Tax Court declines to revisit Bobrow

The U.S. Tax Court has declined to revisit its decision in Bobrow v. Commissioner, which found that a taxpayer could make only one nontaxable rollover contribution within each one-year period regardless of how many IRAs the taxpayer maintained.

In a motion for reconsideration, the taxpayers argued that the court’s interpretation of Code Sec. 408(d)(3)(B) was contrary to the IRS’s published guidance in Publication 590, Individual Retirement Arrangements. Taxpayers traditionally understood that the IRS applied the one-per-year limitation under Code Sec. 408(d)(3)(B) on an IRA-by-IRA basis, as indicated in Publication 590, and had issued proposed regulations consistent with that application. Publication 590 provided: “You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within one year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.”

In its order, the court said it was aware of Publication 590 but as neither the taxpayers nor the Service raised Publication 590, the court did not address it in the decision. The court reminded the taxpayers that the Service’s published guidance is not binding precedent. “Taxpayers rely on IRS guidance at their own peril,” the court cautioned. If the taxpayers had argued Publication 590 in their briefs, the argument would not have served as substantial authority for the position taken on their return, the court concluded. The court further noted that it was advised that the taxpayers and the IRS had reached the basis for a proposed settlement. As such, the court denied the taxpayers’ motion for reconsideration as moot. The IRS has announced it will revise Publication 590 and issue new proposed regulations to reflect Bobrow (Announcement 2014-15). The Service explained that it 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. The new proposed regulations would not be effective before January 1, 2015.

Source: Motion for reconsideration, Bobrow v. Commissioner.

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