Distribution of direct participation program
IRA custodian is resigning. Says this is a distribution of the DPP to the owner. Owner is over 59-1/2 and has no nondeductible IRA contributions. I assume the tax consequences are: (1) the owner realizes income equal to value of partnership units on date of distribution. (2) Further I assume the resigning custodian will report the value of the units to the owner on a 1099-R after the end of the year. (3) Owner gets a basis in the partnership units equal to reported distribution value. Am I missing anything? For example are there any weird UBIT consequences? thank you,
Permalink Submitted by Alan Spross on Thu, 2011-12-22 00:56
Custodian is resigning? Why couldn’t the units be transferred to another self directed IRA custodian, avoiding a taxable distribution?
You are right, if the units are distributed there will be a 1099R showing the value on the date distributed. If there has been UBIT in the past, there will probably also be for the current year, and that would be a problem if there are no liquid assets in the IRA to pay the UBIT tax. That is a potential mess all right. I suppose the owner could arrange to pay it from another IRA he owns but would need to find someone to file the 990.