IRS: One IRA rollover per year as of 2015

August 1, 2014
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The IRS has made a ruling on IRA rollovers in order to close a loophole ruled on earlier this year.

In January, a U.S. Tax Court judge ruled that the actions of tax attorney Alvan Bobrow and his wife were not allowed under the Internal Revenue Code, according to Pacifica Wealth Advisors. In 2008, the couple made a series of withdrawals and transfers among contributory IRAs, rollover IRAs and non-IRA investment accounts, keeping within the 60-day deadline for tax-free IRA rollovers. In effect, Bobrow and his wife were able to use this strategy to use their multiple IRA funds to obtain interest-free loans. Because they were keeping within the 60-day period, the couple assumed at the time that this was permissible by the IRS.

The ruling in the U.S. Tax Court case Bobrow v. Commissioner, T.C. Memo 2014-21 prompted the IRS to tighten IRA rollover rules, limiting taxpayers to one tax-free rollover of any part of a distribution from a single IRA to another IRA within a 365-day period, according to the news source. This rule goes into effect January 1, 2015.

According to the Journal of Accountancy, the IRS has stressed that this rule – which is actually a new interpretation of Sec. 408(d)(3)(A)(i) – will not affect IRA owners’ ability to transfer funds from one IRA trustee to another. Indeed, these transactions are not considered rollovers under Rev. Rul. 78-406, and so are not subject to the one per 365-day period limit.

As Pacifica points out, this decision makes things a little bit more complicated in some situations, such as for taxpayers who own both traditional and Roth IRAs. In any case, there is likely to be more scrutiny of IRA rollovers starting next year.

As professional tax, trust, and estate attorneys, we often write about current matters regarding the IRS at Tax, Trust & Estate News. Check out some of our previous posts:

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  • IRS Extends Estate Tax Break
  • IRS Postpones Beginning of Tax Season For the Second Time
  • IRS Budget Constraints May Harm Taxpayers, Advisory Council Warns
  • TIGTA: IRS Ill Prepared For Offshore Tax Evasion Law
  • U.S. Supreme Court Sides With IRS in McCombs Tax Shelter Penalty Case
  • IRS to Focus Attention on Small Business Partnerships