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Worldwide received preferential treatment,4 and the dividends
paid to IRA #1 were tax deferred pursuant to section 408. Thus,
the net effect of these transactions was to defer recognition of
dividend income that otherwise would have flowed through to any
shareholders of the DISC.
In 1988, IRA #1 was transferred from Florida National Bank
to First Florida Bank, N.A. (hereinafter First Florida), as
custodian. Swansons' Tool stopped paying commissions to
Worldwide after December 31, 1988, as petitioners no longer
considered such payments to be advantageous from a tax planning
perspective.
2. The FSC and IRA #2
In January 1989, petitioner directed First Florida to
transfer $5,000 from IRA #1 to a new individual retirement
custodial account (hereinafter IRA #2). Under the terms of the
IRA agreement, First Florida was named custodian of IRA #2, and
petitioner was named as the grantor for whose benefit the IRA was
established. Under the terms of the IRA agreement, petitioner
3(...continued)
12/30/88 12/31 88 122,352
Total 593,602
No distributions were made to petitioners from the trust during
the years at issue.
4
Under sec. 991, except for the taxes imposed by ch. 5, a
DISC is not subject to income tax.
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