K1 partner and IRA account names do not match
Late in 2006, I did an IRA rollover into a self-directed IRA with a custodian specializing in real estate. The IRA was invested in a real estate development partnership. The custodian received investment income during 2007 and 2008. Small losses occurred in 2009 and 2010. In 2011 the partnership declared bankruptcy and the K1 for that year showed a complete loss. I just recently realized the IRA balance never changed.
The problem: In 2007-2011 all K1 forms filed were in my name, not the IRA account’s name. As a result, my accountant treated all gains and losses during those years as personal income/losses. What must I do to correct the K1 paper-trail connection to the IRA? And I assume amended personal returns for that period must be filed to correct the gains and losses mistakenly claimed.
The custodian was notified of the loss and the IRA account balance has been adjusted per the last K1 issued in 2011.
Mike Petersen
Permalink Submitted by Bruce Steiner on Sun, 2013-03-10 00:49
If the investment was in fact made in the name of your IRA, with the financial institution as custodian, then there’s no problem other than the Schedules K-1 being incorrect.If the investment was inadvertently made in your name instead of in the name of your IRA, the amount of the distribution was taxable in 2006. If that’s a concern, you could apply for a ruling waiving the 60-day deadline for a rollover. We’ve obtained about a half dozen such rulings. As a practical matter, you’d have to show that the error was caused by someone else. It would be helpful if that person would admit that it was his/her error.
Permalink Submitted by Martin Helmer on Wed, 2013-03-13 01:46
I think the description might be saying the K-1’s were correctly showing the IRA as the owner but they were filed as part of the 1040. Either way, the K-1’s should not have been part of the 1040 filing. Unfortunately, 2007 and 2008 can’t be amended, assuming they were timely filed. The 2011 total loss could be shown on Schedule A of the 1040 only if it was the only IRA owned and there was after tax basis. Did the K-1 for 2007 and/or 2008 show unrelated business income of more than $1,000? If so, a 990-T should have been filed, and I would think some kind of credit would be given because the income was already shown on the 1040.