Tax Notification – Policy Change

By December 3, 2015 Blog, Taxes No Comments
Tax notification

The IRS has made adjustments to the tax codes and policies of Individual Retirement Arrangements (IRAs).

Starting for the 2015 tax year, the IRS requires a new form and instructions to be used to report the account value of all retirement accounts held. Additional fields were added that increase the level of details required to be reported on asset valuation(s). The changes made indicate significant adjustments to the way IRA investments will be reported to the IRS going forward. The forms will now includes designation of the fair market value of investments in the IRA and categorizations of the type of investments.

Currently, the Internal Revenue Code does not describe how a Self-Directed IRA can be invested, with the exception of no investment in life insurance contracts or collectibles. Due to this excessive capacity, the IRS has limited knowledge as to what types of investments are being held within self-directed IRAs. The new tax reporting change addresses this inability to classify the asset types. Additionally, once asset types are identified the value of such alternative investments may come into evaluation. This reporting change signals new efforts by the IRS to gather information on assets held by IRAs and possible bench marketing of associated value.

Preferred Trust is providing generally acceptable fair market valuation methodologies to determine and improve the accuracy of reporting the asset(s) held by your IRA to the IRS.

Preferred Trust Company currently reports the value of the asset(s) in your IRA using a historical cost. The historical cost is defined as the original price at which the asset was purchased. If Preferred Trust Company was provided an updated generally acceptable valuation (FMV) methodology after the original purchase price, a greater than or less than valuation is attained and attributed as the asset value.

Preferred Trust Company does not currently require IRA account owners to provide updated FMV of asset(s) held within an IRA. However it is estimated that the IRS will begin defining additional requirements for when and how a FMV be determined in the future. This may be required to accurately complete the annual tax.

If you elect to provide Preferred Trust Company with an updated FMV for assets held in an IRA, they are due by March 31, 2016. For more information about what documents are acceptable as FMV see the Tax Notification Policy Letter that was sent to all IRA account holders.

Preferred Trust Company will continue to provide IRA account owners with updates to the IRS modifications regarding the FMV of the asset(s) held by its IRA account owner as the information is released. In addition, Preferred Trust Company will provide annual reminders of the importance of accurately defining the FMV of IRA account assets and reported to the IRS in October. Click here to view the Fair Market Valuation Form.


Leave a Reply