IRA “Unique Asset” Appraisals – Who Pays?
Is there any concrete guidance (IRS, PLR, etc.) regarding the payment of the required annual appraisals for unique assets held in IRAs? Not certain if this fee would follow the existing guidance provided for trustee/custodian “administrative” fees OR broker/agent commissions and UBIT. My research has been inconclusive, with sources contradicting one another and no straight answer. Thoughts?
Permalink Submitted by Alan - IRA critic on Wed, 2016-08-17 17:55
I have not seen a clear answer either, although you would expect that self directed IRA custodians would include provisions in their IRA agreement. Reporting of the type of alternate investment on Form 5498 each year by the custodian makes it clear to the IRS what investments are being held in the IRA. My guess would be that if the custodian has a reasonable way of reporting valuation they will do so, if they need further assistance from the IRA owner they will ask for it, but that the IRA custodian is not going to pay for a professional appraisal if one is required. And if the IRA owner must pay for it, the payment must come from directly from the IRA account but would not be a reported distribution (similar to a maintenance fee). Self directed IRA custodians may differ in how they handle this. If a professional appraisal is required, that value could probably be updated for a few years before a new appraisal is required, especially for real estate
Permalink Submitted by Joe Luby on Sun, 2016-08-21 19:26
The annual appraisal to determine proper FMV for reporting purposes is an administrative-type expense. It is not directly related to the investment such as a commission or UBIT. For example, an IRA may contain multiple illiquid assets requiring an appraisal. One appraiser might be engaged to provide a FMV for the entire IRA based on valuing each of the individual assets at their respective FMVs. In that example, the appraisal expense is not tied to any one asset within the IRA as a commission or UBTI would be. Another example is to contrast a repair cost to maintain a rental property owned by the IRA, and the appraisal expense required to meet the federal reporting mandates. The former is related to the investment itself, while the latter is related to a required reporting function. Furthermore, the IRA trustee is the entity mandated and entrusted by Congress to provide the accurate FMV, not the IRA owner. Therefore, if an appraisal is required it is an expense of the trustee in order to meet the reporting requirements. There is no problem with them passing the cost of the appraisal on to the client as part of the trustee fees, but it only further highlights the fact that the appraisal cost is an administrative expense. And technically speaking, there is no provision allowing an IRA trustee the leeway to dispense with an accurate and updated FMV each year or to wait a few years between valuations. Real estate values fluctuate regularly just as do publicly-traded investment values. The rules do not allow a trustee to report the same value for a publicly-traded stock over several years before updating, nor do they allow a trustee to do that with real estate.