IRA Rollover News

This is critical must know information for all tax advisors. The change is very significant and will be covered more in a Tax Tip from Chief Counsel Tiffany Fowler but we wanted you to have it immediately. Any questions please call Tiffany at ext. 313 and she will gladly assist you.

The Tax Court is at it again.  Just when you thought you knew the ins and outs of the IRA rollover rules, a curve ball is thrown.  Page 25 in the latest version of IRS Publication 590 interprets the one per year IRA rollover rule limit to each IRA you own.  The Tax Court has successfully muddied the waters on this aspect of the 60-day rollover rule, at least for now.

Say hello to a recently published case, Bobrow v. C.I.R. (T.C., Jan. 28, 2014, 7022-11).  The background of this case is as follows:  Petitioners were on the hook to the IRS for a significant income tax deficiency PLUS early distribution penalties AND accuracy related penalties.  This was all related to “unreported distributions” from their IRAs, stemming from alleged violations of the once per year 60-day IRA rollover rule.   

The Tax Court in this case stated that the one rollover per year rule applies to all IRAs, not each IRA.  Its reasoning was: “Had Congress intended to allow individuals to take nontaxable distributions from multiple IRAs per year, we believe section 408(d)(3)(B) would have been worded differently.”  It concluded this particular discussion with: “Regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.”

This is a pretty shocking interpretation since the code has been routinely interpreted as the rule applying to each IRA.  For now, conservative IRA owners are following this interpretation to ensure they are in compliance.  Of course, this opinion could be overruled or perhaps the rule clarified in the near future.