For Tax Year 2015 and beyond on IRS Form 5498, the IRS now requires IRA custodians to separately specify transactions which involve certain Self-Directed IRA investments
The information on Form 5498 is submitted to the Internal Revenue Service by the trustee (IRA custodian) of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account.
The IRS Form 5498 gives the market value of all assets and cash held within the client account for the previous year and is used for tax reporting. The IRA custodian will forward IRS Form 5498 to the IRS electronically by May 31 of the current year for the previous year.
For Tax Year 2015 and beyond, the IRS now requires IRA custodians to separately specify transactions which involve certain types of investments with no readily available fair market value that are held inside a tax deferred retirement account. These investments have no readily available fair market value and include, but are not limited to, non-publicly traded stock, private partnerships or LLC interests, real estate, options, and other hard-to-value investments. The IRS updated the IRS Form 5498 to include new Boxes 15a and 15b. The fair market value of investments in the IRA will be reported in Box 15a. Box 15b will be used to categorize the types of investments listed in Box 15a through the use of the following category code(s):
A - Stock or other ownership interest in a corporation that is not readily tradable on an established US or foreign securities market.
B - Short- or long-term debt obligation that is not traded on an established securities market.
C - Ownership interest in a limited liability company or similar entity (unless the entity is traded on an established securities market).
D - Real estate.
E - Ownership interest in a partnership, trust, or similar entity (unless the entity is traded on an established securities market).
F - Option contract or similar product that is not offered for trade on an established US or foreign option exchange.
G - Other asset that does not have a readily available fair market value.
H - More than two types of assets (listed in A through G) that are held in the IRA.
The IRS has indicated that these reporting change are a result of the IRS trying to get a better handle on the type of IRA assets that are being purchased with IRA funds and get a better handle on what percentage of IRA assets should be considered ‘hard-to-value’ assets. The IRS has some concern that certain IRA assets’ fair market values are not being reported accurately. The fair market value of an IRA asset is very important to the IRS because that is what a tax would be imposed on when distributions are taken by the IRA holder. With the total IRA assets valued at close to $8 trillion dollars as of 2016, making sure IRA holders are paying their fair share of taxes on their IRA distributions are vital.
For more information on the IRS Form 5498 changes and its impact on your Self-Directed IRA, please contact a self-directed IRA specialist at 800-472-0646.