How to account for basis of 1099R income

[JML222]

A client presented a 1099R with the following info:

1-Gross dist: $85,200

2a Taxable Amount $85,200

2b Taxable Amt Not Determined - checked, Total Dist checked

7 Dist Code - K7

IRA/SEP/SIMPLE checked

He has receipts showing his basis in this investment is $65,000

How can I account for the basis so he isn't taxed on the full $85200.

Thanks!

[sjrcpa]

What does Distribution Code K mean?

[JML222]

The comment from Intuit says "Distribution from IRA - No available FMV"

[TaxGuyBill]

You can scroll down on the 1099-R worksheet to enter his Basis in the IRA.

My concern is you said receipts for Basis in the investment.  That is different than Basis in the IRA.

I looked up code K and it almost seems to be an audit-me code.  🤣   My impression of code "K" means it is probably a self-directed IRA and they don't really know what should be in Box 1 or 2 so they just guessed.  😂

[JML222]

Entering basis info in the worksheet doesn't change the amounts. however I did find a link to form 4852 that enables changing the 1099R and adding an explanation. Seems like opening a can of worms.

[TaxGuyBill · Accepted solution]

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@JML222 wrote:

Entering basis info in the worksheet doesn't change the amounts.

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I  just tested it and it works for me.

Are you sure you checked the IRA box on the 1099-R worksheet?

Do you have the 1099-R marked for the correct taxpayer/spouse and did you enter the Basis in the correct taxpayer/spouse sheet.

But as I said before, are you sure the IRA has Basis?

[BobKamman]

What @TaxGuyBill said, " My concern is you said receipts for Basis in the investment.  That is different than Basis in the IRA.  My impression of code "K" means it is probably a self-directed IRA and they don't really know what should be in Box 1 or 2 so they just guessed."

I just finished a return for a deceased client, so I can't call him up and ask what happened.  But we seem to be getting a lot of questions that could be answered with some more information a client can provide by phone or email.  

[JML222]

Thank you for the input!

[qbteachmt]

"How can I account for the basis so he isn't taxed on the full $85200"

His basis likely is from Pre-tax funds. That means everything out is taxable as ordinary income. That's what happens inside of a Traditional IRA, SEP IRA or SIMPLE IRA.

Are you trying to report gain? That's not how an IRA works.

[Accountant-Man]

This was my question. Unless it was a roll-over IRA from another retirement plan that has basis, most regular IRAs had deductible contributions so zero basis.

If the client says there were no deductible contributions, then yes, you have to get the basis onto the 8606.

[qbteachmt]

The K7s I've seen is for ROBS or similar, where it was a distribution or rollover for some self-directed self-investment, and the basis or FMV is marked as can't be determined, because the asset isn't funds. For example, forming an LLC and forming a retirement plan, then rolling your other account holdings here, then using the funds to hold property and investing your retirement account in the property, and operating the rental, then deciding to move into your property and think you are contributing to your own retirement account tax free or tax sheltered. Some weird thing like this that is sold as a great idea.