How do I change the taxable amount in box 2a on 1099-R to the fair market value from the gross distribution?

[n3stefaniak]

I have a situation where a client invested IRA funds into a partnership which went bankrupt.  The IRA custodian is now distributing the partnership interest to him in a distribution.  The gross distribution is the amount of his capial account ($60,571).  The taxable amount in box 2a is the same $60,571.  Box 2b shows the taxable amount is not determined & this is a total distribution.  Box 7 shows codes 7 (normal distribution) & K (distribution of an IRA no available FMV).  The fair market value of this is zero.  But I am unable to figure out how to code this in order to make $1 of taxable distribution work.  The software insists that the gross distribution is the $60,571.  How do I make this so that the taxable amount is $1 & flows properly through the return?

[qbteachmt]

How did the investment get made: a ROBS?

What makes only $1 taxable?

Where is the distribution going, physically?

[sjrcpa]

Good luck with this.

I would enter Taxable amount as -0- and attach an explanation.

Prepare for notices.

I had a situation just like this.

It took several years to resolve, during which IRS levied taxpayer's bank account. I had been working with IRS and then Taxpayer Advocate. Taxpayer eventually had to go to his Congressional Representative's office.

[sjrcpa]

@qbteachmt There is no distribution. The partnership interest is worth -0- now and in fact no longer exists. 

Taxpayer must have had a self-directed IRA that allowed for investment in a partnership.

When a nonpublicly traded IRA investment goes belly up, the IRA custodian reports it as a distribution at the last known amount - usually cost. I don't know why.

[qbteachmt]

"There is no distribution."

Exactly. I was trying to get clarity on how this was worded vs reality.

"The partnership interest is worth -0- now and in fact no longer exists."

Yes, that sometimes happens.

"Taxpayer must have had a self-directed IRA that allowed for investment in a partnership."

Or it was within the new company's plan. That's what I was trying to learn.

"When a nonpublicly traded IRA investment goes belly up, the IRA custodian reports it as a distribution at the last known amount - usually cost. I don't know why."

People don't realize you can't report losses from IRA accounts and there is no "gain/loss" process. It's income, or nothing. All of a sudden, people are investing in BitCoin and income-sheltered annuities inside of their IRA, and then they wonder why they can't afford to retire.

[n3stefaniak]

$1 seems reasonable & zero creates its own error messages that don't need to be incurred.

There is nothing to physically receive.  As was noted in another comment, this seems like it is the custodian's effort to clean up its own accounting.

[n3stefaniak]

Good luck is right!   Any number that I input is not taken into account in taxable income.  The tax return continues to use the $60,571 gross distribution as the taxable income.  I can't even use the software to file the "correct" return because the numbers don't flow correctly.  That is my problem.  I don't know if there is some other code that I need to input to get the numbers to work, but the software doesn't allow me to change the taxable income.

[n3stefaniak]

The $60,571 was the capital account at the time that the partnership went bust.  I get that that is how the custodian wants to wash its hands of the mess by using that number.  But it is not the FMV of distribution & I am unable to get the software to recognize that lesser number for tax calculations in the return.  Whatever I input into the taxable amount field is ignored - the gross distribution is treated as the taxable distribution.

[Terry53029]

On the 1099R worksheet zoom to enter TP basis, and if you enter the same amount as in box 1 the program will make it all not taxable

[PATAX]

@sjrcpa an old-timer public accountant told me years ago that he would tell client to contact the federal Representatives Office if there was an issue when it was clear that the taxpayer was correct,  and he said it would work.