Background

On January 28, 2014, the Tax Court in Bobrow v. Commissioner, T.C. Memo 2014-21 held that the once-a-year limitation rule of IRC Section 408(d)(3)(B) applies to all IRAs maintained by an IRA owner.

Facts of the Case

Mr. Bobrow, a tax attorney, made the following IRA rollovers within a 12 month period and maintained that both rollovers were tax-free rollovers:

1. Mr. Bobrow received a distribution of $65,064 from his traditional IRA (IRA-1) on April 14, 2008 and returned (i.e., rolled over) $65,064 to IRA-1 on June 10, 2008.
2. Mr. Bobrow received a distribution of $65,064 from his rollover IRA (IRA-2) on June 6, 2008 and returned (i.e., rolled over) $65,064 to IRA-2 on August 4, 2008.

The taxpayer maintained that both of his IRA distributions were non-taxable, since both rollovers described above were returned within 60 days of the initial distributions from each IRA, based on IRC Section 408(d)(3).

Holding in Bobrow

The Tax Court held that only the distribution from IRA-1 was rolled-over tax free. The distribution from IRA-2 was, however, taxable since this distribution was made within 12 months of the distribution from IRA-1. The taxpayer was also subject to the 20 percent accuracy penalty under IRC section 6662(a).

Significance of the Holding

The holding in Bobrow runs completely contrary to the 20 plus year guidance on this issue found in Proposed Regulation Section 1.408-4(b)(4) issued in 1981 and the discussion and specific example found in IRS Publication 590 which dates back to 1994. That earlier guidance provides that a taxpayer can make one tax-free IRA rollover during a 12 month period, per IRA. The taxpayer in Bobrow relied on this guidance and asserted that the once-a-year limitation applied to each of his IRAs separately rather than cumulatively. The Bobrow ruling takes a cumulative rather than separate approach, effectively making the limitation more severe. Under Bobrow the taxpayer was allowed only one tax-free IRA rollover during a 12 month period for all of the taxpayer's IRAs.

What's Next?

It is not known if the Bobrow decision will be appealed.  In the meantime, taxpayers should exercise extreme caution in attempting to take multiple IRA rollovers within a given 12 month period if the availability of tax-free treatment of the multiple rollovers is an important aspect of the distributions.

For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040 or visit us on the web at www.uhy-us.com. 

Connie Ku, principal of UHY LLP and APACC member of more than seven years, has been elected to treasurer of the Asian Pacific American Chamber of Commerce (APACC). The Chamber was established in the year 2000 and is headquartered in Troy, Michigan. APACC is governed by an 18-member Board of Directors and the operations and programs are supported by membership dues and financial contributions. Their membership is comprised of Fortune 500 corporations, multi-ethnic private business enterprises, small businesses, and corporate professionals in a broad spectrum of industries. APACC is an organization that represents Asian Pacific American businesses that have origins that are either Asians, Pacific Islanders and Subcontinent Asian Ancestry, which includes persons from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China, Taiwan, Laos, Cambodia, Vietnam, Korea, The Philippines, US Trust Territory of the Pacific Islands, Guam, Samoa, Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, Nauru, Northern Mariana Islands, India, Pakistan, Bangladesh, Sri Lanka, Bhutan and Nepal.

"I see APACC as the organization that connects the East and West, nurtures adventures into unfamiliar territories and provides opportunities for global success and prosperity," said Ku. "I look forward to being the treasurer of APACC and am grateful for the opportunity to give back to my community and contribute to global integration."

Connie Ku joined UHY LLP in 1999. She is a member of the Audit and Assurance Department where she manages a group of professionals devoted to providing comprehensive tax, audit and business consulting services to companies in a variety of industries. She is also a leading member of the firm's China group. Ku has a Master of Arts degree in Accountancy from Southern Illinois University at Carbondale and Bachelor of Arts degrees in International Accounting and Finance from the International School of Shanghai University. She is also a licensed CPA in the State of Michigan.

Congratulations, Connie!

Experienced Recruiting Update 

UHY wishes to connect with top talent in our Michigan market. We are always on the lookout for professionals with experience in Tax, Audit, Attest, Finance, Fraud and Forensics, Litigation Support and Business Advisory. Be sure to visit our careers page for the most up-to-date career listings or contact Amanda Sheets at asheets@uhy-us.com to learn how we can help you take charge of your career path now.

Do you know a CPA who would like to learn more about the firm and our culture? Please feel free to pass along Amanda's contact information.  

Current Michigan openings include:

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Tax Manager

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