MLR

Court saw rollover limit from taxpayer’s viewpoint

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Appalled by what it called the IRS’s unfair argument, the Court of Appeals for the Eighth Circuit has reversed a Tax Court decision that a taxpayer did not make a timely rollover to his IRA from which he previously made IRA withdrawals at different times.

The Tax Court had held that the rollover, which was in the same amount as one of the withdrawals, was not timely because it was not made within 60 days of that withdrawal. However, the Eighth Circuit found that the rollover occurred within 60 days of a withdrawal in a larger amount and thus qualified as a valid partial rollover.

During 2007, Harry Haury made four withdrawals from his IRA:

  • Feb. 15 – $120,000
  • April 9 – $168,000
  • May 14 – $100,000
  • July 6 – $46,933

On April 30, 2007, Haury deposited $120,000 into his IRA.

The IRS matched the $120,000 contribution with the $120,000 distribution and concluded more than 60 days had elapsed, precluding rollover treatment. The Tax Court agreed with the IRS.

On appeal, Haury argued that the $120,000 contribution occurred within 60 days of the April 9 distribution and rollover treatment should be allowed. The appellate court agreed with Haury (Haury v. Commissioner,
CA-8, May 12, 2014).

During the appeal, the IRS acknowledged that the 60-day limit was satisfied. However, the IRS argued that the partial rollover defense was forfeited because Haury had failed to argue it to the Tax Court. The appellate court rejected this contention.

Then the IRS tried to argue that Haury failed to prove that he had not already exercised his one-rollover-per-year opportunity within the 12 months preceding this transaction.

The appellate court characterized this argument as silly and factually without merit since the IRS agreed that it had access to the transactions in Haury’s IRA account during the year leading up to April 30, 2007. There were no prior rollovers in the records.

Important Reminder: The IRS has historically applied the
one-rollover-per-year rule separately to each IRA. However, starting with
distributions made after 2014, it intends to apply the rule on a more
restrictive aggregate basis.