Can creditors go after an inherited IRA in bankruptcy? The Supreme Court will examine that issue next Spring when they hear arguments in Clark v. Rameker. The Supreme Court will resolve a split in the Courts of Appeal (the 7th Circuit ruled that creditors do have access to inherited IRAs while the 5th and 8th Circuits ruled they don’t). The issue is important because as the US population ages many IRAs will end up becoming inherited IRAs.
A decision should be released by the end of June.
Every so often a client asks me, “Can I fund/purchase/own my business through an IRA.” My general answer is don’t do this! You may be able to do it legally, but there are so many gotchas that it’s rarely worth the aggravation.
A taxpayer tried to own his closely-held C-Corporation through his IRA. The results weren’t pretty. Joe Kristan has the details on what went wrong and the troubles the taxpayer now faces.
Last week the IRS announced in Revenue Rule 2008-05 that wash sale rules impact transactions into an IRA. This could have a major impact to the unaware.
A “wash sale” is when you sell shares of stock at a loss, and in the thirty day period before or after the sale you buy replacement shares. When that happens your capital loss is postponed; the disallowed loss increases your basis in the replacement shares (assuming the replacement shares are not purchased in an IRA).
In the ruling announced last week, the IRS determined that if one buys replacement shares in an IRA, the loss is lost forever. This ruling makes doing a wash sale into an IRA a very bad decision.
Other Coverage:
Roth Tax Update
TaxProf Blog
