Employee Benefits-Eighth Circuit Rules That The Taxpayer Made A Rollover Contribution To An IRA, Thereby Offsetting Income From An Earlier IRA Withdrawal

In Haury v. Commissioner of Internal Revenue, No. 13-1780 (8th Cir. 2014), the issue arose as to whether the taxpayer (“Haury”) had made a $120,000 rollover contribution an IRA, which would offset the income attributable to earlier IRA withdrawals.

In this case, Haury had made certain loans to two companies, which he funded with withdrawals from his IRA account, taken from February 15, 2007 through October 25, 2007 totalling about $425,000, including a withdrawal of $168,000 on April 9, 2007. Haury was less than 59 ½ years old, so his IRA withdrawals were taxable as ordinary income subject to a 10% additional tax. Haury also made a $120,000 contribution to his IRA account on April 30, 2007. The issue is whether that contribution was a qualifying “rollover” that reduced Haury’s 2007 taxable IRA-distribution income by $120,000.

The Eighth Circuit Court of Appeals (the “Court”) noted that, under Code section 408(d)(3)(A)(i), an individual may exclude an IRA withdrawal from taxable income if it is “rolled over” into an IRA account, by not later than the 60th day after the day on which he receives the withdrawal. An amount less than the entire withdrawal is likewise excluded if it is paid into an IRA, under Code section 408(d)(3)(D). The rollover contribution exclusion does not apply if the distributee used it to exclude another withdrawal from tax in the year prior to the date of the withdrawal in question, under Code section 408(d)(3)(B).

The Court concluded that Haury’s April 30, 2007 IRA contribution of $120,000 was made well within 60 days of the April 9 withdrawal of $168,000. There was no previous rollover contribution during the year preceding April 30, 2007. Therefore, the April 30 contribution was a qualifying partial rollover contribution under § 408(d)(3)(D), and Haury is entitled to reduce his taxable 2007 IRA withdrawals by $120,000.