Estate of James E. Caan, Jacaan Administrative Trust, Scott Caan, Trustee, Special Administrator

United States Tax Court

161 T.C. No. 6

ESTATE OF JAMES E. CAAN, DECEASED, JACAAN

ADMINISTRATIVE TRUST, SCOTT CAAN, TRUSTEE, SPECIAL

ADMINISTRATOR,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 14783-18. Filed October 18, 2023.

—————

Decedent (D) held two IRAs with UBS. Both IRAs

were governed by a custodial agreement between D and

UBS. One of the IRAs held a partnership interest (P&A

Interest) in the P&A Fund, a hedge fund. The custodial

agreement between D and UBS stated that it was D’s

responsibility to provide UBS with the P&A Interest’s

yearend fair market value (FMV) every year. When D did

not satisfy this responsibility for tax year 2015, UBS

notified D that it had distributed the P&A Interest to him

pursuant to the relevant terms of the custodial agreement.

P claims such a distribution did not occur.

UBS issued Form 1099–R to D, reporting a

distribution. UBS valued the P&A Interest at $1,910,903,

which was its 2013 FMV and the last FMV known to UBS.

(R admitted in his posttrial briefs that UBS misvalued the

P&A Interest.) More than a year after the notification from

UBS, D’s financial advisor, acting on D’s behalf, liquidated

the P&A Interest and contributed the cash proceeds to D’s

IRA at ML, an investment manager.

On his 2015 income tax return, D reported an IRA

distribution but claimed that it was nontaxable as a

Served 10/18/23

2

rollover contribution under I.R.C. § 408(d)(3). R disagreed

and issued a notice of deficiency, determining that there

was a taxable distribution. D then requested that R issue

a private letter ruling to waive the 60-day period for

rollover contributions. See I.R.C. § 408(d)(3)(A)(i), (I). D

also filed a Petition with this Court for redetermination of

his 2015 income tax deficiency. See I.R.C. § 6213(a).

During the pendency of this case, R declined to issue the

private letter ruling, stating that the 60-day period could

not be waived because D was required to contribute the

P&A Interest (not cash) to ML in order for the distribution

to be nontaxable as a rollover contribution. See I.R.C.

§ 408(d)(3)(A)(i); Lemishow v. Commissioner, 110 T.C. 110,

113 (1998), supplemented by 110 T.C. 346 (1998); Treas.

Reg. § 1.408-4(b)(1).

Held: The P&A Interest was distributed to D in tax

year 2015 within the meaning of I.R.C. § 408(d)(1).

Held, further, the P&A Interest was not contributed

to ML in a manner that would qualify as a rollover

contribution under I.R.C. § 408(d)(3).

Held, further, under I.R.C. § 408(d)(1), D is taxable

for 2015 on the P&A Interest’s value at the time of the

distribution.

Held, further, the value of the P&A Interest at the

time of the distribution was $1,548,010.

Held, further, we have jurisdiction under I.R.C.

§ 6213(a) to review R’s denial of D’s I.R.C. § 408(d)(3)(I)

request for a waiver of the 60-day period for rollover

contributions.

Held, further, we review a denial of a request for a

waiver under I.R.C. § 408(d)(3)(I) for abuse of discretion.

Held, further, R did not abuse his discretion in

denying P a waiver under I.R.C. § 408(d)(3)(I).

—————

3

Steven Ray Mather, for petitioner.

Mark A. Nelson and Sarah A. Herson, for respondent.

COPELAND, Judge: James E. Caan was an actor whose

successful Hollywood and television career lasted over six decades and

proved very lucrative. Throughout his career Mr. Caan focused on his

acting roles, leaving to his business managers and financial advisors the

tasks of managing his wealth and his day-to-day financial affairs.

This case concerns a portion of the late actor’s wealth, namely,

two individual retirement accounts (IRAs) that he held at the Union

Bank of Switzerland (UBS). One IRA held cash, mutual funds, and stock

in exchange-traded funds. The other held similar assets as well as a

partnership interest in P&A Multi-Sector Fund, L.P., a hedge fund (P&A

Interest and P&A Fund, respectively).

IRAs are not limited to holding traditional assets such as cash,

bonds, and publicly traded securities; they can still qualify for tax

advantages while holding alternative assets, such as non-publicly

traded partnership interests like the P&A Interest. However, in that

case the Internal Revenue Service (IRS) requires that the IRA’s trustee

or custodian report the fair market value of the alternative assets

yearly, valued as of December 31 of the preceding year (yearend fair

market value). See I.R.C. § 408(i); 1 Treas. Reg. § 1.408-5; 2014

Instructions for Forms 1099–R and 5498, at 20, 22 (directing trustees

and custodians to report the yearend fair market value of IRA assets

“that are not readily tradable on an established US or foreign securities

market or option exchange, or that do not have a readily available [fair

market value]”). The custodial agreement that governed Mr. Caan’s two

IRAs at UBS reflected that requirement; it was Mr. Caan’s

responsibility to provide UBS with the yearend fair market value of the

P&A Interest every year. In 2015 Mr. Caan did not provide UBS with

the P&A Interest’s 2014 yearend fair market value; as a result, UBS

refused to continue serving as the P&A Interest’s custodian and sent a

letter to Mr. Caan notifying him of a distribution of the P&A Interest.

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation

references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all

relevant times, and Rule references are to the Tax Court Rules of Practice and

Procedure.

4

UBS then issued Mr. Caan a Form 1099–R, Distributions From

Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,

Insurance Contracts, etc., which reported to the IRS a distribution of the

P&A Interest. UBS used the P&A Interest’s 2013 yearend fair market

value, which was the last yearend fair market value known to UBS, as

the value of the distribution.

Also in 2015, but before UBS sent the distribution letter to Mr.

Caan, the wealth management advisor who managed both of Mr. Caan’s

IRAs resigned from UBS and began a similar role at Merrill Lynch,

Pierce, Fenner, and Smith, Inc. (Merrill Lynch). That advisor—Michael

Margiotta—then convinced Mr. Caan to transfer both IRAs to Merrill

Lynch under his management. All assets in both IRAs, except for the

P&A Interest, were subsequently transferred to a single IRA at Merrill

Lynch through the Automated Customer Account Transfer Service

(ACATS). 2 Since the P&A Interest was ineligible for transfer through

ACATS, Mr. Margiotta directed the P&A Fund to liquidate the P&A

Interest and transfer the cash proceeds to the Merrill Lynch IRA. That

liquidation and cash transfer did not occur until almost a year after UBS

notified Mr. Caan that it had distributed the P&A Interest.

On his federal income tax return for tax year 2015, Mr. Caan

reported a distribution of the P&A Interest but claimed that it was

nontaxable. The Commissioner of Internal Revenue (Commissioner)

disagreed with that position and, in a notice of deficiency dated April 30,

2018, determined an income tax deficiency of $779,915 for tax year 2015

and a section 6662(a) accuracy-related penalty of $155,983. Mr. Caan

then filed a Petition with this Court for redetermination of his 2015

income tax deficiency. See I.R.C. § 6213(a). Shortly before filing that

Petition, Mr. Caan requested a private letter ruling from the IRS

granting him a waiver of the 60-day period for rollovers of IRA

distributions (60-day rollover period). See I.R.C. § 408(d)(3)(I). The IRS

denied that request on the grounds that Mr. Caan did not meet the

“same property” requirement in section 408(d)(3)(A)(i) and (D). See

Lemishow v. Commissioner, 110 T.C. 110, 113 (1998) (applying the

“same property” requirement of section 408(d)(3) under similar

2 The ACATS is a service run by the National Securities Clearing Corporation.

It “automates, expedites, and standardizes procedures for the transfer of many types

of securities . . . in a customer account from one brokerage firm and/or bank to another.”

