Reversing the Tax Court, the Eighth Circuit in the case of Ibrahim v. Commissioner, Docket No. 14-2070, reversing and remanding TC Memo 2014-8, the Eighth Circuit found that filing as “head of household” by a taxpayer did not qualify as filing a “separate return” for purposes of IRC §6013(b)(2)(B).

IRC §6013(b) generally provides that a married taxpayer that had previously filed a “separate return” can revise their filing and, with the consent of their spouse, file a married filing joint return.  However such an option is not available if the taxpayer had previously filed a “separate return,” received a notice of deficiency and filed a petition before the Tax Court. [IRC §6013(b)(2)(B)]

In the case of Slone v. Commissioner, TC Memo 2012-57, vacated and remanded,  CA9, 2015 TNT 110-18, No. 12-72464, 12-72495, 12-72496, and 12-72497 the Tax Court rejected the IRS’s argument of substance over form in attempting to recast a sale of a corporation’s stock, following the sale of its assets, as a liquidating distribution to which transferee liability could attach under IRC §6901.  But, on appeal, the Ninth Circuit found that Tax Court had not properly considered the issue and sent the matter back to the Tax Court.

In the case in question the corporation had sold the assets of the corporation to a third party.  Following that sale of assets, the corporation was contacted by another entity that expressed an interest in buying the stock of the corporation.  The sale of the stock to that entity was completed prior to the corporation making any distribution to the old shareholders and before the year end for a the tax return that would have been filed for the year of the sale of the assets.

An IRA-based rollover as a business startup style transaction produced disastrous consequences for the individual whose rollover was involved in the case of Ellis v. Commissioner, TC Memo 2013-245, affirmed CA8, 115 AFTR 2d ¶2015-805, No. 14-1310.

The issues in the case was whether the taxpayer had engaged in a prohibited transaction under IRC §4975 as part of his use of funds received from his previous employer’s 401(k) plan to have his IRA start a used car business.  If an IRA engages in a prohibited transaction, the entire balance of the account is deemed distributed to the IRA beneficiary and tax is triggered.

The IRS under IRC §408(d)(3)(l) has the authority to waive the 60 day period for the rollover of funds from one IRA account to another and, in Revenue Procedure 2003-16 one of the reasons enumerated by the IRS for granting such relief is if the taxpayer is prevented from completing the rollover due to medical issues.

So the taxpayer in PLR 201523025 should have been in good shape.  After taking a distribution that he planned to roll over to improve his return from one IRA account the taxpayer suffered a medical injury at work and was put on medical leave.  That leave period expired after the end of the 60 day period.  As well, he was caring for his disabled spouse at the time.  The IRS has quite often granted relief based on such facts.