IRS REINTERPRETS THE ONCE-PER-YEAR IRA ROLLOVER LIMITATION

On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

There is a tax rule that allows taxpayers to take money out of their IRA and avoid paying income tax and the 10% early distribution penalty so long as they return that money to their IRA account within 60 days.

However, tax law limits the number of rollovers to one per year. In the past, the IRS has taken a liberal view toward the one-per-year limitation by allowing one rollover per IRA account each year. In other words, if you have three separate IRA accounts, you can apply the 60-day rollover rule to each IRA account.

However, a recent Tax Court Case ruled that the once-per-year rollover applied to the aggregate of all of the taxpayer’s IRA accounts, meaning all of a taxpayer’s IRAs are treated as one for the purposes of applying the once-per-year rollover limitation.

The IRS has announced it will adopt the Tax Court’s ruling, meaning that an individual cannot make an IRA-to-IRA rollover if he or she made such a rollover involving any of individual IRAs in the preceding one-year period.

Since both the IRS’s proposed regulations and Publication 590 currently permit one rollover per account, the IRS is extending transitional relief and will not apply the Tax Court’s interpretation to the rollover rule to any rollover that involves an IRA distribution occurring before January 1, 2015.

These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another because such a transfer is not a rollover and, therefore, is not subject to the one rollover-per-year limitation.

Taxpayers considering utilizing the 60-day rollover rule should be cautious about possibly violating the once-per-year rollover rule. Please call this office if you have any concerns.