Traditional IRA Annuity with nondeductible contributions

[Guest marlo]

One of our clients has a traditional IRA to which she made both deductible and nondeductible contributions. In January, 2001, she used this IRA to purchase a single life immediate annuity. She is trying to calculate what the nontaxable portion of her distribution is using form 8606. However, in order to complete that form, you need to know the fair market value at the end of 2001. Once she purchased the annuity, the fair market value went to zero.

Publication 590 makes it clear that the taxpayer must calculate the taxable/nontaxable portion of any distribution from an IRA with nondeductible contributions on form 8606. However, if there is no fair market value, form 8606 can't be used.

Should the client calculate the nontaxable amount using Section 72 annuity formulas with the nondeductible portion as cost basis?