Tax Research Memo Template, Case Study Example

Relevant Facts


            The relevant facts surrounding this case is that Phyllis elected to have funds removed from her IRA in an early disbursement paid directly to her.  Although not clearly stated, it is safe to assume that Phyllis is under the age of 59 1/2 years old.  Furthermore, Phyllis elected to have two separate disbursements within the same calendar year.  Finally, Phyllis chose to include her early disbursements into brand new IRA accounts.  In both cases, the disbursements that were paid to her were subsequently deposited into new IRA accounts within 60-days of receipt of the check.


Specific Issues


The major issues involved with Phyllis’ case involve early disbursement of IRA funds which can include taxable consequences and fees paid directly to the federal government.  Individually, the fact that these two disbursements occurred within the same calendar year is an issue but also that the disbursements were likely early disbursements reduces the ability for Phyllis to receive the funds tax-free.  However, the taxability of these disbursements is also in question as the disbursements were intended to roll over to brand new IRA accounts.  A major issue is how the disbursements were sent to the consumer as rollover disbursements should normally be paid via check directly to the new financial agency or funds transferred electronically.




Through careful analysis, it has been determined that the two disbursements provided to Phyllis during the calendar year are both non-taxable disbursements and should not be included in the calculation of gross income for the year.  The funds were paid directly to Phyllis, but during both situations the disbursements were deposited into new IRA counts within the legal parameters of the 60-day rule according to IRS Publication 590.  Although, Phyllis is under the legal age of 59 ½ to be eligible to receive tax-free disbursements from an IRA account, the 60-day rule allows for a legal rollover of IRA funds into another individual retirement account.  Therefore, Phyllis is not responsible for paying taxes on both individual disbursements paid throughout the calendar year, and she is also not subject to the additional 10% maximum penalty paid to the IRS as a penalty for early disbursements of funds.




            Support for this conclusion comes directly from IRS Publication 590 (page 21) in which the IRS deems that rollovers from traditional IRA’s are subject to a 60-day grace period in which funds can be deposited directly into another legally-acceptable retirement account without being made subject to early disbursement penalties and taxes.  As long as the client can prove that the funds from the May 8 disbursement were deposited into the new IRA account within the 60-days, as previously mentioned, the funds qualify as an acceptable rollover and are not subject to early disbursement taxation and the additional 10% penalty (IRS Publication 590).  Furthermore, IRS Tax Topic 451 can also be used as it clearly defines a traditional IRA and the differences between such an IRA and a Roth IRA and SIMPLE IRA (Tax Topic 451).



Actions to Be Taken


____X____ Discuss with client. Date discussed ________


____X____ Prepare a memo or letter to the client


________ Explore other fact situations


________ Other action. Describe:___________________________






Preparer ____X____               Reviewer ________                Partner ________




Internal Revenue Service, (2011). Individual retirement arrangements (Tax Topic 451). Retrieved from website:

Internal Revenue Service, (2011). Publication 590. Retrieved from website:

Lambert, G. D. (2011, November 19). Common ira rollover mistakes. Retrieved from