Traditional IRA Mutual Fund account misregistered

[Guest Mary B]

On my company's records, we have an account registered as a non-retirement account. However, it appears that the account should have been registered as a Traditional IRA. It was started with a transfer from another custodian 12 years ago. The client has been the recipient of 1099-DIVs each year and one 1099-B tax form. Does anyone know if we can correct this situation with the IRS? Since this client has been taxed on the dividends (which were reinvested into the account), could we consider them as cost basis in the IRA? Thanks for your help.

[BPickerCPA]

Twelve years, and now someone is first waking up? I can't believe that the client didn't realize it when he was getting 1099's on a tax free account.

Anyway, to answer your queries--

1. There is no provision in the code to allow you to gain basis in an IRA by reporting income on the account.

2. As for correcting the account, you should go to the IRS for a ruling. I doubt you'll get it, but I've been surprised before. However it seems that if there was a distribution 12 years ago that was untaxed, the statute of limitations is way gone. Maybe you should leave it alone and pay the tax on the earnings and not worry about paying tax on later distributions.

Barry

------------------

Barry Picker, CPA/PFS, CFP

New York, NY

www.BPickerCPA.com

[Guest Mary B]

Barry, Thank you for your response and good advise.