The case of Estate of James E. Caan v. Commissioner of Internal Revenue highlights a significant aspect of Individual Retirement Accounts (IRAs), particularly the “same-property rule” for IRA-to-IRA rollovers. This rule mandates that the property received in an IRA distribution must be the same property rolled over. For example, if cash is received, cash must be rolled over; if stock is received, that stock must be rolled over.
Background
In this case, before his death in 2022, actor James Caan owned two traditional IRAs and invested part of one in a hedge fund. The custodian, UBS, was unable to obtain a year-end valuation for the hedge fund for 2014 and thus resigned, distributing the hedge fund interest to Caan. When Caan liquidated his hedge fund interest and rolled over the cash proceeds to a new IRA, the IRS deemed the distribution taxable, as it violated the same-property rule. Caan’s estate appealed to the federal Tax Court but lost.
Take-Aways
For Self-Directed IRA (SDIRA) holders, this case underscores the importance of adhering to the same-property rule. Violating this rule can lead to a distribution being considered ineligible for rollover and therefore taxable. This ruling emphasizes the need for meticulous management of IRA assets and a clear understanding of rollover rules to avoid unintended tax consequences.
For more information on Self-Directed IRAs and 401(k)s, reach out to uDirect IRA Services, LLC at info@uDirectIRA.com