Office of the Comptroller of the Currency, Asset Management Operations and Controls

41 (2011), https://www.occ.treas.gov/publications-and-resources/publications/

comptrollers-handbook/files/asset-mgmt-ops-controls/pub-ch-asset-mgmt-ops-controls

.pdf.

5

circumstances to deny the taxpayer’s claim of a tax-free rollover),

supplemented by 110 T.C. 346 (1998).

We must decide whether UBS distributed the P&A Interest to Mr.

Caan in tax year 2015, and if so, whether that distribution was taxable.

FINDINGS OF FACT

Mr. Caan resided in California both when he filed his Petition

(July 30, 2018) and at his date of death (July 6, 2022). His will listed

the Jacaan Administrative Trust, dated November 17, 1993 (Trust), as

the sole beneficiary of his estate. Scott Caan is the Trust’s trustee. As

a result, in an Order dated November 7, 2022, we appointed Scott Caan

the Special Administrator of Mr. Caan’s estate for purposes of this case

only. The record does not reflect Scott Caan’s state of domicile at the

time the Petition was filed nor at Mr. Caan’s date of death.

I. Background

A. James Caan

Mr. Caan was an actor who rose to prominence playing Sonny

Corleone in The Godfather, released in 1972. He had a long and

distinguished career in both film and television, with acting roles in over

100 films and television series from 1961 until his death in 2022. Such

an active career created substantial demands on his time and caused

him to rely on outside professional assistance for many aspects of his

personal life.

B. Philpott, Bills, Stoll, and Meeks, LLP

One of the areas of his personal life for which Mr. Caan sought

professional assistance was management of his financial affairs. From

1999 until at least the date of trial, Philpott, Bills, Stoll, and Meeks, LLP

(PBSM), a firm based in Encino, California, served as his business

manager. PBSM’s duties included maintaining Mr. Caan’s bank

accounts, sending and receiving correspondence, paying his bills,

preparing his federal and state income tax returns, representing him

before the IRS and any relevant state tax agencies, and acting as liaison

between Mr. Caan and the various attorneys, financial advisors,

insurance agents, and other professionals who assisted him.

As part of its duties, PBSM would receive all of Mr. Caan’s mail.

A PBSM employee would open the mail and determine its character;

6

personal mail would be forwarded to Mr. Caan, while mail pertaining to

his financial affairs would be forwarded to the PBSM employee in charge

of his account. At some point, the financial affairs mail was also scanned

into PBSM’s document retention system. From 2002 to 2017 Enza Cohn

was the PBSM employee in charge of managing Mr. Caan’s account.

After she left PBSM in 2017, that role passed to David Butler. Ms. Cohn

and Mr. Butler are both certified public accountants.

C. Michael Margiotta

Michael Margiotta is a wealth management advisor who first met

Mr. Caan in 2001 while working for Credit Suisse. At the time, Mr.

Caan maintained two IRAs at Credit Suisse managed by his cousin, Paul

Caan. During 2001 Paul Caan decided to transition from managing

investments for wealthy individuals to managing institutional

investments, and he transferred management of the IRAs to Mr.

Margiotta.

Mr. Margiotta worked at Credit Suisse until 2004. He then

worked at Smith Barney & Co. until 2008, UBS until June 2015, and

Merrill Lynch up through the date of trial.

II. Individual Retirement Accounts

A. UBS

During 2008 UBS became the custodian of the two IRAs owned

by Mr. Caan; from 2008 to June 2015 Mr. Margiotta managed those

IRAs. One IRA held a portfolio of cash, mutual funds, and exchange-

traded funds; the other IRA held a similar portfolio in addition to the

P&A Interest.

1. Custodianship

A custodial agreement between UBS and Mr. Caan governed both

IRAs. Article IV of the custodial agreement, titled “Investments,” states,

in pertinent part:

[T]he Client [Mr. Caan] acknowledges, agrees,

understands and warrants the following with respect to

any non-publicly traded investment (the “Investment”) the

Custodian [UBS] allows the Client to hold in the IRA:

....

7

The Client must furnish to the Custodian in writing the

fair market value of each Investment annually by the 15th

day of each January, valued as of the preceding December

31st, and within twenty days of any other written request

from the Custodian, valued as of the date specified in such

request. The Client acknowledges, understands and

agrees that a statement that the fair market value is

undeterminable, or that cost basis should be used is not

acceptable and the Client agrees that the fair market value

furnished to the Custodian will be obtained from the issuer

of the Investment (which includes the general partner or

managing member thereof). The Client acknowledges,

understands and agrees that if the issuer is unable or

unwilling to provide a fair market value, the Client shall

obtain the fair market value from an independent,

qualified appraiser and the valuation shall be furnished on

the letterhead of the person providing the valuation. The

Client acknowledges, understands and agrees that the

Custodian shall have no obligation to investigate or

determine whether the fair market value so furnished is

the correct fair market value (without regard to any actual

or constructive knowledge that the Custodian may

otherwise have), but if the Custodian otherwise has a

different value for such Investment, the Custodian may use

such other value in its reports to the Client and to the

Internal Revenue Service if the Custodian (in its sole

discretion) so chooses. The Client acknowledges,

understands and agrees that the Custodian shall rely upon

the Client’s continuing attention, and timely performance,

of this responsibility. The Client acknowledges,

understands and agrees that if the Custodian does not

receive a fair market value as of the preceding December

31, the Custodian shall distribute the Investment to the

Client and issue an IRS Form 1099–R for the last available

value of the Investment.

(The P&A Interest was considered a “non-publicly traded investment”

under the custodial agreement.) The custodial agreement also provides

that it “shall be construed and administered in accordance with the laws

of the State of New York, without regard to the choice of law principles

thereof.”

8

2. UBS’s Requests for the P&A Interest’s 2014 Yearend

Fair Market Value, Resignation, and Notification of

Distribution

In March 2015 UBS sent a letter addressed to the P&A Fund’s

operations manager, requesting the P&A Interest’s 2014 yearend fair

market value. It did not receive a response from the P&A Fund (which

claims that it never received the letter).

In August 2015 UBS sent a letter addressed to the “James E Caan

Traditional IRA,” in care of PBSM, at PBSM’s address in Encino,

California. The letter stated, in pertinent part:

As the custodian for your IRA, we [UBS] are required by

the U.S. Department of the Treasury to obtain a yearend

fair market value (FMV) for each investment held in your

UBS IRA. As a condition to UBS holding [the P&A

Interest] in your IRA, you agreed to obtain the FMV each

year. We attempted to contact the issuer of the investment,

but we have not yet received the 2014 FMV for the [P&A

Interest].

Our request

Please contact the issuer(s) directly and request that they

complete the attached form providing the 2014 FMV of the

[P&A Interest] . . . by September 21, 2015. . . . .

If you are unable to obtain a value from the issuer, you may

use a qualified independent appraiser to provide the fair

market value. We cannot accept fair market values that

are not provided by the issuer or an appraiser.

Why this is important

To remain compliant with Treasury regulations, we will

need to resign as IRA custodian of the investment if

we do not receive the fair market value of [the P&A

Interest]. The resignation will be recorded as an in-kind

distribution; there will be no actual disbursement of funds

directly to you. We will send you an IRS Form 1099–R in

January 2016 based on the most recent value of the [P&A

Interest] in our records.

