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was a nonrecognition event for him under section 408(d)(6).5 We
disagree.
There are two requirements that must be met for the
exception of section 408(d)(6) to apply: (1) There must be a
transfer of the IRA participant’s “interest” in the IRA to his
spouse or former spouse, and (2) such transfer must have been
made under a section 71(b)(2) divorce or separation instrument.
The transaction at issue does not meet the first
requirement. Petitioner did not transfer any of his interest in
his IRA’s to his former spouse. Rather, he cashed out his IRA’s
and paid her some of the proceeds.6 The distribution itself was
5Sec. 408(d)(6) provides:
Transfer of account incident to divorce.--The
transfer of an individual’s interest in an
individual retirement account or an individual
retirement annuity to his spouse or former spouse
under a divorce or separation instrument described
in subparagraph (A) of section 71(b)(2) is not to
be considered a taxable transfer made by such
individual notwithstanding any other provision of
this subtitle, and such interest at the time of
the transfer is to be treated as an individual
retirement account of such spouse, and not of such
individual. Thereafter such account or annuity for
purposes of this subtitle is to be treated as
maintained for the benefit of such spouse.
6IRS Publication 590 describes two commonly used methods of
transferring an interest in an IRA: (1) Changing the name on the
IRA to that of the nonparticipant spouse or (2) directing the
trustee of the IRA to transfer the IRA assets to the trustee of
an IRA owned by the nonparticipant spouse.
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Last modified: May 25, 2011