New Reporting Requirements for IRAs

Any IRA account owner, but especially a self-directed IRA account owner, should take particular notice of a new IRS reporting requirement that will affect IRAs in 2015.  This new reporting requirement was originally to be effective in 2014; however, the IRS delayed the implementation of this requirement until 2015 to adequately provide time to IRA custodians to prepare for the new ruling.  These new reporting requirements for IRAs are very important for you to understand and be prepared for.

In some respects, this ruling should have been implemented many years ago…it is, when you think about it, a common sense application to rules that affect the valuations of IRAs, especially self-directed IRAs.  Historically, there is little monitoring of Forms 1099-R and 5498 in the assignment of a value of IRA assets.  Let’s face it, in a “normal” IRA where the IRA only holds stocks, bonds and mutual funds, this is not a difficult valuation as there is a “snapshot” of the value.  However, with IRA assets and, especially self-directed IRA or IRA LLC assets, this value is determined by you, the IRA LLC account manager.  Are you prepared to provide an adequate valuation of the assets of your IRA LLC?!

But, there may be a bigger issue facing you with your self-directed IRA than these new reporting and valuation requirements.

Mistakes Within Your IRA or IRA LLC

With the old reporting requirements, there was nothing on either of these forms that broke out the valuation of traditional, non-traditional and hard to value assets within the plan.  Nor did these forms indicate what types of assets is the IRA investing into.  This will change with the new forms and reporting requirements.  And, if you have made any mistakes (e.g., IRS Prohibited Transactions) managing your IRA or IRA LLC, this could be troublesome to you.  In fact, now that the IRS will know that your IRA is self-directed with non-traditional assets, logic would indicate that your IRA is “low hanging fruit”…ripe for an IRS audit.

Remember as the account owner of your IRA or manager of your IRA LLC, you are responsible for the proper management of your account.  This is true even if you had all of your IRA transactions processed through an IRS-approved IRA custodian, and especially true if you managed your IRA LLC.  Not only will the likelihood of an audit be more likely, you will need to ensure you operated your plan correctly and valued the assets of the plan correctly.  This affects any hard to value asset such as real estate.

Get prepared for this upcoming requirement and take the appropriate steps for your plan.  For those who have engaged in Prohibited Transactions (intentionally or not), they should be concerned that this new reporting requirement in affect advises the IRS that you have this type of plan.  No one is “crying wolf”…but it is only logical that the IRS may just choose to ramp up audits with these plans since they will now be directly informed that it is a plan that holds alternative and hard to value assets.

As always, the information provided is intended to be educational in nature.  It is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice.  You must always consult with your respective professional in all such matters.