Worthless investment in IRA – New rules?
I have a security (True North Finance Corp. Pfd) in one of my Rollover IRA accounts that appears to be worthless. My basis in the security is about $42,000. This is the only item remaining in this IRA account; all other positions were transferred to another Rollover IRA account. The custodian of this account says they will distribute the questionable security to me as they are no longer willing to be the custodian, due to lack of required information from the issuer. There appears to be no market for the stock.
I understand that new rules may have been established recently by the IRS related to this situation. (Under previous rules, I believe distribution of this security would result in taxable income in the amount of my basis in the security, which would not be pleasant.)
Are new rules in effect? If so, how do they affect me? What do I need to do to demonstrate that the security is worthless? I have been unable to contact the issuer; I have not received quarterly statements or any other communication from them for five years. They (a Delaware Corporation) are three years delinquent in filings with the Delaware Corporation Commissioner.
Permalink Submitted by Alan - IRA critic on Tue, 2015-09-15 16:46
Your IRA custodian must determine the current fair market value of the security on the date of distribution because they must issue a 1099R next January showing that value as a taxable distribution. There has been no change in this procedure and your original cost was never a factor in determining the taxable amount of IRA distributions. You should contact the custodian and ask them what value they intend to report on the 1099R. It should be 0 or perhaps slightly more than 0. If you have tried to sell this security recently the custodian should know that there is no market for it. Finally, there is no write off for your loss since capital losses do not apply to IRA assets.