- 8 -
maximum economic advantage. Estate of Curry v. United States,
supra at 1428; Estate of Newhouse v. Commissioner, 94 T.C. 193,
218 (1990).4
I. Estate Tax Consequences Applicable to IRAs
An IRA is a trust created for the “exclusive benefit of an
individual or his beneficiaries.” Sec. 408(a), (h). An IRA can
hold various types of assets, including stocks, bonds, mutual
funds, and certificates of deposit. IRA owners may withdraw the
assets in their IRAs; however, there is a 10-percent additional
tax on early withdrawals subject to statutory restrictions. See
sec. 72(t).
IRAs are exempt from income taxation as long as they do not
cease to exist as an IRA. Sec. 408(e)(1). Distributions from
IRAs are included in the recipient gross income of the
distributee. Sec. 408(d)(1). Hence, earnings from assets held
in an IRA are not subject to taxation in the IRA when earned, but
rather, are subject to taxation when distributions are made.
This fact does not change when the IRA is inherited from the
decedent. See sec. 408(e)(1). IRA owners can designate
beneficiaries to inherit IRAs in the event that the owner dies
before receiving distributions of the owner’s entire interest in
4The estate makes the argument that “Neither the Code or
Regulations contains the requirement that the buyer and seller be
hypothetical.” However, the weight of authority clearly
contradicts the estate’s assertion.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011