How to determine Roth IRA conversion/distribution value of a private p

[Guest rkf2]

In January 1998, I converted my IRA to a Roth IRA. The only assets in the IRA were shares of a non publically traded private placement stock. I had been led to believe by the broker thast sold them to me that they would be going public early in 1998 at a much higher price than I had paid for them. The custodian for the traditional IRA used the price that I had paid for the stock in ~ 1995-1996 as the conversion/IRS 1098? distribution value. The stock is still not trading, but looks like it might trade for about 3 percent of what I paid for it. I am still paying taxes on over the 4 year 1998 Roth conversion rule.

Question 1- It's now clear that the stock value was worth far less than my purchase price even in January 1998, so that the custodian greatly overestimating the value at the time of the Roth conversion. In order to amend my 1998 and 1999 tax returns, do I need to get the 1998 custodian to issue a revised 1098??

Question 2- As an alternative, I would proposes to take a non-qualifying early distribution of the private placement shares, so that I can take the Schedule A Miscellaneous deduction tax loss on these shares(my only Roth IRA assets). If the shares are still not trading, who sets the value of the shares at the time of the early distribution to me? I don't think that the present custodian will be willing to decide on a value.

[John G]

I am surprised that a custodian ever allowed any of these transactions to occur. Custodians are supposed to establish the value of IRA assets at the end of every year. If this stock never traded, there is no mechanism to establish "value". For stocks, value is determined by trading activity with multiple buyers and sellers. A stock can have a trading record even though it is not listed. Ask your broker to a list of all trades in this stock for 30 days before and after the date of conversion. If your broker does not have this data, ask what firm was the primary on the private placement and querie that firm. This is your slim chance for demonstrating eronious data.

This sounds like another one of those dot.com "success" stories. Anytime you have a 97% decline in value it raises real questions about if you were investing or betting on a dark horse. Ouch. Your facts and circumstances (investment suitability, recommendation, stock pricing, etc.) may suggest a potential action against your broker. You may want to consider consulting an attorney. You did not indicate if you would be considered a "sophisticated investor" who was supposed to be able to evaluate unussual deals.

Perhaps some of the accountants who comment here can evaluate if you have any mechanism for erasing the tax liability. That is beyond my scope.