IRS announces it will adopt “aggregate” IRA rollover limit for post-2014 rollovers

The IRS has announced that it intends to follow the U.S. Tax Court’s interpretation of the statutory one-rollover-per-year limitation on individual retirement account (IRA) rollovers “on an aggregate basis.” The IRS has previously applied the one-per-year limitation on an IRA-by-IRA basis, as indicated in Publication 590 and has issued proposed regulations consistent with that application.

Code Sec. 408(d)(3)(B) provides that an individual is permitted to make only one rollover from an IRA in any one-year period. In Bobrow v. Commissioner, decided in January 2014, the Tax Court held that this limit applies on an aggregate basis, meaning that an individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual’s IRAs in the preceding one-year period. This holding conflicted with Publication 590 and IRS Proposed Reg. §1.408-4(b)(4)(ii), which apply the once-a-year rollover rule to each IRA separately.

The IRS said that it anticipates that it will follow the interpretation of the once-a-year rollover rule in Bobrow and, accordingly, it intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation.

Note: These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year
limitation of Code Sec. 408(d)(3)(B).

Application of Bobrow interpretation

The IRS has received comments about the administrative challenges presented by the Bobrow interpretation of rollover rule. The IRS said that it recognizes that adoption of the Tax Court’s interpretation “will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents, which will take time to implement.”

Accordingly, the IRS will not apply the Bobrow interpretation of Code Sec. 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before January 1, 2015.

Regardless of the ultimate resolution of the Bobrow case, the IRS expects to issue proposed regulations that would provide that the IRA rollover limitation applies on an aggregate basis. However, the proposed regulations would not be effective before January 1, 2015.

Source: IRS Announcement 2014-15.

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