Patricia McCrystal
August 25 2015
IRA
holders are facing a new change in asset reporting for the 2015 tax year. IRS
form 5498, which IRA providers use to report the value of your account, includes
new Boxes 15a and 15b, which require IRA administrators to categorize the
values of the assets within their clients’ IRA accounts. This includes a
category that delineates the value of private loans extended with IRA account
funds (15b).
Prior
to the 2014 tax year, Box 15 didn’t exist, and IRA account holders only had to
report the overall value of their IRA or qualified retirement plan. Box 15
appeared on IRS form 5498 in 2014, but reporting within the box was optional.
For the 2015 tax year, the IRS is actively taking steps to enforce requirements
for hard-to-value IRA assets. This means the IRS will have a more
differentiated system for identifying which IRA accounts possess hard-to-value
assets; not to mention a heightened ability to target certain investment
structures in which prohibited transactions can often occur, such as Checkbook Control IRAs/ Individual LLCs.
Code B
of Box 15b. requires the reporting of “Short or long-term debt obligation that
is not traded on an established securities market”. This is essentially asking
for a valuation of all notes and private loans within your IRA. Every asset in
your IRA has a generally accepted process for valuation; original, purchased,
and secondary market notes included.. The value of a private loan is determined
by more than just the amount of money lent – there are three factors which
contribute to the valuing a private loan in an IRA: 1. Original loan amount, 2.
Interest rate, and 3. Length of term.
Theoretically, the value of a note fluctuates
everyday due to inflation and the risk associated with the loan’s repayment. A
private loan’s value is also dependent on the lender’s risk tolerance, as
defined within the loan’s agreed-upon interest rate and maturity date.
The creation of Box 15 may mean the
chances of your IRA getting audited by the IRS could increase. IRA account
holders will have to be more meticulous than ever in their IRA transaction
proceedings. So what can you do to make sure you and your IRA account are ready
for IRS scrutiny should they choose to audit your account?
It requires a joint effort between
the IRA account holder and the IRA administrator to keep account proceedings
within the bounds of IRS rules and regulations. IRA administrators that provide
educational services to their clients make it easier for account holders to
exercise due diligence when making investment decisions. Choose a credible IRA
administrator with a reliable track record and an educational business model to
confidently make knowledgeable decisions about your IRA account proceedings. To
learn more about self-directed IRAs, feel free to visit New Direction IRA’s
website at www.ndira.com for educational
videos, webinars, and more.
