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Client received a 1099-R, code K7. IRA box checked, showing gross and taxable amount of 44,703. He never received any money as Global Capital LLC was determined worthless. Providence Trust Co was holding the worthless asset, decided to get it off their books and transferred to the client as a promissory note. On the 1099-R worksheet I do not see a way to record a worthless asset and get it removed from taxable income. Any suggestions would be greatly appreciated.
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I would be inclined to make the taxable portion equal to ZERO. K means we don't know what it's worth, so tell IRS it is worthless.
Answers are easy. Questions are hard!
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"transferred to the client as a promissory note" ??
Note from whom to whom?
Is the note worthless?
The more I know the more I don’t know.
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Global Capital was the investment held at Providence Trust, the custodian for client's IRA. Global Capital went worthless in 2022. The Global Capital general partners were convicted of fraud and other charges in a court decision in 2022. Providence was holding a promissory note in the clients IRA and issued the 1099-R as a normal distribution. I will take the previous reply and show taxable income as zero.
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Document the Global Capital situation in your file for when the IRS sends a notice saying the distribution is taxable.
I had a similar situation a few years ago. Took about 2 years to get it sorted.
The more I know the more I don’t know.
