Roth IRA Distribution and 1099R problem

My client received a distribution of stock from the former custodian of her Roth IRA when her account with that custodian was closed, and continues to hold the stock.

My client paid $2.50 for 10,000 shares of the stock. The shares were never publicly traded. At the time the former custodian distributed the shares, my client says they were worth $.23 to $.24 per share, and has an from a broker (not the custodian) that values them at that price.

The custodian issued a 1099R for $25,000 for the distribution. Her Roth IRA basis is about $12,000, so some of the distribution will be taxable if the $25,000 is reported on the 2007 1040. Is a corrected

1099R warranted? If so, what to do if the client can't get the amended 1099R by October 15?
Reply to
bm30003700
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If this is a ROTH IRA, why is any of it taxable? Was the account NOT open for 5+ years?

Reply to
D. Stussy

Assuming that the distribution is nonqualified, the issue is the amount of the distribution, not the amount on the 1099-R. You can put any amount you like in box 15a of the 1040 as long as you're prepared to prove it up to the IRS when questioned. There must be guidelines for establishing the value of untraded stock somewhere.

I wouldn't wast time pursuing an amended 1099-R. What foundation would the custodian have for issuing one? Which raises the question, what foundation did they have for the $25,000 number? It may or may not help, but I'm curious about missing pieces of the story. You say that she's contributed $12,000 to the Roth. So how did the Roth come up with $25,000 to buy the stock?

Reply to
Phil Marti

I agree. there's something BAD wrong with this scenario. "prohibited transactions" comes to mind

OP should consult a local tax pro in his area for help.

ChEAr$, Harlan Lunsford, EA n LA "Bud man, and Cub's fan!"

Reply to
Harlan Lunsford

Maybe she bought something with the $12,000 that increased in value, and she sold it for $25,000.

Seth

Reply to
Seth

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