by NCBRC has filed an amicus brief on behalf of the NACBA membership in the Supreme Court case of Clark v. Rameker (In re Clark), No. 13-299. The debtor in Clark inherited the funds in her mother’s IRA which were then transferred into the debtor’s tax-exempt account via a trustee-to-trustee transfer. In the debtor’s later bankruptcy she sought to exempt those funds. The Seventh Circuit created a split in the circuits when it held that a debtor may not exempt her inherited IRA in bankruptcy. In re Clark, 714 F.3d 559 (7th Cir. 2013). The Fifth Circuit had reached the opposite conclusion in Chilton v. Moser, 674 F.3d 486 (5th Cir. 2012).
In its amicus brief, NACBA argues that section 522(b)(3)(C), which exempts “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986, is both straightforward and broad. It has only two requirements: 1) the funds must be retirement funds, and 2) the funds must be in an account exempt from taxation under certain sections of the Internal Revenue Code.
In keeping with the broad application of the exemption, funds transferred directly (i.e., in a trustee-to-trustee transfer) from one tax-exempt account to another tax-exempt account are not disqualified from the exemption. Moreover, nothing in the transfer provision, section 522(b)(4)(C), requires that the transferee account be maintained for the debtor’s retirement or that the debtor must have herself saved the funds in the account in contemplation of her retirement. Indeed, when Congress wanted to establish limitations on the retirement fund exemption it did so plainly and expressly. The text of section 522(b)(3)(C) is not only plain and dispositive, it is also consistent with Congress’s intent to create a uniform exemption for all types of tax-exempt retirement plans.
By inventing court-imposed tests for determining whether funds are “retirement funds” subject to exemption, the decision below creates unnecessary limitations and practical difficulties in the application of an exemption Congress was at pains to broaden and clarify. It opens up a Pandora’s Box of litigation that destroys the efficiency created by the objective statutory presumption written by Congress.