               United States Bankruptcy Appellate Panel
                              FOR THE EIGHTH CIRCUIT



                                      No. 10-6009


In re:                                      *
                                            *
Nancy A. Nessa,                             *
                                            *
         Debtor.                            *
                                            *
Gene W. Doeling,                            *   Appeal from the
                                            *   United States
         Trustee - Appellant,               *   Bankruptcy Court for the
                                            *   District of Minnesota
               v.                           *
                                            *
Nancy A. Nessa,                             *
                                            *
         Debtor - Appellee.                 *



                                Submitted: March 11, 2010
                                   Filed: April 9, 2010


Before SCHERMER, VENTERS and SALADINO, Bankruptcy Judges

SCHERMER, Bankruptcy Judge

      Gene W. Doeling, Chapter 7 trustee (the “Trustee”) for the bankruptcy estate
of Nancy A. Nessa (the “Debtor”) appeals from an Order Overruling Objection to
Exemption. The bankruptcy court1 overruled the Trustee’s objection to the Debtor’s
claim of an exemption of her inherited IRA account under section 522(d)(12) of the
Title 11 of the United States Code (the “Bankruptcy Code”). We have jurisdiction
over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b).
For the reasons set forth below, we affirm.

                                             ISSUE

       The issue on appeal is whether the Debtor’s inherited IRA qualifies as
exempt pursuant to section 522(d)(12) of the Bankruptcy Code. We conclude that
it does.

                                       BACKGROUND

       The Debtor filed a voluntary petition for relief under Chapter 7 of the
Bankruptcy Code in January 2009. Prior to that filing, the Debtor’s father, Robert
Borrett, had established an individual retirement account (“IRA”) pursuant to
Section 408 of Title 26 of the United States Code (the “Internal Revenue Code”).
The Debtor was named the beneficiary of that IRA. After her father died in August
2008, and before filing her bankruptcy petition, the Debtor made a trustee-to-
trustee transfer of the IRA to her own account at Wells Fargo; she did not “roll
over” the account to her own IRA nor did she take any distributions from her
father’s IRA.2 The Debtor has not contributed any of her own funds to the
inherited account, and any withdrawals will be taxable to her.



       1
             The Honorable Dennis D. O’Brien, United States Bankruptcy Court for the District of
Minnesota.
       2
           In fact, the beneficiary of an inherited account may not treat the account as his or her
own by making contributions to it or rolling over the account into another retirement plan. See
26 U.S.C. § 408(d)(3)(C).

                                                 2
      The Debtor claimed the inherited account as exempt in her Schedule E,
pursuant to section 522(d)(12) of the Bankruptcy Code. The Trustee objected to
the Debtor’s claim of an exemption for the inherited account.

       The bankruptcy court overruled the Trustee’s objection to the Debtor’s
claimed exemption. It explained that the transfer of the contents of the Debtor’s
father’s account to the inherited account was a trustee-to-trustee transfer as
described in the Internal Revenue Service’s Publication 590. Individual
Retirement Arrangements, (IRAs), Department of the Treasury, Internal Revenue
Service, Publication 590, at 20. The bankruptcy court then concluded that the
transfer from the Debtor’s father’s account retained their character as retirement
funds. Accordingly, it concluded that the funds in the account qualified for an
exemption under Bankruptcy Code section 522(d)(12).

                             STANDARD OF REVIEW

We review the bankruptcy court’s conclusions of law de novo. Alexander v.
Jenson-Carter (In re Alexander), 239 B.R. 911, 913 (B.A.P. 8th Cir. 1999), aff’d
236 F.3d 431 (8th Cir. 2001). The facts are not in dispute.

                                    DISCUSSION

       A debtor’s bankruptcy estate is defined broadly to include all legal and
equitable interests of the debtor in property, as well as other specific interests of the
debtor. 11 U.S.C. §541. Bankruptcy Code section 522 allows the debtor to exempt
certain property from his estate. 11 U.S.C. §522. Pursuant to section 522(d)(12), the
debtor may take an exemption for:




                                           3
      [r]etirement funds to the extent 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.

11 U.S.C. §522(d)(12). Accordingly, section 522(d)(12) imposes two requirements
before a debtor may claim an exemption under that section: (1) the amount the debtor
seeks to exempt must be retirement funds; and (2) the retirement funds must be in an
account that is exempt from taxation under one of the provisions of the Internal
Revenue Code set forth therein.

