IRA question...

[BOB W]

I have a situation where my client rec'd a 1099R Code 4, due to the death of his mother. My client has a $3,000 basis in his own IRAs. My tax program wants to reduce this code 4 IRA death distribution by my client' s IRA basis of $3,000.

Should I let it or not?

[Matt Sova]

value

You have to put in the value of the IRA as of 12/31/05 and it will calculate the nontaxable portion for you.

[BOB W]

Matt.........

..... please re read the question...........

[Koss]

Doesn't sound right

I have a situation where my client rec'd a 1099R Code 4, due to the death of his mother. My client has a $3,000 basis in his own IRAs. My tax program wants to reduce this code 4 IRA death distribution by my client' s IRA basis of $3,000.

Should I let it or not?

The following text is a citation from IRS Publication 590, Individual Retirement Arrangements. This particular citation does not address the exact situation you are describing, but it strongly implies that the basis in your client's personal IRA cannot be "transferred" to the inherited IRA.

* * * * *
If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you cannot combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions. (Emphasis supplied)
* * * * *

I say that this paragraph does not directly address your client's situation because your client did not "inherit a traditional IRA from a person who had a basis in the IRA." But mathematically, every traditional IRA has a basis. The basis in the IRA that your client inherited is zero. It appears that your client cannot combine the basis in his personal IRA with the basis in the inherited IRA.

There is probably a field somewhere in your program that you are not filling in. Perhaps the program defaults to an assumption that the IRA was inherited from the spouse unless you inform the program otherwise. Or maybe the answer lies somewhere in Form 8606.

Burton

[BOB W]

Burton.............

............... thanks for that useful info. I believe it makes sense that IRA basis must remain with the owner of the IRA. I will follow your directions and check for any "checkoffs" within the program ( CS) for better control of this t/per's IRA basis.

It is a shame that it can't be used. Because of the $3,000 t/p basis this client will owe and additional $3,450 in combined Fed & State taxes.T/P AGI is just over $500,000 and NYS uses a separate state computation when NYS AGI is above that level. Without the $3,000 included he is under $500,000.

What a shame.....................Oh well !!!!!!!!!