More musings on the new rollover limitation

by. Todd Berghuis

One of the truisms of our industry, as it is a truism of life, is that “nothing is as constant as change.”  That certainly applies to the IRA rollover limitation issue, which reared its head in the Bobrow v. Commissioner U.S. Tax Court case, and completely upended thirty-plus years of IRS interpretation on IRA rollovers.   As most will remember, the Court disallowed a taxpayer’s IRA rollover on the grounds that he was limited to one rollover distribution per taxpayer per 12-month period, not one rollover per IRA per 12-month period.  Proposed regulations dating back to 1981, and IRS publications, had formerly granted the more liberal option.

That’s water under the bridge, because the IRS has fallen into marching step with the new drummer – the U.S. Tax Court.  The IRS revealed in Announcement 2014-15 that, going forward, the rule will be one IRA distribution per taxpayer, not per IRA, that will be eligible for an indirect 60-day rollover in any 12 month period.   Released in March, Ann. 2014-15 stated that the IRS would not enforce this new interpretation before January 1, 2015.  Ascensus has since learned from a reliable IRS contact that the “no sooner than” timing for enforcement of this new interpretation will, in fact, be January 1, 2015.  The IRS representative stated that the nine month enforcement reprieve – from March to next January – was granted in response to industry requests for a grace period to allow IRA custodians, trustees and issuers to adjust their procedures.

Some over-eager service providers did not wait until the IRS released Ann. 2014-15, but responded to the January Tax Court decision and immediately informed clients and prospects that they should amend their IRA documents, advising that they do this at the first opportunity.  They also indicated that the new interpretation had to be followed and adhered to immediately.  This was suggested not only before the IRS responded to the Tax Court ruling by issuing Ann. 2014-15, but before it was even known whether the Bobrow case would be appealed, and whether its ruling might be upheld, or reversed.

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