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Archive for February, 2014

25
Feb

Tax Court Says One Tax-Free Rollover per Year Means Just That

   Background
The Internal Revenue Code says that if you receive a distribution from an IRA, you can’t make a tax-free (60-day) rollover into another IRA if you’ve already completed a tax-free rollover within the previous 12 months.

The long-standing position of the IRS, reflected in Publication 590 and proposed regulations, is that this rule applies separately to each IRA you own. Publication 590 provides the following example:

“You have two traditional IRAs*, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.”

Very clear. Clear, that is, until earlier this year, when the Tax Court considered the one-rollover-per-year-rule in the case of Bobrow v. Commissioner.

Bobrow v. Commissioner
In this case Mr. Bobrow (anecdotally, a tax lawyer) did the following:

       On April 14, 2008, he withdrew $65,064 from IRA #1. On June 10, 2008, he repaid the full amount into IRA #1.

       On June 6, 2008, he withdrew $65,064 from IRA #2. On August 4, 2008, he repaid the full amount into IRA #2.

Mr. Bobrow completed each rollover within 60 days. He made only one rollover from each IRA. So, according to Publication 590 and the proposed regulations, this should have been perfectly fine. However, the IRS served Mr. Bobrow with a tax deficiency notice, and the case went to the Tax Court. The IRS argued to the Court that Mr. Bobrow violated the one-rollover-per-year rule.

The Tax Court agreed with the IRS, relying on its previous rulings, the language of the statute, and the legislative history. The Court held that regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover within each 12-month period.

“Taxpayers may rely on a proposed regulation, although they are not required to do so. Examiners, however, should follow proposed regulations, unless the proposed regulation is in conflict with an existing final or temporary regulation (Internal Revenue Manual 4.10.7 issue resolution).   

“IRS Publications explain the law in plain language for taxpayers and their advisors. They typically highlight changes in the law, provide examples illustrating Service positions, and include worksheets. Publications are nonbinding on the Service and do not necessarily cover all positions for a given issue. While a good source of general information, publications should not be cited to sustain a position” (Internal Revenue Manual 4.10.7 issue resolution).  This maybe why neither the IRS nor Mr. Bobrow appears to have cited the Service’s long-standing contrary position in Publication 590 and the proposed regulations.

So what’s the rule now?
It’s not clear, but taxpayers who rely on the proposed regulations or Publication 590 to make multiple tax-free rollovers within a 12-month period do so at their own risk. It’s hoped that the IRS will clarify its position in the near future.

And don’t forget–you can make unlimited direct transfers (as opposed to 60-day rollovers) between IRAs. Direct transfers between IRA trustees and custodians aren’t subject to the one-rollover-per-year rule.

*The one-rollover-per-year rule also applies–separately–to your Roth IRAs. Roth conversions don’t count as a rollover for this purpose.

 

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources. 

 

 

 

 

 
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10
Feb

Privacy Breaches

Two recent articles discuss privacy breaches. 

“Sidestepping the Risk of a Privacy Breach”, posted by the nytimes.com February 7, 2014, discussed the security of personal data when using “plastic”.  A representative of the American Bankers Association expressed concern that criminals seem to be ahead of the marketplace, the regulators and the consumers. 

Starting in 2005, there have been 4.167 known breaches that exposed 663,587,386 records of personal information.  Recent headlines have revealed continuing breaches at some very large and sophisticated entities. 

Over 30% of people whose information was breached in 2013 became victims of some kind of identity theft.  That is an increase from about 12% three years ago.

Emails are increasingly exposing us to the threat of breaches to our privacy.  If you receive an email asking for personal information and there is anything that raises concern, go to the website and call the entity.  If there is a known breach, it may be on the website or the representative of the entity can tell you if it is legitimate.  

“Leading a cash-only life is a theoretical possibility, but it boxes you out of most online shopping and makes traveling difficult. Going cash-only mostly means endless trips to the A.T.M. and all the fees and hassle that come with it”.

“With the right tactics, however, it’s easy enough for most people to greatly bolster their odds of avoiding the worst of the problems.”  

Gregory Karp’s article “Think before buying ID theft protection” was in The Chicago Tribune Feb. 9, 2014.

He believes that you probably should not subscribe to identify “protection” services, “if your only concern is a thief fraudulently using your payment card information.  Typically, that’s not a big deal, and you won’t lose any money. ”

A representative from the Identity Theft Resource Center was quoted: “You can’t make the blanket statement that all of these services are bad or not worth your while.”  A representative of the Privacy Rights Clearinghouse indicated the services have “dubious value.  It’s fairly expensive, and there are other ways you can protect yourself.”

He noted that Consumer Reports had the following on their website: “Don’t get fleeced by identity-theft protections services.”  Gregory noted that some felt the claim of “prevention” and “protection” are exaggerations.  The benefit of these services is that they provide more timely alerts to a breach.

If you are thinking of getting this type of service learn exactly what you get.  You need to educate yourself and follow through if you do not get this type of service.
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