1099-R taxable portion

In my opinion, every IRA custodian should check the cannot be determined box. This is because the IRA custodian has absolutely no idea if the taxpayer ever filed a form 8606 for nondeductible contributions.

The taxpayer, therefore, is always reponsible for proving the taxable amount.

Here I am suspicious how the custodian got one amount and the taxpayer is claiming a very different valuation. But burden of proof is on the taxpayer, and with a number much different from the

This in itself is very common. The custodian in general has no knowledge as to how much of the distribution is taxable -- it depends on the amount of non-deductible contributions that were made and/or distributed from all the conventional IRA accounts you ever had, and on the value of those accounts at the end of the previous year. See Form 8606.

In the case of an investment for which market data is not available, valuation at cost is not unreasonible.

If you use a number other than that shown in the taxable box of the 1099-R (like zero if the client has evidence that it really has no value), I'd attach a Form 8275 to disclose the position and rationale you are taking.

I'm shocked!

If I understand this correctly... your client's IRA purchased stock in a private company. The company has fallen on hard times and your client has taken a distribution of the stock from the IRA.

The issue here is no different then valuing private stock in an estate. All of the following affect the price: No ready market for the shares; very few buyers competing for the shares; and a less than majority ownership. All of this requires an appraisal from a business evaluation expert using industry acceptable standards and who is familiar and has experience with discount attributable to loss of marketability.

It is possible that in this case, discount is not an issue as the company has no or very little value. If one can obtain the company's financial statements so that one could at least value the company, one could come up with the book value of the stock before any discount. If that is close to zero, discount may not be an issue.

The isn't so much about box 2a, as it is about box 1.

Does this involve a (former) employer? If so, it sounds like the issuer may not have precisely followed the instructions.

The IRS instructions for 2007 Form 1099-R have several lengthy paragraphs relating to distributions of "Employer securities and other property", see also the note under "Losses" on page R-8.

I'm curious as to the preferred use of Form 8275 vs. a simple statement attached to the return. What about a substitute Form 1099-R as a way of showing and explaining "your version" of the situation?

-Mark Bole