A recent U.S. Tax Court ruling that declared IRA owners are entitled to just one nontaxable rollover every 12 months across all their accounts upends conventional reading of the law.
The decision in Bobrow vs. Commissioner changes the commonly accepted interpretation of the law that held the once-a-year rule applied to each IRA owned by an individual.
The ruling prompted the American Society of Pension Professionals and Actuaries to warn its members to be mindful of the ruling until the IRS clarifies its position.
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"It might be prudent for all practitioners to recognize this court ruling as a possible 'game changer,' " the society wrote in a publication of its Government Affairs Committee.
The society noted that only rollovers in which money is directly given to a taxpayer are affected and money can be moved from one custodian to another as often as is wanted.
The more liberal reading of the rule seemed to have the support of the IRS, which has included this statement in its Publication 590: "Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA."
Although the IRS included the above language in the version of Publication 590 it published last month, the agency argued in Bobrow that nontaxable rollovers were limited to a more restrictive reading of the applicable statute.
The court agreed with the IRS arguments, writing, "Regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period."
The facts of the Bobrow case involved a husband and wife that owned several IRA accounts. In 2008, they moved money between several of the accounts, completing each rollover with the mandated 60-day limit. They believed they had satisfied the legal requirements.
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