       The Debtor’s father’s account was an “individual retirement account”, as that
term is defined under section 408(a). 26 U.S.C. §408(a). It is now classified as an
“inherited individual retirement account” because the Debtor acquired the account by
reason of her father’s death. 26 U.S.C. §408(d)(3)(C).

Retirement Funds

        The bankruptcy court correctly determined that the amounts in the inherited
account were “retirement funds”. The Trustee does not dispute the bankruptcy court’s
determination that, the amounts in the Debtor’s father’s IRA were his retirement funds
prior to his death. He suggests, however, that to retain their status as retirement funds
under section 522(d)(12) in the Debtor’s inherited account, the contents of the
inherited account would have to have been contributed by the Debtor or be part of the
Debtor’s retirement plan. Bankruptcy Code section 522(d)(12) makes no such
distinction. Section 522(d)(12) requires that the account be comprised of retirement
funds, but it does not specify that they must be the debtor’s retirement funds. The
Trustee’s definition of retirement funds would impermissibly limit the statute beyond
its plain language. U.S. v. Ron Pair Enterprises, 489 U.S. 235, 241, 109 S.Ct. 1026,
103 L.Ed.2d 290 (1989)(“where, as here, the statute’s language is plain, ‘the sole
function of the courts is to enforce it according to its terms’”)(citation omitted). In

                                           4
accordance with the terms of Bankruptcy Code section 522(d)(12), even though the
contents of the Debtor’s inherited account were the Debtor’s father’s retirement funds,
not the Debtor’s own retirement funds, they remain in form and substance, “retirement
funds.”3

Exempt from Taxation

       The Debtor’s inherited account is exempt from taxation under Internal Revenue
Code section 408. The Trustee acknowledged that the Debtor’s inherited account is
not taxed until the Debtor makes a withdrawal. However, he suggested that the
inherited account does not meet the requirements of Bankruptcy Code section
522(d)(12), reasoning that the “rules are different. . . regarding the use, distribution,
and taxation of funds in an IRA versus an Inherited IRA.” It is irrelevant whether a
traditional IRA and an inherited IRA have different rules regarding minimum required
distributions. Section 408(e) of the Internal Revenue Code provides, in pertinent part,
that “[a]ny individual retirement account is exempt from taxation.” 26 U.S.C.
§408(e)(1)(emphasis added). It does not distinguish between an inherited IRA and
traditional types of IRAs.

Bankruptcy Code Section 522(b)(4)(C)

      Bankruptcy Code section 522(b)(4)(C) reinforces our conclusion that the funds
in the Debtor’s inherited account are exempt under Bankruptcy Code section

       3
            But see In re Chilton, --- B.R.---, No. 08-43414, 2010 WL 817331 (Bankr. E.D. Tex.
Mar. 5, 2010), holding that the words “retirement funds” as used in section 522(d)(12), when
read in context, “cannot reasonably be understood to authorize an exemption of an inherited
IRA.” Chilton at *4-7. Our research has not disclosed any other cases dealing with the
exemption of an inherited IRA under section 522(d)(12) since the amendment of section 522 of
the Bankruptcy Code in 2005, nor have the parties suggested any. We believe that the Chilton
court’s conclusion is erroneous because inter alia, it fails to take into account section
522(b)(4)(C) of the Bankruptcy Code, discussed infra, and in fact it would make that section
totally meaningless.

                                              5
522(d)(12). Section 522(b)(4)(C) provides that direct transfers from an account under
Internal Revenue Code section 408(a) are exempt under Bankruptcy Code section
522(d)(12). It states, in pertinent part, that:

      [a] direct transfer of retirement funds from 1 fund or account that is
      exempt from taxation under section . . . 408. . . of the Internal Revenue
      Code of 1986, . . ., shall not cease to qualify for exemption under . . .
      subsection (d)(12) by reason of such direct transfer.

11 U.S.C. §522(b)(4)(C). The parties did not dispute that the retirement account held
by the Debtor’s father before his death was an individual retirement account under
Internal Revenue Code section 408 or that the transfer from the father’s account to the
Debtor’s inherited account was a direct trustee-to-trustee transfer. Accordingly, the
direct transfer of funds from the father’s account to the Debtor’s inherited account did
not destroy the Debtor’s ability to claim the funds exempt under Bankruptcy Code
section 522(d)(12) by virtue of Bankruptcy Code section 522(b)(4)(C).

                                   CONCLUSION

      For the foregoing reasons, we affirm the decision of the bankruptcy court.




                                           6