9

UBS did not receive a response to that letter from either Mr. Caan or

PBSM.

In October 2015 UBS sent a notice addressed to the “James E

Caan Traditional IRA,” in care of PBSM, at PBSM’s address. The notice

advised Mr. Caan that UBS had not received a response to its August

2015 letter. The notice warned that as a result, UBS would resign as

the P&A Interest’s custodian on November 23, 2015. Neither Mr. Caan

nor PBSM responded to that notice.

In December 2015 UBS sent a confirmation letter addressed to

the “James E Caan Traditional IRA,” in care of PBSM, at PBSM’s

address. That letter stated, in pertinent part:

As a follow-up to our October 21, 2015 correspondence to

you [Mr. Caan], we [UBS] did not receive the 2014 yearend

fair market value of [the P&A Interest] . . . . As a result,

we have distributed the [the P&A Interest] to you as

required by U.S. Treasury regulations.[3]

....

The distribution has been recorded as an in-kind

distribution; there has been no actual disbursement of

funds directly to you. We will send you an IRS Form 1099–

R in January 2016 based on the most recent value of the

[P&A Interest in our records] . . . . When you file your

taxes, this distribution may need to be reported as taxable

3 No regulation directly imposes such a requirement. However, if an IRA

trustee or custodian cannot provide an updated fair market value of an alternative

investment, it is subject to penalties. See I.R.C. § 6721(a) (imposing a penalty of $250

for “each failure” to timely file an information return or to accurately include all

required information); I.R.C. § 6693(a) (imposing a $50 penalty for “each failure” to

comply with certain reporting requirements for IRAs and other tax-favored accounts).

Section 408(i) requires IRA trustees and custodians to file reports with the Secretary

of the Treasury “with respect to contributions (and the years to which they relate),

distributions aggregating $10 or more in any calendar year, and such other matters as

the Secretary may require.” (Emphasis added.) See also Treas. Reg. § 1.408-5(b)(5)

(requiring IRA trustees and custodians to report to the IRS “[s]uch other information

as the Commissioner may require”). The 2014 Instructions for Forms 1099–R and

5498, at 20, directed IRA trustees and custodians to report the 2014 yearend fair

market value of “[a]ssets held in an IRA that are not readily tradable on an established

US or foreign securities market or option exchange, or that do not have a readily

available [fair market value].”

10

income for 2015; it may also be subject to a 10% early

distribution penalty.

Please consult with your tax advisor regarding your

personal circumstances. . . . You will now need to contact

the issuer of the investment [i.e., the P&A Fund] and

instruct them to re-register the [P&A Interest] into your

individual name . . . .

....

You have only 60 days from our November 25

resignation to complete a rollover to a new IRA

trustee or custodian, or the distribution may be

taxable to you. As we previously noted, there are non-

UBS affiliated or endorsed IRA trust companies that may

be willing to hold [the P&A Interest]. Two firms that have

indicated to us an interest in holding [assets like the P&A

Interest] in IRAs are Millenium Trust Company and

PENSCO Trust Company.

UBS thereafter ceased sending account statements for both IRAs; and it

did indeed issue a Form 1099–R, reporting to the IRS that it distributed

the P&A Interest to Mr. Caan in 2015. It valued the distribution at

$1,910,903, which was the P&A Interest’s 2013 yearend fair market

value.

B. Merrill Lynch

In June 2015 Mr. Margiotta resigned from UBS and began

working for Merrill Lynch. Four months later, in October 2015, he

convinced Mr. Caan to transfer the UBS IRAs to Merrill Lynch under

his management. After Mr. Caan executed the requisite paperwork, all

assets in both IRAs were transferred through ACATS to a single IRA at

Merrill Lynch, except for the P&A Interest, which was ineligible for

ACATS.

III. Postdistribution Events

A. Events Occurring Before the Filing of Mr. Caan’s 2015

Income Tax Return

In March 2016 Ms. Cohn sent the following email message to Tina

Fowler, Mr. Margiotta’s assistant at Merrill Lynch: “The P&A

11

investment for James Caan still lists UBS. Shouldn’t we change this to

[Merrill Lynch]?” Ms. Fowler’s response stated, in relevant part:

I need to reach out to . . . the transfer department to get

some info but what I do know (based on the notes I see) is

this position was NOT able to be held at Merrill [Lynch]

but we were able to update the broker of record to [Michael

Margiotta at Merrill Lynch] and the position is not linked

to [Mr. Caan’s] IRA at UBS any longer.

Seven months later, in October 2016, Ms. Cohn sent an email to

Mr. Margiotta, asking: “Have we been able to get everything moved over

from UBS on Caan?” Mr. Margiotta responded: “There’s nothing at

UBS, the P&A fund has UBS listed as the custodian of record of his IRA

and when he signs [the necessary documents], we can change that to

Merrill [Lynch] as custodian.”

B. 2015 Income Tax Return

PBSM prepared Mr. Caan’s income tax return for tax year 2015,

which was timely filed. 4 Line 15a of that return disclosed $2,299,567 in

IRA distributions; line 15b reported only $388,664 of that amount as

taxable. In other words, a distribution of the P&A Interest was

disclosed, but it was reported as nontaxable. 5

C. Events Occurring After the Filing of Mr. Caan’s 2015

Income Tax Return

In December 2016 Mr. Margiotta prepared a request, addressed

to the P&A Fund, for a complete liquidation of the P&A Interest and the

transfer of the cash proceeds to the Merrill Lynch IRA. After Mr. Caan

executed that request, the P&A Fund processed it in three separate wire

transfers made on three separate dates: $1,375,000 on January 23, 2017;

$80,000 on March 15, 2017; and $77,605.46 on June 21, 2017, for a total

of $1,532,605.46.

In November 2017 the IRS sent to PBSM’s address a Notice

CP2000, Changes to your 2015 Form 1040, addressed to Mr. Caan. The

notice proposed to include the distribution of the P&A Interest in gross

income as a taxable IRA distribution. PBSM’s receipt of that notice

4 This tax return has PBSM’s address listed as Mr. Caan’s home address.

5 $2,299,567 – $388,644 = $1,910,923.

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caused a flurry of action from Mr. Butler, who at the time was the PBSM

employee in charge of Mr. Caan’s account. Mr. Butler directed another

PBSM employee to send a protest letter, disputing the notice on the

ground that UBS issued the Form 1099–R in error. Mr. Butler then sent

emails to Mr. Margiotta and UBS representatives requesting that UBS

amend its Form 1099–R. After much back and forth, UBS sent Mr.

Butler a letter denying his request for it to send an amended Form

1099–R because it was not provided the P&A Interest’s 2014 yearend

fair market value (despite requesting the value four times), and no

evidence was received indicating that the P&A Interest was rolled over

to another IRA within 60 days from the distribution date.

IV. Petition to the Tax Court and Request for a Private Letter Ruling

In April 2018 the Commissioner issued Mr. Caan a notice of

deficiency for tax year 2015, determining an income tax deficiency of

$779,915 on the basis that there had been a taxable distribution of the

P&A Interest. The Commissioner also determined that Mr. Caan was

liable for a section 6662(a) accuracy-related penalty of $155,983.

