by. Todd Berghuis, Ascensus
A recent U.S. Tax Court ruling has set a lot of heads spinning in the IRA administration world, running counter as it does to more than two decades of IRS guidance. In the case Bobrow v. Commissioner, the Court looked at a situation where the taxpayer, Mr. Bobrow, had made two IRA rollovers within a 12-month period. Each rollover consisted of assets distributed from a different IRA. The Court disallowed Bobrow’s IRA rollover on the grounds that he was limited to one rollover per taxpayer per 12-month period, not one rollover per IRA.
Why is this ruling drawing so much attention? Primarily because it runs completely contrary to long-issued guidance provided by the IRS, the very agency that is now advocating this new position without any prior warning. The ability to execute IRA rollovers on a one-per-IRA basis has been described in detail in IRS Publication 590, Individual Retirement Arrangements (IRAs), for at least 20 years, that evidence readily available even now at the IRS’s own web site. It is not conveyed in a mere statement, but in detailed examples provided to explain the sometimes-misunderstood rollover limitations. The IRS’s own model IRA documents, on which millions of IRAs are based, state in their instructions “For more information on IRAs…see Pub. 590…”
It is relevant to share the IRS’s own unequivocal guidance on the subject here. Looking back to 1994, the oldest version of Publication 590 posted at the IRS web site, we find the following. “You can take a distribution from an IRA and make a rollover contribution to another IRA only once in any one-year period. … This rule applies separately to each IRA you own. For example, if you have two IRAs, IRA–1 and IRA–2, and you roll over assets of IRA–1 into a new IRA–3, you may also make a rollover from IRA–2 into IRA–3, or into any other IRA within one year after the rollover distribution from IRA–1. These are both rollovers because you have not received more than one distribution from either IRA within one year.” The examples, now even more detailed, continue in Publication 590 up to the most current version.continue reading »