A recent Tax Court opinion has thrown IRA rollover issues into question. In Bobrow v. Commissioner, T.C. Memo 2014-21, the Tax Court construed I.R.C.§408(d)(3)(B) to limit the frequency of nontaxable rollover contributions to a once-per-year limitation. This applies to all IRA’s maintained by the taxpayer, as the court ruled that the limitation applies on an aggregate basis. This contradicts the IRS’ interpretation of I.R.C.§408(d)(3)(B) as defined in Publication 590. Per Publication 590, a taxpayer can make a “ tax-free rollover of any part of a distribution from a traditional IRA, but then cannot, within a one-year period, make a tax-free rollover of any later distribution from that same IRA."
In Announcement 2014-15, IRS stated that they will not apply the Bobrow decision until 2015. As a result, advising your client about rollover options will be two-fold. For tax year 2014, rollovers can be on an individual basis and the IRS will not apply the “aggregate basis” holding of Bobrow. But beginning in 2015, the IRS will apply the Bobrow interpretation of I.R.C.§408(d)(3)(b) to any rollover that involves an IRA distribution. So going forward, advise your client to make only one IRA rollover per tax year, or to be on the safe side one rollover every 366 days.
Update: In mid-July, the IRS withdrew Prop. Treas. Reg. § 1.408-4(b)(4)(ii) and will likely issue a new proposed regulation conforming to the Bobrow case, as well as a revised Publication 590.