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Wednesday, November 24, 2010

9th Cir.: Minor Child (Secondary Beneficiary of Father's Retirement Account) Liable for Tax on Distribution After Mother (Primary Beneficiary) Kills Father

The Ninth Circuit ruled on Monday that a minor child of a woman who killed her husband (the child's father) was liable for the tax on a distribution from his father's retirement account as its “distributee” because the wife, although listed as the plan's primary beneficiary, was ineligible under Oregon law to receive a distribution from the plan.  D.N. v. United States, No. 10-35037 (9th Cir. Nov. 22, 2010). (Hat Tip: Bob Kamman.)

http://taxprof.typepad.com/taxprof_blog/2010/11/9th-cir-wife-who-kills-husband-not-liable-for-tax-on-distribution-from-husbands-retirement-account.html

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Comments

Seems pretty straightforward and the right result under the circumstances. If the father hadn't invested in the 401(k), then he'd have paid income tax on the salary and invested the net proceeds, and the child would have presumably received the post-tax funds either as intestate heir or as a beneficiary under will. In this case, the child gets the same post-tax funds (plus the compounded income on the portion that originally avoided tax when the father contributed it to the 401(k)).

Of course, state legislatures could prospectively provide the benefit the child's guardian sought by passing a statute requiring the funds to be received by the slayer spouse and then distributed without reduction for tax to the child. That might be the right thing to do (although it's unlikely the tax would ever be collected), but it's not the court's role in this case to invent a rule that contradicts state law.

Posted by: Mithras | Nov 24, 2010 8:57:47 AM