Community property law and federal tax collided and the tax result can be best called “messy” in PLR 201623001.  The final result created a harsh result and tax being due from a taxpayer who had a portion of an inherited IRA that was treated as community property taken away.

The taxpayer (referred to as “Taxpayer A” in the ruling) applying for the ruling was the surviving spouse.  Her deceased husband had three IRAs but named their child (referred to as “Taxpayer B” in the ruling) as the sole beneficiary of the IRA.  While the ruling doesn’t tell us the full details, we know the spouse filed suit against the decedent’s estate for her community property interest in the assets owned by her and her deceased spouse.  Thus it’s possible her deceased spouse had effectively “disinherited” her by leaving all of his assets to the child.