RMD with Illiquid Assets
I have a client that has a limited partnership investment that was made from an IRA that is twenty years old and it is being listed at $48,000 by the investment provider even though our client feels that the value is closer to zero. If the value was correct he would be forced to take a $2,000 RMD from another account that is liquid.
How do you treat a situation where you know the limited partnership value is bascially zero but the general partner has not changed the value of the investment and is being held at a much higher value than what it is ultimately worth for required minimum distribution purposes.
Any help will be greatly appreciated.
Permalink Submitted by Alan Spross on Tue, 2012-04-10 22:50
The IRS will expect your RMD to be figured using the year end value reported on Form 5498. If you think that value is incorrect you will have to take it up with the IRA custodian and have the 5499 re issued with a lower value. The IRA custodian is responsible for securing an accurate valuation at the end of every year, even if it requires an appraisal. That’s part of the added cost of providing a market for alternate investments in the IRA.
As for the 2,000 additional RMD, if it is for 2012 there is time to get the 5498 reissued before year end. If he takes the RMD he cannot roll it back after 60 days if it was not necessary, so if he thinks the firm will cooperate he could NOT take the 2,000 until the issue is settled. If the year end passes and there is no relief he will have to take the RMD late and request the IRS waive the penalty on Form 5329. Usually the IRS will allow the waiver if the excuse is reasonable.
The following is copied from an article that addresses alternate asset valuation in an IRA:
>>>>>>>>>>>>>>>>>
When the IRS says “fair market value,”
what exactly does it mean? In a 1993 General
Information Letter,3 the IRS points to its definition
of market value for estates: “the price
at which the property would change hands
between a willing buyer and a willing seller,
neither under any compulsion to buy or sell
and both having a reasonable knowledge of
the relevant factors.”4 In other words, the IRS
wants trust departments to follow the same
procedures for year-end IRA asset valuations
as they do for estate valuations.
Many IRA trustees feel they are not responsible
for obtaining valuations on unique
assets. In the same IRS General Information
Letter referenced above, the IRS states that
IRA assets must be valued annually regardless
of how hard they are to value and “the
person responsible for insuring that an IRA’s
assets are properly valued is the IRA trustee
or issuer.”
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Permalink Submitted by mk foss on Wed, 2012-04-11 02:09
It’s also possible to take a “sliver” of the illiquid asset as a distribution. If 24k was a good number, he could request that 1/12 (2/24) be distributed to satisfy his RMD.