Q: I am 74 and have been receiving monthly Keogh payments since I was 70 1/2. Now a lump-sum payment and use of 10-year averaging seems advantageous. But I have received conflicting opinions on whether I may use Form 4972 and 10-year averaging if I make a lump-sum withdrawal. May I? If not, this fact should be emphasized by Keogh trustees when an investor asks for monthly withdrawals.
A: My initial reaction, on reading your letter, was that 10-year averaging would not be permitted, because everything in my library says that the payout must occur in one tax year to use this tax-saving technique. But there was some ambiguity, so I went to my friends at the IRS.
Surprise, surprise! According to the expert on employe retirement plans, it appears that you may use Form 4972 and 10-year averaging if you now withdraw the entire balance remaining in your Keogh account in a lump sum. I say "appears" because I am told there are no revenue rulings or published provisions on the subject.
There was a court case on a similar -- but not identical -- situation, and the ruling then was that 10-year averaging was permitted. You could write to the IRS -- Associate Chief Counsel (Technical), Internal Revenue Service, Room 2579, 1111 Constitution Ave. NW, Washington, D.C. 20224 -- to request a ruling on your specific circumstances. But I suspect an answer would take months; on the basis of what I now know, I think you can safely use 10-year averaging for your withdrawal.
Q: In 1985 I invested in an oil-drilling limited partnership. The oil field and driller were real, and an earlier related partnership had drilled as well. By year's end, however, the promoter's phones were disconnected; its answering service had messages stacked up and didn't know where to send them; and letters asking for a refund were ignored. This loss does not exceed 10 percent of my adjusted gross income the threshold above which the federal government allows write-offs on theft losses . How else can I get a tax write-off from this swindle?
A: Despite your understandable feeling that your money has been stolen, this is not a theft loss from a tax point of view. Instead, it is a capital loss on an investment made in anticipation of earning a profit, and goes on Schedule D.
Because your research clearly indicates that your $3,000 investment was worthless by the end of 1985, you should use Dec. 31, 1985, as the date of sale, and a sales price of zero. The loss will be short term if you made the investment in the first half of the year, long term if made after June 30.
I've had a couple of items in recent columns on the subject of the exclusion of gain on the sale of a principal residence allowed to those older than 55. Much of what I wrote was correct, but I made a major misstatement on Jan. 13 -- and then compounded it in the March 17 column. I have now seen the error of my ways and want to set the record straight.
The question had to do with the availability of the exclusion to a woman who had never used it personally, but who married a man who had taken the exclusion previously -- prior to this marriage. (The rules apply equally to either sex.) The woman cannot claim the exclusion during the course of the marriage, even for the sale of a home she had owned in her own name before the marriage.
But I added that the woman in the case never would be permitted to claim the exclusion because of her marriage to a man who had used it. This is not true. If the marriage ended, either by divorce or by the death of the husband, the woman would regain the right to claim the exclusion on a later sale of a principal residence (assuming, of course, that she then met all the requirements).
I want to acknowledge my appreciation for the persistence of attorney Ira S. Siegler of Washington, who took the trouble to write twice on the subject and who virtually forced me to extend my research. I make at least my fair share of mistakes, and I depend on you readers to call them to my attention so I can publish a correction.