Checkbook Control IRA, Swanson Case & Field Service Advisory 200128011
Posted by Catherine Wynne on Fri, May 22, 2009
We have frequently been asked about Field Service Advisory
200128011 in relation to the relevance of the Swanson Case and its use in
supporting the “Checkbook Control IRA”.
Field Service Advisories, in the hierarchy of “credible or
useful” falls well below the Swanson Case, decided at the administrative
(lowest) tax court level. Private Letter
Rulings, Internal IRS Memorandums and DOL Opinion Letters are much more useful
than a field service advisory for gaining clarification of an IRS position. This is clearly stated in the subject line of
the Advisory, I quote “In accordance with I.R.C. § 6110(k)(3), this Chief
Counsel Advice should not be cited as a precedent”.
If you read through the Advisory it addresses the question of
whether or not a corporation, created by a father for his and his three minor
children’s IRAs, and his active involvement in that corporation, constituted an
indirect circumvention of the rules on taxable gifts to the children. Although the Swanson Case is quoted in great
detail within this document, it has little relevance to the question asked regarding
the taxable gift laws. The only portion of Swanson that was of any relevance
was the reference to the payment of dividends to the IRAs from the
Corporation. The tangential visit to the prohibited
transaction rules and inclusion of Swanson does not impact the gift tax issue.
The reference in the Advisory of the IRS conceding the issue
of whether or not a prohibited transaction occurred in the Swanson case with
regards to the interaction between Worldwide and Swanson was based, not on
prohibited transaction rules, but on the IRS’s relentless pursuit of Swanson
for the purpose in order to stall for time in the hope that the IRS agents
could learn more about prohibited transactions in order to “find something”
they could use against him.
Reading the transcript of the Swanson Case (not a summary of
the Swanson Case) reveals that the IRS internal memos submitted as evidence
supported that from IRS internal memos that the IRS was absolutely at
fault. It doesn’t take a lot of thought
to conclude that the IRS was not going to appeal this one.
Just because the Swanson Case was liberally quoted in the
Advisory does not serve as a validation of the “Checkbook Control IRA”. Using it as a tool to support this structure
is irresponsible.