I received a 1099-R from an IRA custodian that was holding a now-bankrupt real estate investment. This investment value was 0 as of the time I requested to terminate the account in August 2022. Although there had been hope for some recovery of assets in this proven Ponzi scheme (one of the property owners is doing 11 years in prison for fraud), no further assets are going to be recovered. Bankruptcy had already played out over the prior year.
Still, the custodian imputed the maximal potential value of the assets at the time of my terminating my IRA account. I was never sent nor did I otherwise receive one cent from this bankrupt real estate investment, yet I am seeing imputed income (Gross Distribution) of more than $10,000 which seems to have increased my AGI by exactly the same amount. The Distribution Code is 7K--the K refers to uncertain Fair Market Value.
How can I deal with this to avoid paying tax on a faulty imputed value? I see that line 4b on the 1040 would allow me to explain the "taxable amount" of my IRA distributions. Could I just subtract the $10,000 from line 4a and attach a letter of explanation? Will TurboTax allow that? BIG THANKS for any answers.
