The 9th U.S. Circuit Court of Appeals agreed with the lower court that the minor had to pay the tax because while his mother was listed as the plan’s primary beneficiary, Oregon law made her statutorily ineligible to get a payout because of her role in her husband’s death.
According to the ruling, the minor – identified as “D.N.” – paid the federal tax on the distribution, but later sought a refund, which the Internal Revenue Service denied. The minor filed suit, but a federal trial judge ruled for the government.
The basis for D.N.’s argument was that he should not be held liable for the tax because the mother was actually the “distributee” because she was originally entitled to the proceeds as the account’s original primary beneficiary. The minor was listed on the account as a secondary beneficiary, according to the appellate opinion.
Circuit Judge Richard R. Clifton, writing for the appellate court, rebuffed D.N.’s argument because his mother never received any funds from the account and couldn’t from the time the plan received notification she was a suspect in her husband’s death.
The case is D.N. v. United States, 9th Cir., No. 10-35037.