Strange result? Community property state IRA

[Belgarath]

Just saw the attached, in an internet post by and Edward Morrow. Also saw a similar post by someone else. Not being au fait with community property IRA beneficiary rules, I found this rather surprising from a "common sense" point of view. Haven't seen an actual copy of the PLR.

Fixing Plans with Community Property IRAs

The IRS takes the position that a court order granting a surviving spouse 50% of an IRA that was her community property pursuant to state law is ineligible for a rollover!  This is a wake up call to watch out for any cases where spouses are not named on the beneficiary designation form for community property IRAs.

Community Property IRA Disaster

In PLR 2016-23001, Decedent left 100% of his community property IRA to his son, not his wife.  In settling estate, court ordered a portion (the ruling did not say, but probably 50%) of IRA to wife.  She asked the IRS to rule that it was not a taxable event.  DENIED.  IRS held it would be taxable to son because Section 408(g) provides that § 408 “shall be applied without regard to any community property laws.” She could not be a payee and could not rollover the IRA.  Three lessons: 1) Had son simply filed a qualified disclaimer, it would have likely passed to wife via intestacy (if not via contingent beneficiary designation) and spouse would have been entitled to rollover; 2) Check the beneficiary designation form and plan ahead for how spouse will receive community property - naming spouse as 50% beneficiary or more would have avoided the need for either a qualified disclaimer or an expensive private letter ruling; 3) Prevention is cheaper than PLRs!