James H. Swanson and Josephine A. Swanson - Page 10

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          and additions to tax with respect to the years at issue,                    
          petitioners requested and received the revenue agent's report in            
          their case.  As demonstrated by the revenue agent's report,                 
          respondent identified, as alternative positions, two "prohibited            
          transactions" which resulted in the loss of IRA #1's status as a            
          trust under section 408.  First, respondent concluded that:                 
               Mr. Swanson is a disqualified person within the meaning                
               of section 4975(e)(2)(A) of the Code as a fiduciary                    
               because he has the express authority to control the                    
               investments of * * * [IRA #1].                                         
               Mr. Swanson is also an Officer and Director of                         
               Swansons' Worldwide.  Therefore, direct or indirect                    
               transactions described by section 4975(c)(1) between                   
               Swansons' Worldwide and * * * [IRA #1] constitute                      
               prohibited transactions.                                               
               Mr. Swanson, as an Officer and Director of Worldwide                   
               directed the payment of dividends from Worldwide to                    
               * * * [IRA #1] * * * * The payment of dividends is a                   
               prohibited transaction within the meaning of section                   
               4975(c)(1)(E) of the Code as an act of self-dealing                    
               where a disqualified person who is a fiduciary deals                   
               with the assets of the plan in his own interest.  The                  
               dividend paid to * * * [IRA #1] December 30, 1988 will                 
               cause the IRA to cease to be an IRA effective January                  
               1, 1988 by reason of section 408(e)(1).  Therefore, by                 
               operation of section 408(d)(1), the fair market value                  
               of the IRA is deemed distributed January 1, 1988.                      
               [Emphasis added.]                                                      
               As further demonstrated by the revenue agent's report,                 
          respondent's second basis for disqualifying IRA #1 under section            
          408 was that:                                                               
               In his capacity as fiduciary of * * * [IRA #1], Mr.                    
               Swanson directed the bank custodian, Florida National                  
               Bank, to purchase all of the stock of Swansons'                        







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