IRA Basis
I have a client who has a basis of about $95,000 in his IRA. This was not taken into account on his 2018-2020 tax returns and presumably has never been taken into account. Are there any rules regarding the timing of when the IRA basis can be applied to distributions? Basically, I’m wondering they expire. The client was 68 years old at the end of 2020 so me may have close to 10 years taking IRA distributions. I will have to ask him.
According to the instructions to Form 8606 you must report the IRA basis if you take an IRA distribution and have a basis in it. The portion of the distribution that is non-taxable must be prorated with amounts that are taxable. If there are years where the basis was not reported and the taxable and non-taxable amounts were not prorated, is the basis that should have been recovered in those years lost?
Permalink Submitted by Alan - IRA critic on Thu, 2021-06-10 04:26
Probably. I have heard that the IRS could apply RR 82-49 which concludes that basis not applied in the year that it should have been is forfeited, but the IRS seems to accept retroactively filed 8606 forms and then allows the taxpayer to apply the full basis for distributions in open tax years. It would also be a hassle to calculate the forfeited basis over many years to determine how much basis was left 3 years ago to be applied to amended returns and the current return. This approach by the IRS allows a taxpayer to actually save the basis for later, although it is unlikely that any taxpayers actually plan on doing that.