IRA Valuation Risks

What are the risks of not getting a proper IRA valuation of the assets in my account?

The Internal Revenue Service (“IRS”) is aware of IRA valuation abuses. Over the years the IRS has taken steps to address these abuses. In 2013, the IRS modified its Form 5498 to increase the reporting requirements for hard-to-value IRA assets. In addition, the IRS has always required that values of alternative assets be supported by financial statements and valuation reports from third-party experts. The IRS continues to pursue this issue diligently and has in the past convened a working group to study ways of improving compliance and enforcement in this area.

The IRS specifically requires all IRA assets to be fairly valued for Roth IRA conversions, for in-kind distributions, as well as for purposes of calculating required minimum distributions. However, it is important for IRA owners to have properly completed and well supported valuation reports for hard-to-value assets every year, not just the year in which a Roth conversion, in-kind distribution, or required minimum distribution takes place. The IRS has in the past required prior years valuation reports in order to analyze the changes in value of hard-to-value assets in the years prior to a conversion or distribution.

An improper IRA valuation or an IRA valuation that is not well documented carries the risk of an assessment of additional income tax as well as related interest and penalties.