Basis Unknown Successor Beneficiary
Alan thank you the previous situation is now clear. This is a slightly different situation.
Since no 8606 has to be filed if there’s no basis for a non-spouse traditional IRA RMD inherited by a successor beneficiary , where does the RMD received by the Successor Beneficiary get reported—is it only on line 15B of 1040?
My understanding is that filing 8606 is to your benefit if there’s a basis; in other words, by showing basis, less of the distribution is taxable, is that right?
If so and someone isn’t sure if a non-spouse inherited traditional IRA inherited by a successor beneficiary has a basis and estimates if it did, it would be very small, is there any problem in treating it as though it does not have basis and thus not filing an 8606 for that RMD, understanding they may pay slightly more tax by not filing that 8606? Thanks.
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-30 22:20
Yes, only on line 15a and 15b of Form 1040. Any basis included in an IRA distribution will reduce the taxable portion ratably as calculated on Form 8606. For any given IRA either owned or inherited it is more likely that no basis exists. There are certainly also some IRAs out there that have basis, but either the initial basis was never reported on Form 8606 going back as far as 1987, or the 8606 was filed and lost track of by the IRA owner who took distributions without claiming remaining basis. I would think that every time an IRA is inherited the chances of missed basis increase, especially if the recent tax returns of the decedent do not have an 8606 attached. With all these situations the IRS takes the position that any basis should be accurately documented and never just estimated. Finally, there are some taxpayers that consider a small basis % of 1 or 2% not worth the hassle and intentionally omit the 8606, electing to pay tax on the entire distribution. The IRS will not come back and ask for the 8606 and does not track what the basis should have been and send you a refund either. The tax bill would be a little higher but the filing would be simpler. In your prior situation, if you opted to ignore any basis in the IRA with the smallest non taxable distribution, it would eliminate one 8606 form and leave you with just one 8606 to file, but you would still need to identify on that 8606 which 1099R forms it applies to.
Permalink Submitted by Cheryl Van Beek on Sat, 2017-04-01 14:20
Alan-iracritic, thank you so very much for all your help!