Is there any statutory basis for IRA to IRA trustee-to-trustee transfers not counting as rollovers?

Submitted by Jonathan Williamson on Mon, 2023-01-02 16:52

Is there any statutory basis for IRA to IRA trustee-to-trustee transfers not counting as rollovers?

The Tax Court said not long ago that our understanding of how the one-rollover-a-year rule works was totally wrong.

I wonder if a similar thing could happen where the Tax Court rules that trustee-to-trustee transfers between two like IRAs is actually subject to the once-in-a-year rule? Is there any basis in the statutory text for this differentiation?



Submitted by Alan - IRA critic on Mon, 2023-01-02 17:41

RR 78-406 has been the unchallenged authority for decades that such transfers are not distributions and are not reportable on Form 1099R for transfers between like kind IRAs. Following the Bobrow v. Commissioner tax court ruling you referred to, portability of IRA funds is primarily dependent on the use of direct transfers. There is no threat that this would change. Note that transfers also eliminate the abuse of temporary loans from IRA money, which some were abusing up to the Bobrow decision. 

Submitted by David Mertz on Mon, 2023-01-02 18:21

A large factor in the IRS ruling in RR 78-406 is probably section 408(d)(2)(A) which states that all of the individual’s individual retirement plans are treated as a single contract for the purpose of section 72 (which relates to amounts *received* from the IRA).  Treated as a single contract, a trustee-to-trustee transfer would just be an investment change within that contract and not an amount received by the individual.  I can’t see the Tax Court ever coming to a different conclusion.

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