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Subject:  Re: The Pennsylvania two-step Date:  7/14/1999  2:19 PM
Author:  Bob78164 Number:  17308 of 127519

WilliamLipp writes (in part):

If I were conducting the audit, I'd claim it's a no-brainer that this is a sham.

I reply:

Are you sure that sham transaction rules apply in this setting? Let's take a look at a similar issue in a different setting. Suppose I want to transfer money from a former employer's 401(k) plan to a Roth IRA. Now most people know this can't be done directly; rather, the money must first make a brief stopover in a traditional IRA; there to be converted to a Roth IRA. Everyone knows that the substance of the transaction is to effect the forbidden transfer of funds from a 401(k) to a Roth IRA. But no one cares because it's a permitted transaction.

Of COURSE anyone who looks at this for a second will see the presence of a tax planning technique that was intended from the get-go. (And in any event, I have no interest in violating the law, even if I were confident that I would not be caught.) That begs the question. The question is whether the technique is permitted. --Bob
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