Once-a-year limit on IRA rollovers applies to all IRAs held by taxpayer

A taxpayer was limited to one IRA rollover per 12-month period, even though he took distributions from two different IRAs, the U.S. Tax Court has ruled. A distribution from the second IRA was includible in his gross income, the court held.

An individual maintained two IRAs: a traditional IRA and a rollover IRA. His wife also maintained a traditional IRA. On April 14, 2008, the husband took two distributions from his traditional IRA in the combined amount of $65,064. On June 6, 2008, the husband took a $65,064 distribution from his rollover IRA. On June 10, 2008, the husband transferred $65,064 from his individual checking account to the traditional IRA. On July 31, 2008, the wife took a $65,064 distribution from her IRA. On August 4, 2008, the couple transferred $65,064 from their joint checking account to the husband’s rollover IRA. On September 30, 2008, the wife transferred $40,000 from their joint account to the wife’s traditional IRA.

The court held that the couple was required to include portions of their IRA distributions in their gross income. The husband withdrew funds from two different IRA accounts and made one nontaxable rollover in a one-year period as allowed under Code Sec. 408(d)(3)(B). The husband’s subsequent distribution from his rollover IRA was includible in gross income since only one nontaxable rollover is allowed during a one-year period, the court ruled. “Regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period,” the court held.

Note: This holding conflicts with language of IRS Publication 590 which applies the once-a-year rollover rule to each IRA separately.

The wife’s IRA distribution, which was transferred to the couple’s joint bank account and back to the wife’s IRA, was also includible in the couple’s gross income, the court ruled. The partial repayment to the wife’s IRA was made on the 61st day after the distribution was made to the wife and, therefore, was late. The couple failed to provide any evidence that the funds were not paid within the 60 days due to delays based on their financial institution’s error.

Source: Bobrow v. Commissioner (TC).

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