Market to market asset valuations

[Guest death and taxes]

It has been several years since I have had to complete a 5500 form but it looks like this is my lucky year. I think I remember a lot of work going into obtaining market to market information for completing the 5500 report since many trust statements track gain/loss information only on historical cost to market. Is the market to market method still being used? I think I also remember talk of this going away so perhaps I am stressing for nothing.

[RCK]

Congratulations on this opportunity.

The 5500 is supposed to be completed on the basis of Current Value, where current vlaue is fair market value. You do have an option of using a cash or accrual basis (or modified accrual basis, whatever that is), as long as you apply it on a consistent basis. But it still has to be fair market value.

My experience is that the trustees who are reporting on a cost basis are also reporting on a market basis. I would hope that you are not going to have a problem.

[Guest death and taxes]

Yes, I am thrilled at my stroke of good luck.

I have finally taken the plunge and began reading the instructions. My question involves Schedule H line 2b(5)--Unrealized gains/losses. The trust statements I have received calculate unrealized gain from cost to current market value whereas the instructions call for a calculation from beginning of year market. I can deal with this but was thinking I heard something indicating this calculation could be either market to market or cost to market. Am I hallucinating--again?

[RCK]

Section 2 of the Schedule H is an income statement, so that would be looking for a change in unrealized gains from the beginning of the year to the end of the year. Both of those unrealized gain numbers would be based on the difference between cost and then current market value.

As to the hallucinating issue--I can't be sure. But then again neither can you. I'd look for regs on the issue, because the IRS will know.

[Kristina]

The income and expense portion of the Sch H (and Sch I) indicates the changes that have occurred in the plan assets from the last day of the prior year to the last day of the most recent year. While you would like to avoid the calculation, I do not see how you can avoid calculating the unrealized gain/loss on the basis of the market value of the assets on the last day of the prior year compared to the market value of the current year. You would also have additional adjustments to the unrealized gain/loss if you insist upon using the cost basis to determine the realized gains/losses.

If this is a dc plan, the amount you report on the 5500 should be the amount allocated or held in reserve for future allocations as of the last day of the year.