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Haury v. Commissioner of Internal Revenue

United States Court of Appeals, Eighth Circuit

May 12, 2014

Harry Robert Haury, Appellant
v.
Commissioner of Internal Revenue, Appellee

Submitted January 13, 2014.

Appeal from the United States Tax Court.

For Harry Robert Haury, Appellant: Sanford Jay Boxerman, Capes & Sokol, Saint Louis, MO.

Harry Robert Haury, Appellant, Pro se, Chesterfield, MO.

For Commissioner of Internal Revenue, Appellee: Thomas J. Clark, Regina S. Moriarty, Joan I. Oppenheimer, Gilbert Steven Rothenberg, U.S. Department of Justice, Washington, DC; William Wilkins, Internal Revenue Service, Washington, DC.

Before LOKEN, MURPHY, and SMITH, Circuit Judges.

OPINION

Page 868

LOKEN, Circuit Judge.

Harry Haury, a software engineer, filed no federal individual income tax return for 2007. The Commissioner of Internal Revenue issued a notice of deficiency in May 2010, alleging unpaid taxes, penalties, and interest of more than $250,000 based on a substitute return prepared by the Internal Revenue Service. The deficiency asserted taxable salary income of $149,216 and taxable withdrawals from Haury's Individual Retirement Account (" IRA" ) totaling $434,964. Haury responded by petitioning the Tax Court for redetermination of the deficiency, filing a return for 2007 that reported, as relevant here, $149,217 in wage income, $319,964 in taxable IRA distributions, and a business bad debt loss of $413,156. After a trial on mostly stipulated facts, the Tax Court rejected Haury's claim that he made an offsetting $120,000 rollover IRA contribution, denied him a bad debt deduction because the worthless loans in question were nonbusiness bad debts, and determined a deficiency of $225,284.40 in unpaid taxes, $43,992.99 for failure to file a timely return, and $8,748.35 for failure to pay estimated tax. Haury appeals, challenging the Tax Court's IRA rollover and business bad debt rulings. We reverse on the IRA rollover issue, affirm on the bad debt issue, and remand for redetermination of the deficiency.

A. The IRA Rollover Issue.

Haury developed " workflow automation and document imaging" technology in the late 1990s and licensed the technology to several related companies using the name " Nu Paradigm." By 2007, two of these companies, NuParadigm Government Systems, Inc. (" NPGS" ) and NPS Systems, Inc., were competing as subcontractors for a substantial government contract. To fund product development and working capital needs,

Page 869

Haury made secured loans to the two companies in 2006 and 2007. Three loans in April, May, and July 2007 were funded using distributions withdrawn from Haury's IRA account. NPS Systems and NPGS issued demand promissory notes payable to the IRA trustee " on behalf of Harry Haury's IRA account number." Haury was less than 59 1/2 years old that year, so his IRA distributions were taxable as ordinary income subject to a 10% additional tax. See 26 U.S.C. (" I.R.C." ) § § 408(d)(1), 72(t). Haury also made a $120,000 contribution to his IRA account in April 2007. The issue on appeal is whether that contribution was a qualifying " rollover" that reduced Haury's 2007 taxable IRA-distribution income by $120,000. As transaction timing is critical to § 408(d) issues, we summarize Haury's withdrawals from and contributions to his IRA account in 2007:

Transaction Date

Withdrawals

Contributions

February 15, 2007

- $120,000.00

April 9, 2007

- $168,000.00

April 30, 2007

$120,000.00

May 14, 2007

- $100,000.00

July 6, 2007

- $46,933.06

October 25, 2007

- $31.32

Total :

- $434,964.38

$120,000.00


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