On July 27, 2018, Mr. Caan sent a request for a private letter

ruling, asking the IRS to waive the requirement that a rollover of an

IRA distribution be made within 60 days from the date of the

distribution. See I.R.C. § 408(d)(3)(A)(i), (I). Three days later, on July

30, 2018, Mr. Caan filed a Petition with this Court for redetermination

of his 2015 income tax deficiency. See I.R.C. § 6213(a).

In September 2018, during the pendency of this case, the IRS

responded to Mr. Caan’s request for a private letter ruling, declining to

issue such a ruling on the grounds that the P&A Interest was liquidated

and cash proceeds were then contributed to the Merrill Lynch IRA. It

reasoned that the liquidation and subsequent cash contribution ran

afoul of the “same property” requirement of section 408(d)(3)(A)(i) and

(D), which meant that a waiver of the 60-day rollover period could not

be granted.

13

OPINION

After concessions, 6 we must decide the following four issues:

1. Whether UBS distributed the P&A Interest to Mr. Caan in

tax year 2015.

2. If the P&A Interest was distributed, whether that

distribution is nontaxable because it was rolled over into

another IRA within the 60-day rollover period.

3. If the P&A Interest was distributed, what its value was at

the time of the distribution.

4. If the P&A Interest was distributed, whether we can

review the IRS’s refusal to issue a private letter ruling

waiving the 60-day rollover period under section

408(d)(3)(I); if so, what our standard of review is; and under

that standard, whether we should uphold the IRS’s refusal

to issue Mr. Caan such a private letter ruling.

I. Burden of Proof

Generally, we presume that the Commissioner’s determinations

in a notice of deficiency are correct, and the taxpayer bears the burden

of proving those determinations incorrect. See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). 7

The Estate contends that this case involves unreported income

and asks us to impose a burden of production on the Commissioner to

produce evidence connecting Mr. Caan with the receipt of unreported

income (the P&A Interest). It is true that in unreported income cases

the Commissioner must either establish a minimal evidentiary showing

connecting the taxpayer with the alleged income-producing activity or

demonstrate that the taxpayer actually received unreported income.

6 In a Stipulation of Settled Issues dated April 13, 2021, the parties agreed that

the Estate of James E. Caan (Estate) is not liable for the section 6662(a) accuracy-

related penalty.

7 Under section 7491(a), the burden of proof shifts to the Commissioner with

respect to a factual issue where the taxpayer (1) produced credible evidence regarding

that issue; (2) complied with the Code’s substantiation and record-keeping

requirements; and (3) complied with the IRS’s reasonable requests for information.

See also Higbee v. Commissioner, 116 T.C. 438, 440–41 (2001). The Estate does not

contend that section 7491(a) applies, so we do not consider it here.

14

Walquist v. Commissioner, 152 T.C. 61, 67 (2019); see also Weimerskirch

v. Commissioner, 596 F.2d 358, 362 (9th Cir. 1979), rev’g 67 T.C. 672

(1977). Only once the Commissioner makes the required threshold

showing does the burden shift to the taxpayer, to prove by a

preponderance of the evidence that the Commissioner’s determinations

are arbitrary or erroneous. Walquist, 152 T.C. at 67–68.

However, this case does not involve unreported income. UBS

issued Mr. Caan a Form 1099–R, reporting a distribution of the P&A

Interest to the IRS. Mr. Caan likewise reported a distribution of the

P&A Interest on his 2015 income tax return, and he claimed that the

distribution was nontaxable. This fact defeats the Estate’s contention

that the deficiency determination involves unreported income. The IRS

did not determine that Mr. Caan failed to report a distribution of the

P&A Interest; it merely disagreed with his claim that the distribution

was nontaxable. Thus, the rule enunciated in Walquist does not apply

here.

Although this case is not based on unreported income, it is based

on an information return. Section 6201(d) provides:

In any court proceeding, if a taxpayer asserts a reasonable

dispute with respect to any item of income reported on an

information return filed with the Secretary [of the

Treasury] . . . by a third party and the taxpayer has fully

cooperated with the Secretary . . . the Secretary shall have

the burden of producing reasonable and probative

information concerning such deficiency in addition to such

information return.

The Estate reasonably challenges the accuracy of UBS’s Form 1099–R.

However, reasonable evidence in the record supports the

Commissioner’s determination that a taxable distribution of the P&A

Interest occurred (in particular, the series of correspondence from UBS

to Mr. Caan). The Commissioner has therefore met his burden of

production under section 6201(d). Accordingly, the Estate continues to

bear the burden of proving that the Commissioner erred in determining

that a taxable distribution occurred.

II. IRAs

The Estate argues that UBS never distributed the P&A Interest

to Mr. Caan. It also argues that, even if UBS did distribute the P&A

Interest, Mr. Caan contributed it to his Merrill Lynch IRA in a manner

15

that would qualify as a nontaxable rollover contribution under section

408(d)(3). We will first discuss the legal background governing IRAs

and then decide the merits of these two arguments.

A. What Is an IRA?

Section 408 is the main Code provision governing IRAs. It was

enacted as part of the Employee Retirement Income Security Act of

1974, Pub. L. No. 93-406, § 2002(b), 88 Stat. 829, 959, in furtherance of

Congress’s goal “to create a system whereby employees not covered by

qualified retirement plans would have the opportunity to set aside at

least some retirement savings on a tax-sheltered basis.” Campbell v.

Commissioner, 108 T.C. 54, 63 (1997); see also Orzechowski v.

Commissioner, 69 T.C. 750, 754–56 (1978), aff’d, 592 F.2d 677 (2d Cir.

1979).

Section 408(a) provides that an IRA is “a trust created or

organized in the United States for the exclusive benefit of an individual

or his beneficiaries, but only if the written governing instrument

creating the trust meets the [requirements enumerated in paragraphs

(1) through (6)].” See also Treas. Reg. § 1.408-2(b) (explaining those

enumerated requirements in further detail). Section 408(h) further

provides that for purposes of section 408:

a custodial account shall be treated as a trust if the assets

of such account are held by a bank (as defined in subsection

(n)) or [an IRS-approved non-bank entity], and if the

custodial account would, except for the fact that it is not a

trust, constitute an individual retirement account

described in subsection (a). For purposes of [the Code], in

the case of a custodial account treated as a trust . . . the

custodian of such account shall be treated as the trustee

thereof.

See also Treas. Reg. § 1.408-2(d). Thus, in enacting section 408,

Congress gave taxpayers a choice as to the form of their IRA: a trust IRA

or a custodial IRA.

A trust IRA is, at its core, a trust. The taxpayer is the settlor, a

bank (or an approved nonbank entity) 8 is the trustee, and an individual

8 Section 408(a)(2) requires the trustee to be a “a bank . . . or such other person

who demonstrates to the satisfaction of the Secretary that the manner in which such

16

(initially the settlor) is the beneficiary. The settlor executes a written

trust instrument that meets the section 408(a) requirements and

thereby establishes a trust IRA.

A custodial IRA is established by the dual operation of section

408(a) and (h) and is not a trust but a custodial relationship between the

taxpayer and an IRS-approved custodian. See, e.g., Walsh v. Benson,

No. 05-290J, 2006 U.S. Dist. LEXIS 59251, at *8–11 (W.D. Pa. Aug. 18,

2006) (concluding that a qualifying custodial account is merely treated

as a trust for purposes of section 408(a)). To form a custodial IRA, the

taxpayer executes a written custodial agreement that meets the

requirements enumerated in section 408(a)(1) through (6). Once the

custodial agreement is executed, section 408(h) treats the custodial

agreement as a trust instrument and the custodian as a trustee, which

allows for section 408(a) to apply, thereby creating a custodial IRA.

