New developments: FICA Wages, IRA Rollovers and More.

• Author: Josephs, Stuart R.
• Position: Fed Tax

In U.S. v. Quality Stores, Inc. No. 12-1408, 2014 BL 80719, 3/25/14), the Supreme Court, in an 8-0 opinion, reversed a decision by the Sixth Circuit Court of Appeals. The high court held that supplemental unemployment benefits paid to terminated employees were wages subject to Federal Insurance Contributions Act taxes because these payments were remuneration for services and were not linked to the receipt of state unemployment benefits.

IRA Rollovers

IRC Sec. 408(d)(3)(A)(i) generally provides that any amount distributed from an IRA will not be included in the distributee's gross income to the extent the amount is paid into another IRA for the distributee's benefit no later than 60 days after the distributee receives the distribution. But, under Sec. 408(d)(3)(B), an individual is permitted to make only one rollover described in the preceding sentence in any one-year period. Both Proposed Regs. Sec. 1.408-4(b)(4) (ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), provide that this limitation is applied on an IRA-by-IRA basis.

However, a recent Tax Court opinion, Bobrow v. Commissioner (TC. Memo 201421), held that the limitation applies on an aggregate basis. Therefore, an individual could not make an IRA-to-IRA rollover if the individual had made such a rollover involving any of the individual's IRAs in the preceding one-year period.

IRS Announcement 2014-15 (I.R.B. 2014-16, 3/20/14) states the IRS anticipates that it will follow Sec. 408(d)(3)(B)'s interpretation in Bobrow and, accordingly, intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation. These IRS actions will not affect an IRA owner's ability to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year limitation of Sec. 408(d)(3)(B). See Rev. Rul. 78-406 (1978-2 C.B. 157).

The IRS understands that adoption of the Tax Court's interpretation of the statute will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents, which will take time to implement.

Accordingly, the IRS will not apply Bobrozv's interpretation of Sec. 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before Jan. 1, 2015. Regardless of the ultimate resolution of Bobrow, the Treasury Department and the IRS expect to issue a proposed regulation under Sec. 408...