On January 28, 2014, in the case of Bobrow v. Commissioner, T.C. Memo 2014-21, the U.S. Tax Court issued a ruling regarding IRA rollovers that was quite unexpected because it was in direct conflict with IRS published guidance for taxpayers and a proposed regulation. An IRA rollover refers to the instance where a taxpayer receives a distribution from his or her IRA and recontributes that distribution to another IRA for the taxpayer’s benefit within 60 days. In that case, the distribution is not taxed to the taxpayer. The IRS has previously issued Publication 590 explaining tax-free rollovers and provided an example that clearly showed that more than one of a taxpayer’s IRAs could be rolled over each year, but no single IRA account could be rolled over more than once per year. The IRS gave the same guidance in Proposed Regulation 408-4(b)(4)(ii).
In Bobrow, the IRS argued that the one IRA tax-free rollover per year limit should be applied on an aggregate basis for all of a taxpayer’s IRAs and not on an account by account basis and the Tax Court agreed. That was a significant change and one that left taxpayers who had already done more than one tax-free rollover in 2014 and IRA custodians who must process rollovers in a difficult position.
On March 20, 2014, the IRS issued Announcement 2014-15 that provided transition relief for implementing the Bobrow decision. The IRS stated that it will follow the interpretation in Bobrow and will withdraw the proposed regulation and revise Publication 590 to apply the tax-free rollover rules on an aggregate basis, but in any event will not apply the rule to any rollover occurring before January 1, 2015.
Thus, taxpayers may continue to do more than one tax-free rollover in 2014. It should be emphasized that the Bobrow ruling does not apply to a direct transfer from one IRA to another. The IRS confirmed in Announcement 2014-15 that direct transfers are not rollovers, and are therefore not subject to the one per year limitation. Direct transfers from one IRA custodian to another may be done as often as desired.