Tax Court Stingier Than IRS

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Generally, amounts received by an IRA distributee are included in gross income. However, Code Sec. 408(d)(3)(A) avoids gross income if the distributee contributes the received amounts to an IRA, individual retirement annuity, or qualified retirement plan within 60 days of receipt.

There are limits, however. Code Sec. 408(d)(3)(B) provides: “This paragraph [regarding tax-free rollovers] does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph.” [emphasis added]

Is this one year limit a per IRA limit, so that multiple rollovers involving different IRAs are allowed within the one year period, or if one rollover occurs with one IRA then no rollovers from any other IRAs are permitted during the one year period?

IRS Publication 590 allows for multiple IRA rollovers when it provides: "Illustration : A taxpayer we'll call Chris has two traditional IRAs (IRA-1 and IRA-2). On Date 1, Chris makes a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Chris cannot, within one year of Date 1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. However, Chris can  make a tax-free rollover from IRA-2 into any other traditional IRA because Chris has not, within the last year, rolled over, tax free, any distribution from or made a tax-free rollover to IRA-2."

I disagree - looking at the statutory language and the use of the word "an" before "individual retirement account" in the underlined excerpt above instead of "that," I read it that once a rollover is made involving any IRAs, all further IRA rollovers from any IRA are disqualified within a year.

The Tax Court, in a 2014 Memorandum Decision, has sided with my interpretation, and rejected the more liberal provision in Publication 590. It is not often that the Tax Court adopts a more taxpayer hostile position than an IRS publication, but here you have it.

Bobrow, TC Memo 2014-21

Topics:  IRA, IRS, Qualified Retirement Plans, Retirement Plan

Published In: Finance & Banking Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Charles (Chuck) Rubin, Gutter Chaves Josepher Rubin Forman Fleisher P.A. | Attorney Advertising

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Charles (Chuck) Rubin
Gutter Chaves Josepher Rubin Forman Fleisher P.A.

A tax and business attorney who assists clients in preserving & enhancing individual, family &... View Profile »


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