There is a practical difference between trust IRAs and custodial

IRAs, as the U.S. District Court for the Western District of Missouri

explained:

The practical difference between “a trust as IRA” and “a

custodial account as IRA” involves the duties of the

financial institution where the IRA is created. If the IRA

is a trust, the institution has a fiduciary responsibility with

respect to the investment. If the IRA is a custodial account,

the institution’s duty is to hold and safeguard the

investment; there is no duty with respect to investment

decisions. The practical distinction is that a custodial

account’s investment decisions can be dictated by the IRA

owner/beneficiary.

United States v. Stover, 731 F. Supp. 2d 887, 901 (W.D. Mo. 2010), aff’d,

650 F.3d 1099 (8th Cir. 2011).

Trust IRAs and custodial IRAs have the same three tax

attributes, which together constitute the tax-deferral system that

other person will administer the trust will be consistent with the requirements of

[section 408].” A plain reading of section 408(a)(2) suggests that the phrase “such other

person” could mean that an individual that the IRS has approved could be an IRA

trustee. However, the regulations make clear that “such other person” means a

nonbank entity; in other words, the trustee must be either a bank (as defined in section

408(n)) or an IRS-approved nonbank entity. See Treas. Reg. § 1.408-2(b)(2)(i),

(e)(2)(i)(A).

17

Congress created: (1) cash contributions are generally deductible;

(2) accretions from the IRA’s assets are not taxable (except for section

511 unrelated business income); and (3) distributions are taxable. 9 See

I.R.C. §§ 219(a) and (b), 408(d)(1), (e)(1); Taproot Admin. Servs., Inc. v.

Commissioner, 133 T.C. 202, 206 (2009), aff’d, 679 F.3d 1109 (9th Cir.

2012); Campbell, 108 T.C. at 64; Orzechowski, 69 T.C. at 755; Treas. Reg.

§ 1.219-1(a).

Section 408 merely creates a framework for IRAs. Nothing in

section 408 or the regulations thereunder prohibits the parties to a trust

or custodial agreement from negotiating the terms of that agreement, so

long as the agreement includes the terms required by section 408 and

the regulations. Thus, when we decide the merits of a deficiency

determination involving an IRA, the text of both section 408 and the

agreement itself may be relevant.

B. Rollover of IRA Distributions and the “Same Property” Rule

In addition to creating a tax-deferral system through IRAs,

Congress provided for nontaxable rollovers of IRA distributions, by

which taxpayers can transfer investments from one IRA to another

without incurring tax. See I.R.C. § 408(d)(3); Lemishow, 110 T.C. at 113.

When a taxpayer requests an IRA distribution, that distribution is

nontaxable if “the entire amount received (including money and any

other property) is paid into an [IRA] . . . for the benefit of such individual

not later than the 60th day after the day on which he receives the . . .

distribution.” I.R.C. § 408(d)(3)(A)(i). A taxpayer may also choose to roll

over only a portion of the distribution, in which case only the portion

that is contributed to another IRA within the 60-day rollover period

qualifies as a nontaxable rollover contribution, see I.R.C. § 408(d)(3)(D),

and the noncontributed portion must be included in income, see I.R.C. §

408(d)(1).

If the distribution consists of noncash property, the taxpayer

must contribute that exact same property in order for the distribution

to be considered a nontaxable rollover contribution under section

408(d)(3)(A)(i). See Lemishow, 110 T.C. at 113; Treas. Reg. § 1.408-

4(b)(1) (stating that a distribution is nontaxable only if “the entire

amount received (including the same amount of money and any other

property) is paid into an [IRA]” (emphasis added)). In other words, the

9 The first and third attributes are not shared by Roth IRAs. See I.R.C. § 408A.

The IRAs at issue are not Roth IRAs.

18

taxpayer cannot change the character of the noncash property.

Taxpayers are also limited to one nontaxable rollover of an IRA

distribution per one-year period, whether it be a full or partial rollover.

I.R.C. § 408(d)(3)(B). 10

III. Issues to Be Decided

A. Was the P&A Interest Distributed?

During 2008 Mr. Caan opened two custodial accounts with UBS.

These accounts were governed by a written custodial agreement

between UBS and Mr. Caan. Since the agreement met the requirements

of section 408(a), both custodial accounts qualified as IRAs by operation

of section 408(a) and (h).

The custodial agreement’s Article IV, a portion of which is

excerpted supra pp. 6–7, sets forth the terms of UBS’s custodianship of

the P&A Interest. The pertinent terms are the following: (1) It was Mr.

Caan’s responsibility to provide UBS with the P&A Interest’s yearend

fair market value by January 15 of each year; (2) it was Mr. Caan’s

responsibility to attempt to obtain the P&A Interest’s yearend fair

market value from the P&A Fund directly, and if he could not obtain it

from the P&A Fund, to provide UBS with an appraisal from “an

independent, qualified appraiser”; and (3) if Mr. Caan did not fulfill his

duty of providing UBS with the P&A Interest’s yearend fair market

value for a given year, then UBS would distribute the P&A Interest to

him and issue him a Form 1099–R reflecting “the last available value”

of the P&A Interest.

Mr. Caan clearly did not provide UBS with the P&A Interest’s

2014 yearend fair market value by January 15, 2015, because in March

2015 UBS sent a letter to the P&A Fund requesting that value. After

receiving no response from the P&A Fund, in August 2015 UBS sent Mr.

Caan (through PBSM) a letter requesting the P&A Interest’s 2014

yearend fair market value and giving him 30 days to respond. Mr. Caan

10 This limitation does not apply to trustee-to-trustee transfers such as

transfers through ACATS, because IRA assets are directly transferred from one IRA

trustee or custodian to another IRA trustee or custodian. See Rev. Rul. 78-406, 1978-

2 C.B. 157; see also Bobrow v. Commissioner, T.C. Memo. 2014-21, at *13 n.5. Such

transfers do not result in a distribution within the meaning of section 408(d)(3)(A)

because the IRA assets transferred are not within the direct control or use of the

taxpayer. See Rev. Rul. 78-406, 1978-2 C.B. 157; see also Bobrow, T.C. Memo. 2014-

21, at *13 n.5.

19

did not respond to that letter, leading UBS to send him a notice that the

P&A Interest would be distributed and later a confirmation letter that

the interest was distributed as of November 25, 2015. The confirmation

letter also explained the definite and potential consequences of UBS’s

resignation as the P&A Interest’s custodian, including that UBS would

issue Mr. Caan a Form 1099–R reporting a distribution.

These letters show that UBS went above and beyond what the

custodial agreement required of it. It had no obligation to contact the

P&A Fund to obtain the P&A Interest’s 2014 yearend fair market value,

yet it did so on Mr. Caan’s behalf. It also sent Mr. Caan a request for

that value and gave him over 30 days to respond. Although the onus

was on Mr. Caan to provide UBS with the P&A Interest’s 2014 yearend

fair market value, UBS nevertheless tried to help him in fulfilling his

duties under the custodial agreement. After receiving no response to its

multiple requests, UBS acted well within its rights under the custodial

agreement by resigning as the P&A Interest’s custodian and

distributing the P&A Interest in kind. It even went further by

recommending that Mr. Caan contact his tax advisor, reminding him of

the 60-day rollover period, and providing him with the names of two

firms willing to serve as custodians of the P&A Interest. We therefore

determine that UBS distributed the P&A Interest to Mr. Caan on

November 25, 2015.

