My client has a loss on an IRA due to total distribution of less than the IRA's basis. Is there no 10% penalty in this situation (my client is under 59 1/2, and doesn't otherwise meet any exceptions to the penalty)?
Also, 2007 Form 8606, has a note below line 15 referring to potential pental on amount on "line 15c" Where is line 15c? I see it on Form 8606 for 2008, but not the 2007 Form.
Thanks
No exception. The penalty applies to the taxable portion of the distribution.
15b is different for 2008. The 2007 15b is the 2008 15c. There is no reference on the 2007 form to line 15c.
Phil is correct. Just to explain it to you: Every distribution from an IRA with a cost basis requires you to use Form 8606 to compute how much of the distribution is a return of your cost basis and how much is taxable. Therefore, the total distribution must have a component that is taxable. After the taxpayer closes all IRA accounts and discovers that there was some basis that was never returned... that amount is a loss that can be deducted on Schedule A as a misc. itemized deduction.
The person who posted this originally, used poor etiquette and sent me the following email:
Question: Thanks very much for your response concerning IRA distribution. What prompted my question was a situation where there is no taxable portion to the IRA distribution (basis in IRA exceeded total distribution). It seems that, in that situation, there is no taxable portion, and, by extension, no penalty. But maybe I am missing something here?
Answer: If you complete Part I of Form 8606, you will see that no part of the distribution is taxable. 10% times zero equals zero.
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