In a recent decision (Bobrow v. Commissioner, decided January 28, 2014), the U.S. Tax Court held that taxpayers may only make one tax-free IRA rollover per year, no matter how man IRA’s the taxpayer owns.
The taxpayer in Bobrow had two IRAs and made a withdrawal from each of them. He re-deposited the funds within 60 days of the withdrawals. Accordingly, the taxpayer argued that code Section 408(d) permitted a rollover “yearly with regard to each IRA he or she maintains” and “prohibits taxpayers only from taking multiple tax free distributions from the same IRA within one year.”
While this argument seems to make sense, the Tax Court disagreed. The Court stated that the plain language of section 408(d) “limits the frequency with which a taxpayer may elect to make a nontaxable rollover contribution. By its terms, the one-year limitation . . . is not specific to any single IRA maintained by an individual but instead applies to all IRAs maintained by a taxpayer.” Therefore, the taxpayer’s second IRA rollover was, in fact, a taxable withdrawal.
As an aside, the taxpayer’s spouse made a withdrawal from her separate IRA in the same year. Unfortunately for her, she miscounted and re-deposited the funds 61 days after the withdrawal. Whoops!! That withdrawal was also taxable. To make matters worse the taxpayer’s were also hit with 20% penalty for understating their income taxes (not including the IRA withdrawals on their returns).
Lest you think the world of tax law is without irony – the taxpayer in this case was an attorney specializing in none other than . . . tax law.
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