The Estate argues that UBS’s distribution of the P&A Interest

was a “phantom distribution,” alleging that UBS resigned as the P&A

Interest’s custodian—and purported to “distribute” the interest—

without notifying Mr. Caan, PBSM, or Mr. Margiotta. The Estate

further alleges that UBS merely generated, without actually mailing,

the letters that requested the P&A Interest’s 2014 yearend fair market

value and only later notified Mr. Caan of a purported distribution. In

support of this argument, the Estate relies heavily on the trial testimony

of Ms. Cohn and Mr. Margiotta. Both witnesses testified that they had

never seen the relevant letters from UBS until this litigation had begun

and had not known about UBS’s making the distribution.

We do not find that portion of either witness’ testimony credible.

As the trier of fact, we may credit testimony in full, in part, or not at all.

See Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 84 (2000),

aff’d, 299 F.3d 221 (3d Cir. 2002). In this instance, the letters were

produced in a logical order, each referencing the prior one, and they were

all maintained by UBS in its files. The last of the letters, which

discussed the in-kind distribution, was followed by the promised Form

20

1099–R; moreover, all further IRA account statements from UBS ceased.

We find it highly unlikely that PBSM received all mail from UBS—

statements, the Form 1099–R, and other correspondence—except for the

key letters (which were addressed to PBSM). Additionally, the March

2016 email between Ms. Cohn and Mr. Margiotta suggests that both of

them knew of UBS’s representations that it had distributed the P&A

Interest. It seems far more likely that there was simply a lack of

communication and coordination between the professionals overseeing

Mr. Caan’s affairs, especially given the timing of UBS’s letters, Mr.

Margiotta’s move from UBS to Merrill Lynch, and the emails between

Mr. Margiotta and Ms. Cohn. If all parties believed that UBS was still

the P&A Interest’s custodian, why did no one follow up with UBS when

it ceased to mail account statements for the IRAs? And why, if everyone

was indeed blindsided by the Form 1099–R, did no one promptly follow

up with UBS regarding it? (That followup did not occur until after the

IRS issued its Form CP2000.) The Estate has offered no satisfactory

explanation to fill these holes in its theory.

The Estate further argues that no distribution occurred because

Mr. Caan was never placed in actual or constructive receipt of the P&A

Interest. We disagree. Under the constructive receipt doctrine “funds

[or other property] which are subject to a taxpayer’s unfettered

command and which he is free to enjoy at his option are constructively

received by him whether he sees fit to enjoy them or not.” Estate of

Brooks v. Commissioner, 50 T.C. 585, 592 (1968); see also Corliss v.

Bowers, 281 U.S. 376, 378 (1930); Treas. Reg. § 1.451-2(a). UBS’s

December 2015 confirmation letter asked Mr. Caan to contact the P&A

Fund and “instruct them to re-register the [P&A Interest] into [his]

individual name.” We understand that sentence of the letter to mean

that, beginning on November 25, 2015, Mr. Caan could have presented

that letter to the P&A Fund and instructed it to re-register the P&A

Interest in his name without needing any further involvement from

UBS. 11 As well, Mr. Caan could have rolled over the P&A Interest into

11 The P&A Interest is a partnership interest, which means that UBS served

two roles: (1) it was the P&A Interest’s custodian, a role governed by a custodial

agreement, and (2) it was a partner in a partnership, a role governed by relevant state

law and/or a partnership agreement. The parties stipulated the custodial agreement

(which we admitted into evidence), but neither party attempted to introduce a

partnership agreement nor any evidence indicating which state’s partnership law

applied. Normally, we would examine the partnership agreement’s text and the

relevant state’s partnership or property law to decide whether the December 2015

confirmation letter indeed placed Mr. Caan in constructive receipt of the P&A Interest.

21

an IRA managed by any other custodian or trustee willing to accept it.

The presence of these options means that Mr. Caan had unfettered

control over the P&A Interest and was therefore in constructive receipt

of it.

Lastly, the Estate attempts to discredit UBS’s resignation by

contending that no resignation or distribution occurred under California

trust law. This argument is a nonstarter for two reasons: (1) Mr. Caan’s

relationship with UBS was a custodial relationship, not a trust

relationship, and (2) the custodial agreement states that it is governed

by New York law, not California law.

B. Was the P&A Interest Contributed in a Manner That Would

Qualify as a Rollover Contribution Under Section

408(d)(3)?

Section 408(d)(3)(A)(i) provides that an IRA distribution is not

taxable if “the entire amount received (including money and any other

property)” is contributed into another IRA within 60 days of the

distribution. The taxpayer may not change the character of any noncash

distributed property between the time of the distribution and the time

of the contribution. See Lemishow, 110 T.C. at 113; Treas. Reg. § 1.408-

4(b)(1).

In the previous section, we determined that UBS distributed the

P&A Interest to Mr. Caan on November 25, 2015. Sixty days from that

date was January 24, 2016. Since the latter date was a Sunday, the 60-

day deadline was extended to “the next succeeding day which is not a

However, since we do not have the benefit of such sources here, we must decide

whether UBS distributed the P&A Interest (and placed Mr. Caan in constructive

receipt of it) on the basis of what we do have in the record. The Commissioner, in his

notice of deficiency, determined that UBS distributed the P&A Interest. This

determination enjoys the presumption of correctness, and the Estate bears the burden

of proving this determination erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S.

at 115. On the one hand, we have the testimonies of Ms. Cohn and Mr. Margiotta that

the Estate uses to support its argument that a distribution never occurred. On the

other hand, we have a deficiency determination that a distribution did occur, which is

entitled to the presumption of correctness. That determination is further supported

by the text of the custodial agreement and the UBS letters to Mr. Caan excerpted supra

pp. 6–10. Our finding that Ms. Cohn and Mr. Margiotta did not credibly testify that

they had never seen the letters before and did not know about the distribution

eliminates the sole evidence in support of the Estate’s argument, shifting the weight

of the evidence in favor of the Commissioner. We therefore conclude that the December

2015 confirmation letter served as the document which conveyed the partnership

interest from UBS to Mr. Caan.

22

Saturday, Sunday, or a legal holiday.” I.R.C. § 7503. Thus, Mr. Caan

had until January 25, 2016, to contribute the P&A Interest to another

IRA.

We acknowledge that Mr. Caan executed a request in October

2015 to transfer all assets in his two UBS IRAs to Merrill Lynch and

that all assets other than the P&A Interest were transferred through

ACATS shortly thereafter. Troublesome here is how the P&A Interest

was handled. Mr. Margiotta (acting on Mr. Caan’s behalf) submitted a

withdrawal request to the P&A Fund in December 2016, asking it to

fully liquidate the P&A Interest and remit the proceeds directly to the

Merrill Lynch IRA. This action occurred over a year after the UBS

distribution. The P&A Fund then remitted a total of $1,532,605.46 in

three separate wire transfers between January 23 and June 21, 2017.

There are three problems with the way the P&A Interest was

handled. First, and most importantly, in liquidating the P&A Interest

Mr. Caan changed the character of the property; yet section

408(d)(3)(A)(i) required him to contribute the P&A Interest itself, not

cash, to another IRA in order to preserve its tax-deferred status. See

Lemishow, 110 T.C. at 113; Treas. Reg. § 1.408-4(b)(1). Second, the

contribution of the cash proceeds from the liquidation occurred long

after the January 25, 2016, deadline. And finally, the P&A Fund’s three

transfers to the Merrill Lynch IRA constituted three separate

contributions; yet section 408(d)(3)(B) allows for only one rollover

contribution in any one-year period, making only the first transfer

potentially eligible for a tax-free rollover.

