IRS Reverses Long-Standing Position on One-Rollover-per-Year Rule
I discussed a Tax Court case, Bobrow v. Commissioner, in my February 25th blog, “Tax Court Says One Tax-Free Rollover per Year Means just That”. I mentioned that one tax-free rollover per IRA per year was permitted by an IRS publication and proposed regulations. The decision held that a taxpayer may make only one tax-free, 60-day rollover between IRAs within each 12-month period, regardless of how many IRAs an individual maintains.
IRS will not apply this new interpretation to any rollover that involves an IRA distribution occurring before January 1, 2015.
Bobrow v. Commissioner
Mr. Bobrow (anecdotally, a tax lawyer) completed numerous rollovers from various IRAs within 60 days. This was consistent with IRS Publication 590 and the proposed regulations.
The Tax Court relied on its previous rulings, the language of the statute, and the legislative history in deciding this case. The Tax Court held that regardless of how many IRAs an individual maintains, a taxpayer may make only one nontaxable rollover within each 12-month period.
The IRS response
The IRS, in Announcement 2014-15, indicated that it will follow the Tax Court’s Bobrow decision, and apply the one-rollover-per-year rule on an aggregate basis, instead of separately to each IRA you own. However, in order to give IRA trustees and custodians time to make changes in their IRA rollover procedures and disclosure documents, the IRS will not apply this new interpretation to any rollover that involves an IRA distribution that occurs before January 1, 2015.
What this means to you
For the rest of 2014 the “old” one-rollover-per-year rule in IRS Publication 590 (see above) will apply to any IRA distributions you receive. So if you have a need to use 60-day rollovers to move funds between IRAs, you have only a limited time to do so without regard to the new Bobrow interpretation.
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. So if you don’t have a need to actually use the cash for some period of time, it’s generally safer to use the direct transfer approach, and avoid this potential problem altogether. The tax consequences of making a mistake can be significant, so don’t hesitate to consult a qualified professional before making multiple rollovers.
*Note: The one-rollover-per-year rule also applies–separately–to your Roth IRAs. Roth conversions don’t count as rollovers 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.
