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By Kathleen Ford Bay, Esq.
Lippincott Phelan Veidt PLLC, Austin, TX
Generally, §408(d)(3)(A)(i)1 provides that any amount distributed from an individual retirement account (IRA) will not be included in the gross income of the distributee to the extent the amount is paid into an IRA for the benefit of the distributee no later than 60 days after the distributee received the distribution. However, §408(d)(3)(B) provides that if the taxpayer has used the 60-day exception to exclude another distribution within one year prior to the date of the current distribution, then no exception will apply. Prop. Reg. §1.408-4(b)(4)(ii) and Publication 590, Individual Retirement Arrangements (IRAs), each took the position that §408(d)(3)(B) applied on an IRA by IRA basis. However, in Bobrow v. Commissioner,2 the Tax Court held that §408(d)(3)(B) applied on an aggregate basis and, therefore, a taxpayer cannot make a non-taxable rollover from one IRA to another if that taxpayer had already made a rollover for any of the taxpayer's IRAs in the preceding one-year period.
In Announcement 2014-15,3 the IRS indicated that it would follow the Bobrow decision and apply the one-rollover per year (not calendar year, but rather within a 12-month period) limitation on an aggregate (not per IRA) basis. Additionally, the IRS indicated that it would withdraw Prop. Reg. §1.408-4(b)(4)(ii), and, if determined to be necessary to follow the Tax Court's interpretation, issue a new proposed regulation, and revise IRS Publication 590 to conform with the Tax Court's interpretation. However, for relief during a transition period, the IRS stated that the aggregate interpretation will not be applied to any IRA rollover with regard to a distribution taken before January 1, 2015.
Additionally, during a September 11, 2014 IRS webinar, an IRS employee not speaking in an official capacity indicated that the one-rollover on an aggregate basis rule is not just for IRAs; it also affects simplified employee pension (SEP) plans and savings incentive match plan for employees (SIMPLE) IRA plans.
For more information, in the Tax Management Portfolios, see Kennedy, 367 T.M., IRAs, Mezzullo, 814 T.M., Estate and Gift Tax Issues for Employee Benefit Plans, and in Tax Practice Series, see ¶5610, IRAs, ¶6350, Estate Planning.
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1 §408(d)(1). Unless otherwise specified, all "Section" or "§" references refer to the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
2 T. C. Memo 2014-21.
3 2014-16 I.R.B. 973.
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