As discussed supra pp. 17–18, our caselaw and the regulations

have interpreted section 408(d)(3)(A)(i) to require the same money or the

same property to be transferred in a rollover, rather than merely similar

property or property of equivalent value. See Lemishow, 110 T.C. at 113;

Treas. Reg. § 1.408-4(b)(1). In Lemishow, we discussed the legislative

history supporting this interpretation: 12

12 In Lemishow, 100 T.C. at 111, the taxpayer had maintained Keogh plans

(which generally allow larger annual contributions than do IRAs but must be funded

only with income earned through self-employment, see I.R.C. §§ 402(c), 415) and IRAs

with two different banks. He requested cash distributions from both account types,

which he then used to purchase stock. Lemishow, 110 T.C. at 111. He then opened an

IRA with Smith Barney Shearson and contributed the stock to that IRA. Id. at 111–

12. Distributions from Keogh plans are governed by section 402, while distributions

23

Both rollover provisions [viz, section 408(d)(3) and

section 402(c), the latter of which governs rollovers from

employment-based tax-deferred plans, see I.R.C. § 401, to

any of a number of tax-deferred plans, including IRAs]

were enacted as part of the Employee Retirement Income

Security Act of 1974, Pub. L. 93-406, sec. 2002(b), (g)(5), 88

Stat. 829, 959–964, 968–969. The purpose of allowing a

tax-free rollover from a retirement plan to an IRA was to

facilitate portability of pensions. Conf. Rept. 93-1280

(1974), 1974-3 C.B. 415, 502; H. Rept. 93-807 (1974), 1974-

3 C.B. (Supp.) 236, 265. The purpose of the IRA-to-IRA

transfers was to permit flexibility with respect to the

investment of an IRA. H. Rept. 93-807, supra, 1974-3 C.B.

(Supp.) at 374; S. Rept. 93-383 (1973), 1974-3 C.B. (Supp.)

80, 214. With respect to rollovers, the legislative history

repeatedly speaks in terms of “this same money or

property” and “the same amount of money (or the same

property)”, both for distributions from an IRA and from a

qualified plan. H. Rept. 93-807, supra, 1974-3 C.B. (Supp.)

at 374–375; Conf. Rept. 93-1280, supra, 1974-3 C.B. at 502.

[Treasury Regulation § 1.408-4(b)], describing rollovers

from IRA to IRA, uses the language “if the entire amount

received (including the same amount of money and any

other property) is paid into an” IRA.

Based on the language of the statutory provisions

and the legislative history of those provisions, we hold that

petitioner’s use of the [cash] distributions from his Keogh

and IRA’s [sic] to purchase stock which he then contributed

to the Smith Barney IRA does not constitute a tax-free

rollover contribution under section 402(c) or 408(d)(3),

respectively.

Lemishow, 110 T.C. at 113 (footnotes omitted).

Section 402, however, is distinct from section 408 in that

Congress enacted a limited exception to the “same property” rule in the

Revenue Act of 1978, Pub. L. No. 95-600, § 157(f)(1), 92 Stat. 2763,

2806–07. Thus, section 402(c)(6) allows for property to be sold and the

from IRAs are governed by section 408. The fact that the taxpayer requested

distributions from two different retirement vehicles meant that we had to interpret

the rollover provisions of both section 402 and section 408.

24

proceeds to be contributed to an IRA in a tax-free rollover, whereas there

is no similar exception for IRAs governed by section 408. Congress

enacted section 402(c)(6) as a means to address a perceived hardship for

those taxpayers attempting to roll over investments from section 401

qualified plans but having difficulty finding a trustee willing to accept

property in kind. See Staff of J. Comm. on Tax’n, 95th Cong., General

Explanation of the Revenue Act of 1978, JCS-7-79, at 110 (J. Comm.

Print 1979). However, Congress did not enact an analogous provision

for IRAs. We are unsure why Congress sought to alleviate this hardship

for section 401 qualified plans without making a parallel fix for IRAs.

However, our job is to apply the terms of statutes, not revise or update

them. United Therapeutics Corp. v. Commissioner, No. 10210-21, 160

T.C., slip op. at 26 (May 17, 2023) (citing Wis. Cent. Ltd. v. United States,

138 S. Ct. 2067, 2074 (2018)). And when Congress includes certain

language in one provision but omits it in another, we presume that the

inclusion and exclusion are intentional. See Loughrin v. United States,

573 U.S. 351, 358 (2014) (“We have often noted that when ‘Congress

includes particular language in one section of a statute but omits it in

another’—let alone in the very next provision—this Court ‘presume[s]’

that Congress intended a difference in meaning.” (quoting Russello v.

United States, 464 U.S. 16, 23 (1983))); see also Henson v. Santander

Consumer USA Inc., 582 U.S. 79, 85–86 (2017) (same).

The text of section 408(d)(3)(A)(i), the legislative history behind

section 408(d)(3), our caselaw, and the regulations all make clear that

Mr. Caan was required to contribute the P&A Interest, not cash, to the

Merrill Lynch IRA in order to preserve its tax-deferred status. Because

he did not do so, we hold that the cash proceeds from the liquidation of

the P&A Interest were not contributed in a manner that would qualify

as a nontaxable rollover contribution under section 408(d)(3)(A)(i).

C. What Is the 2014 Yearend Fair Market Value of the P&A

Interest?

On the Form 1099–R that reported to the IRS the distribution of

the P&A Interest, UBS claimed that the value of the P&A Interest was

$1,910,903, which was the 2013 yearend fair market value. The Estate

generally argues that that Form 1099–R is incorrect because UBS never

distributed the P&A Interest and the value it reported was erroneous.

The Commissioner agrees with the Estate that the P&A Interest was

misvalued. He urges us to adopt a value of $1,548,010, which was the

ending capital account balance reported by the P&A Fund on Schedule

K–1, Partner’s Share of Income, Deductions, Credits, etc., for tax year

25

2015. He believes that the 2015 ending capital account balance serves

as the best approximation of the P&A Interest’s value at the time of the

distribution because the distribution occurred on November 25, 2015,

and the ending capital account balance was Mr. Caan’s capital account

balance as of December 31, 2015.

In its briefs, the Estate does not argue against the

Commissioner’s proposal, focusing instead on arguing that the Form

1099–R is “a useless, inaccurate, [and] unreliable document.” Since the

value the Commissioner proposes closely matches the aggregate 2017

liquidation amount of $1,532,605.46, and since the Estate does not

propose a different value, we hold that the value of the P&A Interest at

the time of the distribution was $1,548,010.

D. Did the IRS Err in Not Granting a Waiver of the 60-Day

Rollover Period Under Section 408(d)(3)(I)?

Three days before filing the Petition, Mr. Caan sent a private

letter ruling request to the IRS, asking it to waive the 60-day rollover

period. See I.R.C. § 408(d)(3)(A)(i), (I); Rev. Proc. 2003-16, 2003-1 C.B.

