IRS Developments – June 2014

IRS Issues Erroneous Notices on E-Filed Trust & Estate Tax Returns

Taxpayers who electronically filed Form 1041 with a balance due may receive an erroneous tax notice from the IRS. The IRS processed some electronically filed trust and estate tax returns in a different cycle than the mailed payments, which prompted tax notices with an unpaid balance due. The IRS is in the process of fixing this issue and will be sending out corrected notices. If the tax return and payment were timely filed and paid, the correcting notice will reverse any penalties and interest that were originally assessed.


IRS Further Limits IRA One-Rollover-Per-Year Rule

In Announcement 2014-15, the IRS confirmed that the Individual Retirement Account (IRA) one-rollover-per-year limit applies on an aggregate basis to all of a taxpayer’s IRAs rather than on an account basis. This announcement clears up previously conflicting guidance and provides transition relief for rollovers occurring before January 1, 2015. Direct transfers from one IRA trustee to another will not be affected by this announcement, as such transfers are not subject to the one-rollover-per-year limitation.


In general, a taxpayer is allowed to exclude an IRA distribution from gross income if the entire amount is subsequently deposited into a qualifying retirement account, i.e., an IRA, individual retirement annuity or retirement plan, within 60 days from when the taxpayer receives the distribution. However, a provision embedded within the Internal Revenue Code limits these nontaxable IRA rollovers to one per year.


IRS Publication 590, Individual Retirement Arrangements (IRAs), provides this limitation is applied on an IRA-by-IRA basis. However, the Tax Court recently held in Bobrow v. Commissioner that the limitation applies on an aggregate basis to all of an individual’s IRAs, contradicting IRS Publication 590.


Announcement 2014-15 indicates the IRS will begin applying the Tax Court’s interpretation of the rule in Bobrow for distributions occurring after December 31, 2014. Until then, taxpayers have the option to apply the one-rollover-per-year limitation on an individual or aggregate account basis.


For more information, or for answers to any questions you may have, please contact a team member at R&F.