The ‘The I in IRA Stands for Individual’ Case

http://www.ustaxcourt.gov/InOpHistoric/TaoXu.SUM.WPD.pdf

Taxpayer was denied an AGI adjustment for a $5000 contribution to his IRA. he was phased out for a deductible IRA contribution due to their AGI and the fact that he participated in a work sponsored retirement plan. Taxpayer thought an IRA in his name naming his spouse as the beneficiary was the same thing as a spousal IRA – an IRA in the name of the spouse (who did not participate at work). He argued the IRS was partially to blame because they did not issue the deficiency notice in time for him to correct his error. He was told that ignorance of the law is no excuse for not complying.

Take aways:

• That would have to have been one lightening fast deficiency notice because IRA contributions but be made by the due date of the return NOT including extensions.

• Losing an adjustment to arrive at AGI can have an impact on your itemized deductions and eligibility for various credits thereby costing you far more than just the disallowed deduction times your tax rate.