Inherited IRA- Client Insists its not Taxable

[zeros]

Have client who received a 1099R with distribution code 4. His father had passed away and he received the bulk of the assets including this IRA. He claims his lawyer said this would not be taxable but the 1099R ($91K) say it is taxable. I'm thinking that IRA's would always be taxable. Any exception to this rule?

[ChEAr$]

Have client who received a 1099R with distribution code 4. His father had passed away and he received the bulk of the assets including this IRA. He claims his lawyer said this would not be taxable but the 1099R ($91K) say it is taxable. I'm thinking that IRA's would always be taxable. Any exception to this rule?

First take a look at box.... 3 I think it is, Taxable amount. Also look to see if the box called "Taxable amount not determined is checked."

Most often "they" check that box regardless of whether or not the owner had a basis in it or not.

Certainly do NOT go by what the lawyer said, but you already knew that.

The only way some of it would not be taxable is IF the decedent had any basis
in it atall. For that one must have access to past tax returns with reference to forms 8606's.

Absent any information to affirm non taxability, one must go with calling it all taxable.

[David1980]

My experience has been if 2a is blank 2b is checked they just decide to go do taxes with someone else who shows it as non-taxable. I may get them back when they get an IRS letter though.

[JoshinNC]

Is it a ROTH?

I would sit the client down in my office, put the lawyer on speaker phone and get the lawyer to tell me and the client that it's not taxable. If it gets that far before the client tells you to hang up and the lawyer says it's not taxable and you believe it is then I would tell the client to go let the lawyer do his/her taxes.

There may be basis, it may be a ROTH, the lawyer may be dumb/ignorant/both, the client may be lying/confused/both.

Investigate and charge for your time.

[zeros]

Its a Traditional IRA

This is a traditional IRA. He inherited the IRA from his father. I have done the taxes for the father for a number of years and he has no basis in the IRA. Maybe the client misunderstood what the attorney said. Huh?

[taxmom34]

seems to me the only way a traditional IRA would be nontaxable is if he rolled it over into his own IRA

[joanmcq]

The 'taxable amount not determined' box is ALWAYS checked on an IRA 1099-R. Why? Because the company holding the IRA has no idea if there is any basis in the IRA, and if so, what it is.

Its taxable. He could have rolled it into a beneficiary IRA and taken out RMDs over his lifetime, but they are still taxable.

[taxea]

I would tell the client that I have researched this issue on his behalf to see whether there was anything new on the books that would allow this as non taxable income but did not find anything. Then I would politely ask him to please contact the attorney and ask him to provide his resource for this information so you could read it yourself to insure that it does apply to this issue.

[taxxcpa]

Nontaxable

If it had been a Roth IRA, the tax has already been paid. Or if it had been a non-deductible IRA, but if it was anything else, it had probably gone in as a tax-deferred contribution and is taxable when withdrawn. In that case, to avoid immediate tax, it could have been rolled over into the heir's IRA. If he took all the money and did not put it in his own IRA, then it is taxable.

The lawyer may have confused it with inherited property from other sources.

[ChEAr$]

This is a traditional IRA. He inherited the IRA from his father. I have done the taxes for the father for a number of years and he has no basis in the IRA. Maybe the client misunderstood what the attorney said. Huh?

bingo! You already have the right answer since you have personal knowledge about lack of deceased father's basis.