IRS issues announcement deferring effective date of Bobrow decision
TAX ALERT |
In Bobrow vs. Commission of Internal Revenue, the Tax Court ruled that the one IRA-to-IRA rollover per 12-month period limitation set forth in section 408(d)(3)(B) should be applied on an aggregate basis as opposed to an account-by-account basis as the IRS has previously permitted in its Publication 590 and proposed regulations. Because the Tax Court decision was inconsistent with its own prior interpretation of section 408(d)(3)(B), the IRS followed up with Announcement 2014-15 last month to postpone the effective date of the Bobrow decision until Jan. 1, 2015.
Many, if not most, taxpayers have multiple IRAs resulting from holding jobs with various employers during their careers. It is likely that the IRS felt that section 408(d)(3)(B) was being abused by taxpayers looking to use their various IRAs for multiple short-term loans. While the Bobrow case acknowledges that section 408(d)(3)(B) was inserted into the Code to provide taxpayers with some flexibility with their retirement plans, it is clear from the IRS' litigation position that the IRS wanted to reign in taxpayers.
The IRS will not apply the new one rollover per 12-month rule to any rollover that involves a distribution occurring before Jan. 1, 2015. This gives taxpayers who availed themselves of the opportunity to take rollovers from their various IRA accounts time to comply with the Bobrow decision. In the announcement, the IRS indicated it had received comments about “the administrative challenges” presented by the Bobrow interpretation of section 408(d)(3)(B). The announcement affords trustees and custodians time to alter their internal processing of IRA rollovers. The IRS further stated it would be issuing a proposed regulation under section 408 that would provide that the IRA rollover limitation applies on an aggregate basis. The limitation of section 408(d)(3)(B) does not affect the right of taxpayers to directly transfer funds or accounts from one IRA custodian to another IRA custodian.
Also see our prior article, The U.S. Tax Court changes the game on IRA rollovers
RSM LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party.
RSM®, the RSM logo, the RSM Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of RSM LLP.
© 2014 RSM LLP. All Rights Reserved.
This publication represents the views of the author(s), and does not necessarily represent the views of RSM LLP. This publication does not constitute professional advice.