in their gross income for 1989. Petitioners
were also aware that if they did not withdraw the funds from
petitioner's IRA's on or before August 15, 1990, then the IRS
would also seek to tax such amount upon distribution from the
IRA's.
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