Loss on IRA

To claim a loss on your Roth IRA, the total distributions must be less than the tax basis for all Roth accounts together. All Roth accounts must be drained down to zero. $1 is more than zero. Direct your IRA custodian to dispose of the remaining stock, either by selling it for you, having the cusotidan buy it from you for $1, or sending you an in-kind distribution of the remaining stock -- a bad choice since there might no longer be any agent to habdle converting to a certificate or direct account.

If you can get the custodian to say the accounts had zero value, and I am not sure you can since there was $1 showing, I would go with that statement. Otherwise you will have difficulty making the claim of zero value.

Thanks very much for your answer. The IRA basis resulted from non deductible contribution to regular IRA, rather than Roth IRA. Sorry I forgot to mention this in my first post, though I suspect it doesn't change your answer?

========================================= MODERATOR'S COMMENT: If you substitute "Traditional IRA" for "Roth IRA" everywhere in that message, that answer should still apply.

Also, just noticed custodian, in addition to issuing form 5498 showing $1 value at 12/31/07 also issued a letter to my client during 2007 describing the only security in the IRA as "worthless", would this be the sort of statement you mean that I could rely on to show zero value for 8606 purposes? I wondered whether the IRS just goes by the amount on 5498, and dissalows loss shown on form 8606 if value shows on form 5498, or whether an explanation with the return would be appropriate.

If I were preparing the return, I would "correct" the $1 shown on the 5498 to zero, wherever your software asks for this.

But it is not unreasonable to think you will get an IRS nastygram and you will then have to once again explain how the stock was worthless.

You could also include a form 8275 to explain the $1 difference between the 5498 and the actual worthless value as stated in the custodian's letter. The 8275 will probably be ignored first time around, but if you have later dealings with theirs you will pull it out and prove it was not some late arriving theory.

"Worthless" might only be the custodian's opinion. To be sure, you have to research the security itself. Maybe it's General Motors with market value of zero, but.. not yet in chapter 11 or 7.

ChEAr$, Harlan Lunsford, EA n LA