Distributing Shares From IRA
I have an unusual situation. I have a client who has a stock position that is a ‘Privately Owned’ company. The shares have been in the IRA (physical certificate registered in the name of the custodian FBO the client) … Being that it is a privately owned company, the shares have never reflected any value whatsoever on any monthly statements over the years. I have had the account for appx 10 plus years.
The client now wishes to have the shares from the IRA sent to him. The client made special arrangements with the company CFO to have a new certificate drawn in his name only, once he receives the certificate that exists now.
The issue is, the custodian (who holds the physical certificate in their vault) cannot determine a value for the distribution. They have contacted to companies CFO and the response they received was “the shares do have value, however a value cannot be given as it is privately owned and no transactions have occurred in more than 15 years”
The question is, how may I assist the client in being able to obtain this certificate ? The custodian response is “They cannot distribute the position with a $0.00 value”
Does the client need to contact the IRS and obtain a ‘Private Ruling Letter’ and then provide that to the custodian ? (Just a thought on my part)
Any insight with this would be greatly appreciated …
Many thanks –
Gregg
Permalink Submitted by Alan - IRA critic on Thu, 2017-06-29 01:19
Gregg, this is unusual all right and will take some cooperation from all parties to resolve. A PLR would not determine the value and will cost around 15k so would not go that route. An accountant would probably have to go through the company’s books to come up with a value that the IRA custodian would accept, but client would probably have to pay that bill as well. I think I would just leave the shares where they are unless RMDs will start soon and hope that a need to determine the value pops up where others will have to pay the associated costs. Could be that not being able to issue a 1099R is why the IRA custodian will not distribute the shares, and the 1099R (If the shares are the only distribution) will usually serve to determine the cost basis of the shares in client’s taxable brokerage account. Further, this problem should have surfaced earlier because the IRA custodian must report the total IRA year end value on Form 5498 to the IRS and client annually, and now must break out the value of this type of asset (Code A) in box 15b according to IRS instructions stated here: https://www.irs.gov/pub/irs-pdf/f5498.pdf. The custodian should have taken some action on this by now to determine the FMV and perhaps should have referred client to a self directed IRA custodian to hold these shares in the first place. The custodian therefore appears to be falling short of IRS requirements with respect to this issue, so they have a problem as well as the client.
Permalink Submitted by William Tuttle on Thu, 2017-06-29 06:59
I have worked for three private companies over a total of more than twenty years. I held/hold founders shares, common shares, preferred shares and options. In all of those cases there were frequent valuations done by the company. There are standard methods of determining valuation by the companies metrics (assets, liabilities, revenue, profit, etc…). From the companies valuation, it is relatively easy to determine share price by the number and type of shares.