Why we don't rely on IRS Pubs

[Mr. Pencil]

I usually cite IRS pubs or instructions for plain language explanations, but never forget that they are not law or even policy. Pub 590 says a taxpayer can only rollover funds to or from a particular IRA once a year, but that other IRA accounts can have additional rollovers. In TC Memo 2014-21 the IRS argued that the LAW says one rollover per taxpayer, not per account. The Tax Court agreed.

In other IRA news, President Obama is moving ahead with creating MyRA accounts as he said in his State of the Union address. Here is a fact sheet. http://www.whitehouse.gov/the-press-office/2014/01/28/fact-sheet-opportunity-all-securing-dignified-retirement-all-americans [The discussion in this forum is only about how the new plans work. Opinions on the speech and using executive orders should be taken to the Politics Forum.]

[Jack from Ohio]

I usually cite IRS pubs or instructions for plain language explanations, but never forget that they are not law or even policy. Pub 590 says a taxpayer can only rollover funds to or from a particular IRA once a year, but that other IRA accounts can have additional rollovers. In TC Memo 2014-21 the IRS argued that the LAW says one rollover per taxpayer, not per account. The Tax Court agreed.

In other IRA news, President Obama is moving ahead with creating MyRA accounts as he said in his State of the Union address. Here is a fact sheet. http://www.whitehouse.gov/the-press-office/2014/01/28/fact-sheet-opportunity-all-securing-dignified-retirement-all-americans [The discussion in this forum is only about how the new plans work. Opinions on the speech and using executive orders should be taken to the Politics Forum.]

Since the TC Memo is issued in 2014...

The court held that the once-per-year limitation disqualified the rollover from the taxpayer’s second IRA, concluding that the rule applies to all of a taxpayer’s IRA accounts: “Regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.” The court cited the plain language of the statute, legislative history, and prior opinions to support its interpretation of the rule.

It is unclear whether the IRS will change its approach to rollovers from multiple IRAs in response to this tax court decision. But Bobrow v. Commissioner does provide a precedent that the IRS can use to disqualify rollovers that might have been allowed before this decision. Owners of multiple IRAs may be advised to space out rollovers to avoid tax penalties.

Until the IRS publishes a change in response to the TC Memo, the pub is still accurate.

[BulldogTom]

I read somewhere that the maximum balance allowed in a MyRA would be $15,000. At that point, the account would have to be rolled into a Roth IRA. I wonder if there will be an exemption for a required rollover from the MyRA?

Tom

Hollister, CA

[TAXMAN]

Back to original post. Plain english If I have 3 ira's are we saying I cannot roll #1 when it comes due in Feb, then when #2 comes due in March I cannot roll that one and when #3 comes Due in Sept I cannot roll that one either. Is this what we are saying?

[Mr. Pencil]

Back to original post. Plain english If I have 3 ira's are we saying I cannot roll #1 when it comes due in Feb, then when #2 comes due in March I cannot roll that one and when #3 comes Due in Sept I cannot roll that one either. Is this what we are saying?

You can reinvest within the same account. Or you can do a trustee-to-trustee transfer. But you can not use the 60-day replacement procedure more than once a year.

[Lion EA]

Obviously this isn't law and I would do my own research if the situation arises in my practice, but an IRS liaison speaking at a tax professionals' meeting said that the current IRS interpretation is that an individual may have one and only one traditional IRA but can invest it in as many accounts/banks/brokerages/investments as they choose.

[TAXMAN]

Here is the real life situation I have. When IRA cd #1 came due at bank 1 in October of 13 tp took funds and went to bank 4. Put it all back in. When IRA #2 cd came due at bank 2 in November of 13 tp took funds to bank 5 and put it all back in. When IRA cd#3 at bank 1 came due in December of 13 tp took fund to brokerage in January of 14 and rolled all back in. Are we saying that because these are different that TP can do this? Just trying to get a good grip on this.

[Lion EA]

I really don't know. I've gotten most of my clients to use direct trustee to trustee transfers when they chose to change banks/brokers. You really want to look this up yourself if you're going to sign your name to it.

[Mr. Pencil]

Are we saying that because these are different that TP can do this?

You might think so, based on Pub 590. But the Tax Court said, "Petitioners' interpretation is incorrect and not in line with this Court's previous opinions regarding section 408(d)(3)(B ), the plain language of section 408(d)(3)(B ), or the legislative history of section 408." That's pretty tight. By the way, the taxpayer was an attorney specializing in taxation so I don't expect anyone else can ever win this.

[Lion EA]

Agree. Here's the CPA Tax & Compliance Advisor explanation of the Tax Court's decision:

http://www.cpapracticeadvisor.com/news/11314800/think-twice-about-once-a-year-ira-rollover-rule?utm_source=CPA+Tax+%26+Compliance&utm_medium=email&utm_campaign=CCSN140218002