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Tax Court and IRS narrow application of one-per-year limitation for certain tax-free IRA rollovers
Posted in Estate Planning

The recent Tax Court case Bobrow v. Commissioner has shut down the separate IRAs rollover strategy altogether. In the decision, the Tax Court applied the one-year IRA rollover rule to apply in the aggregate across all IRAs, thus invalidating the separate IRA rollover treatment for all taxpayers. In direct response to the Bobrow v. Commissioner Tax Court decision, the IRS issued an announcement to address the decision’s application to IRAs.

The Internal Revenue Code allows individuals who receive a distribution from an Individual Retirement Account (IRA) to avoid tax consequences by rolling the funds over to an IRA within 60 days. Under the IRS rules governing IRA distributions and rollovers, any amount distributed from an IRA will not be taxable to the account owner to the extent that the amount distributed is paid into another IRA for the benefit of the account owner no later than 60 days after the distribution from the first IRA is made. Under prior interpretation of these rules, the IRS treated this as applying an IRA-by-IRA basis, which meant that if a person had multiple IRAs, he or she was permitted to make these 60 day rollovers with respect to each IRA in any given year.

However, the recent Tax Court case Bobrow v. Commissioner has shut down the separate IRAs rollover strategy altogether. In the decision, the Tax Court applied the one-year IRA rollover rule to apply in the aggregate across all IRAs, thus invalidating the separate IRA rollover treatment for all taxpayers. In direct response to the Bobrow v. Commissioner Tax Court decision, the IRS issued an announcement to address the decision’s application to IRAs.

To summarize, the IRS Announcement 2014-15 states that it will acquiesce to the Tax Court decision, update its Proposed Regulations and Publication 590 and issue new Proposed Regulations soon that will apply the one-year IRA rollover rule on an IRA-aggregated basis going forward. Specifically, the announcement provides that the one-per-year limit will apply to the taxpayer, rather than each IRA. Therefore, if a taxpayer makes a 60 day rollover from one IRA to another IRA in any given year, that taxpayer cannot then make another 60 day rollover from a different IRA during that year period.

According to IRS Announcement 2014-15, the application of this one-per-year limitation will begin to apply to 60 day IRA rollovers occurring on or after Jan. 1, 2015. Further, the one-per-year limitation will not apply to trustee-to-trustee transfers, since those transfers are not considered rollovers under the applicable IRS rules.

This change from the IRS will have significant impacts on the flexibility of rollovers many IRA owners have enjoyed in the past. The new application of the rules will also require more planning and consultation with a client’s advisors when considering whether or not to make a non-required distribution from an IRA.


To learn more about Jeremy P. Gerch and his practice, visit his profile.

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