IRS may allow rollovers of IRA distributions received from RTC even if previously rolled over within the past year.

• Author: Elinsky, Peter I.
• Position: Resolution Trust Corp. distributions from insolvent institutions

The IRS has unofficially indicated that individuals may be able to roll over individual retirement account (IRA) distributions received from the Resolution Trust Corporation (RTC) that were previously rolled over within the past year without violating Sec. 408(d)(3)(B). In a letter to the Federal Deposit Insurance Corporation (FDIC), the Service stated that individuals receiving involuntary IRA distributions made by the RTC as a result of the insolvency of a financial institution would not be prevented from rolling over the distributions to a new IRA, if all other applicable requirements - such the 60-day limit - were met.

The situation in question occurs when an individual receives a distribution from an IRA and rolls over the distribution into an IRA at a financial institution that is subsequently taken over by the RTC. If the RTC in its capacity as receiver for the institution is unable to find a purchaser for the IRA, it distributes the IRA assets. If this distribution takes place within one year of the individual's IRA rollover to the failed financial institution, the individual would not, absent an exception to Sec. 408(d)(3)(B), be able to roll over those assets into another IRA. However, the IRS's position seems to be that if the IRA distribution is from the RTC, the individuals receiving the distribution can roll over the assets without violating Sec. 408(d)(3)(B).

Example 1: Individual Z receives a distribution of $2,000 from IRA # 1 on Jan. 1, 1992. Z then rolls over the assets into IRA #2 at a local bank on Feb. 1, 1992. The bank is taken over by the RTC on Mar. 1, 1992. The RTC is unable to find a purchaser for Z's IRA; thus, it distributes all the assets in IRA #2 to Z before the end of 1992. If Z rolls over the assets received from IRA #2 within 60 days, he will technically violate Sec. 408(d)(3)(B) because the rollover will occur within the one-year period following the IRA #1 rollover (Feb. 1, 1992). However, the unofficial FDIC letter would allow Z to roll over the assets even though the one-year waiting period had not elapsed.

Taxation of

IRA distributions

Sec. 408(d) provides that the value of assets distributed from an IRA is included in the payee's gross income in the year received. An exception to this general rule allows a payee to defer including in gross income the value of distributed IRA assets by rolling over the assets into an IRA (Sec. 408(d)(3)(A)). To take advantage of this exception, generally two...