Michael G. Bunney - Page 11

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          was a nonrecognition event for him under section 408(d)(6).5  We            
               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