359 (prescribing the procedures by which taxpayers may request a

waiver under section 408(d)(3)(I)). After considering the request, the

IRS declined to issue a private letter ruling on the grounds that waiving

the 60-day rollover period would be inconsequential, in light of the same

property requirement. Mr. Margiotta (acting on Mr. Caan’s behalf)

liquidated the P&A Interest and contributed the cash proceeds to the

Merrill Lynch IRA. In so doing, Mr. Caan ran afoul of the same property

requirement. See supra pp. 21–24. Thus, the IRS reasoned that even if

it were to grant a waiver of the 60-day rollover period, the cash

contribution to the Merrill Lynch IRA could not be respected as a

rollover contribution, since the IRS cannot waive the same property

requirement. The Estate disagrees with the IRS’s reasoning, contending

that a waiver under section 408(d)(3)(I) should have been granted given

the facts and circumstances of this case.

Section 408(d)(3)(I) provides that the IRS “may waive the 60-day

requirement . . . where the failure to waive such requirement would be

against equity or good conscience, including casualty, disaster, or other

events beyond the reasonable control of the individual subject to such

requirement.” The parties’ disagreement over whether the IRS

appropriately declined to issue a waiver under section 408(d)(3)(I)

presents two antecedent questions: (1) Does our Court have jurisdiction

to review such a denial, and (2) if we do have jurisdiction, what is our

26

standard of review? These are both questions of first impression for our

Court.

1. Jurisdiction to Review Denials of Waivers Under

Section 408(d)(3)(I) and Standard of Review

In Trimmer v. Commissioner, 148 T.C. 334, 345–49 (2017), we

considered similar questions in a case similar to this one. Trimmer

concerned section 402, which governs distributions from a qualified plan

known as an employees’ trust. 13 A short background on section 402 is

helpful in understanding what transpired in Trimmer. Section 402(a)

provides that a distribution from an employees’ trust is “taxable to the

distributee, in the taxable year of the distributee in which distributed.”

Section 402(c) allows for rollover contributions similar to how section

408(d)(3) allows for rollover contributions for IRAs. Section 402(c)(1)

excludes from gross income distributions from an employees’ trust that

are thereafter contributed “to an eligible retirement plan.” Section

402(c)(3)(A) provides that such a contribution must be made no later

than 60 days “following the day on which the distributee received the

property distributed.” Section 402(c)(3)(B) allows the IRS to “waive the

60-day requirement . . . where the failure to waive such requirement

would be against equity or good conscience, including casualty, disaster,

or other events beyond the reasonable control of the individual subject

to such requirement.”

One of the taxpayers in Trimmer held retirement accounts in two

employees’ trusts. Trimmer, 148 T.C. at 336. This taxpayer received a

distribution from each of his two retirement accounts. Id. He then

deposited the two distribution checks into a joint bank account he held

with his wife. Id. Over 10 months later, on the advice of his tax return

preparer, he opened an IRA and rolled over the two distributions into

his new IRA. Id. at 336–37. On his joint income tax return, he reported

the two distributions but claimed that they were nontaxable. Id. at 337.

The IRS sent him a letter proposing, among other things, to include the

two distributions in income. Id. In his response to the IRS’s letter, the

taxpayer explained his circumstances, which included a mental health

issue, and asked for a waiver of the 60-day rollover period. Id. at 338.

13 An employees’ trust is a “trust created or organized in the United States”

that is “part of a stock bonus, pension, or profit-sharing plan of an employer for the

exclusive benefit of his employees or their beneficiaries.” I.R.C. § 401(a).

27

The IRS summarily denied the request in a boilerplate response. See id.

at 338–39.

In deciding that we had jurisdiction to review the IRS’s denial of

a hardship waiver under section 402(c)(3)(B), we stated:

Nothing in section 402(c)(3) expressly precludes

judicial review, nor does the legislative history reveal any

such congressional intent. To the contrary, because the

denial of a hardship waiver can affect directly the existence

and amount of any asserted deficiency—as it does in this

case—the procedures Congress has established for judicial

review of the Commissioner’s deficiency determinations

logically contemplate review of such a denial as one

element of the deficiency determination.

Trimmer, 148 T.C. at 346–47 (footnote omitted) (citing Estate of Gardner

v. Commissioner, 82 T.C. 989, 996 (1984)). We therefore concluded that

our jurisdiction to redetermine deficiencies under section 6213(a)

includes jurisdiction to review any discretionary agency actions that

would affect the deficiency amount. Trimmer, 148 T.C. at 348; Estate of

Gardner, 82 T.C. at 999. We also concluded, on the basis of our prior

caselaw, that the appropriate standard of review is abuse of discretion.

Trimmer, 148 T.C. at 348.

Our reasoning in Trimmer applies here as well. Sections

402(c)(3)(B) and 408(d)(3)(I) are worded identically. Neither the text of

section 408(d)(3) nor its legislative history precludes judicial review; and

whether the Commissioner grants a waiver under section 408(d)(3)(I) is

a discretionary determination that would affect a taxpayer’s deficiency.

We therefore extend our holding in Trimmer, 148 T.C. at 345–49, to

denials of waivers under section 408(d)(3)(I). In other words, we hold

that we do have jurisdiction to review the Commissioner’s denial of a

waiver under section 408(d)(3)(I) and that we review such a denial for

abuse of discretion. See Trimmer, 148 T.C. at 348; Mailman v.

Commissioner, 91 T.C. 1079, 1084 (1988) (“The standard of review most

appropriate in the case of a failure to grant a waiver is . . . whether [the

Commissioner] abused his discretion.”); Estate of Gardner, 82 T.C. at

1000; see also 5 U.S.C. § 706(2)(A) (providing that generally a reviewing

court shall “hold unlawful and set aside agency action, findings, and

conclusions” that are “arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law”).

28

2. Did the Commissioner Abuse His Discretion in

Declining to Waive the 60-Day Rollover Period Under

Section 408(d)(3)(I)?

As we explained above, the IRS declined to issue a waiver under

section 408(d)(3)(I) because Mr. Caan liquidated the P&A Interest after

the distribution from UBS and, in so doing, ran afoul of the same

property requirement, see I.R.C. § 408(d)(3)(A)(i); Lemishow, 110 T.C. at

113, which the IRS cannot waive. We hold that denying a waiver on

that basis is not an abuse of discretion. It cannot be an abuse of

discretion for the IRS to deny a waiver where granting the waiver would

not have helped the taxpayer in any way.

The Estate urges us to adopt an equitable resolution to this case.

Although we are sympathetic to the Estate’s situation, we are not a court

of equity, and we cannot ignore the statutory law to achieve an equitable

end. See Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Stovall v.

Commissioner, 101 T.C. 140, 149–50 (1993). This case is a

quintessential example of the pitfalls of holding nontraditional, non-

publicly traded assets in an IRA. Failure to follow the labyrinth of rules

surrounding these assets can mean forfeiting their tax-advantaged

status.

IV. Conclusion

We hold that the P&A Interest was distributed in tax year 2015

within the meaning of section 408(d)(1). We further hold that Mr. Caan

did not thereafter contribute the P&A Interest in a manner that would

qualify as a nontaxable rollover contribution under section 408(d)(3),

because he changed the character of the property when he liquidated the

P&A Interest. We agree with the Estate that UBS misvalued the P&A

Interest, and we hold that its value was $1,548,010 at the time of the

distribution. But we disagree with the Estate that the Commissioner

abused his discretion in declining to issue a waiver of the 60-day rollover

period, as such a waiver would not have helped Mr. Caan in this case.

We have considered all of the arguments made by the parties and,

to the extent they are not addressed herein, we consider them moot,

irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.