[badge137]

My wife inherited a portion of her father's iras when he died in November, 2004. The proceeds were divided between her, her mother and sister. As per her mother's financial advisor direction, the proceeds were deposited in his bank. The proceeds of the one ira was subject to a five year distribution. The other, however, as per the financial advisor, was rolled over into a new ira, under my wife's name "as the beneficiary of " her father. This was drawn from the bank, into the purchase of two mutual funds. Two years later we have gotten a tax bill from the IRS for the total of the second ira that was rolled over. Everyone we've spoken to believes that there is a loophole for us not to owe the tax on this money, but no one, including the IRS, can pinpoint it. Can you help?

[AtlantaTaxExpert]

The laws on this have changed for the better over the past few years, but I do not think they apply in your case.

In my opinion, the rollover of the IRA was NOT a valid one in 2004. The rollover option, under the tax laws in effect in 2004, was available ONLY to the mother as the spouse of the deceased. The children had to take the distribution over the five-year period.

Also, In my opinion, you have a malpractice case against the financial advisor who guided you in this matter. He/She should have done the proper due diligence research on this before instructing you on how to proceed. While you are liable for the taxes on the IRA distribution that would have been paid had this issue been handled properly, the financial advisor should be on the hook for all penalties and interest, which, at this point in time, is probably HIGHER than the original tax owed. If financial counselling is his/her primary business, he/she probably has error & omission insurance to cover this mistake. This looks like an appropriate opportunity for him/her to use it.

Everything noted above is offered WITHOUT doing the due diligence research noted, so take it for what it is worth. I strongly recommend you contact an enrolled agent or CPA who has the detailed experience with IRA tax issues to get this issue properly resolved.