Cost basis of stocks transferred (converted) from traditional IRA to ROTH IRA

[vtee]

hi,
I'm over 60 years old and retired.  I've transferred a few stocks (not MF, just to be clear, but individual stocks) from my IRA to my ROTH IRA account (within same trustee) same  as part of my tax managing strategy.  I'm having an ongoing contentious discussion with the trustee staff about the declared value of each stock transferred. I had read somewhere (I couldn't remember where and couldn't locate it so far in the IRS site) that the value should be based on the closing price of the day prior to the day of transfer itself (transfer was done during regular trading hours), not on the closing price of the day of transfer. This makes a difference because the closing price of the day before is significantly less than the closing price on the day of transfer. I'm being brushed off by the people I've been talking to with the statement that "it is how their system calculates it" (using closing price on day of transfer) so they can't do anything about it. 
My other recourse, if they don't change it, is to file a manually modified one and provide the explanation but I need help finding the reference material to back my position up.  I hope someone has the knowledge and info about this to help me here or correct me on my understanding. Many thanks! 

[LeonardS]

When stock is distributed from your IRA, you will receive a 1099-R form showing the fair market value of the stock on the date of the distribution. This is the amount that you will use to establish basis of the stock when it is eventually sold.

[dmertz]

A Roth conversion is a distribution and taxable rollover.  IRA custodians perform the distribution after market close, so the value of the converted stock is the value that it has at the next market close following receipt of your instruction to distribute or convert.  If your instruction to distribute or convert is received by the IRA custodian while the market is open, the distributed asset will be valued later that same day the close of the market.  If your instruction to convert is received after market close on a particular day, the distributed asset will be valued at the close of the market on the next day that the market is open.  The value at a close of the market prior to receiving your conversion instruction is never used.  Every Roth conversion I've ever done has been accompanied by a notice indicting that the distribution will be valued at the next market close.

What you might be thinking of is the case where there is a delay in making the conversion contribution, such as what happens if you receive an in-kind distribution of stock from the traditional IRA , then, say, a week later make a Roth conversion contribution of the same shares to a Roth IRA.  Even though the receiving Roth IRA custodian will report on Form 5498 a conversion contribution of the value of the shares on the date of the conversion contribution, this still constitutes a conversion of the value on the distribution date.  If this happens, it might be prudent to provide an explanation statement to the IRS that the value of the conversion contribution differs from the amount converted due to the change in the value of the stock between the distribution and the contribution.  If the conversion is done in-house, though, the conversion contribution will have that same value as the distribution and this won't be an issue.  In either case, the amount converted is the amount shown in box 1 of the Form 1099-R.

[vtee]

@dmertz ,
Thanks for taking time to answer my question. Aside from me relying on your tax expertise on this particular case, could you you just provide me the reference material that you based your answer on? 
 

[vtee]

@LeonardS , Thanks but I don't think you completely read my question to actually understand the issue. Your response basically said just use the info on the 1099 R as they had given me. I suggest you try to understand better questions posted if you're going to try to answer them properly. 

[JohnB5677]

Selling prices on the valuation date. If there is an active market for the contributed stocks or bonds on a stock exchange, in an over-the-counter market, or elsewhere, the FMV of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date. For example, if the highest selling price for a share was $11 and the lowest $9, the average price is $10. You get the average price by adding $11 and $9 and dividing the sum by 2.  

Page 5 Stocks and Bonds Publication 561 (Rev. January 2022) Determining the Value of Donated Property

[vtee]

I think the FMV applies to mutual funds not stocks.  It makes sense for mutual funds but not stocks.

[JohnB5677]

IRS Publication Page 5 Stocks and Bonds Publication 561 Determining the Value of Donated Property

Selling prices on valuation date. If there is an active market for the contributed stocks or bonds on a stock exchange, in an over the -counter market, or elsewhere, the FMV of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date. 

The next question is "What is the valuation date?".  I have not found an IRS clear definition for the transfer date.  It seems to be whatever is common practice.  

The date prior to the transaction has been listed as an alternative.  This would make sense because that would be the last full day that would allow the Hi/Low calculation. 

[vtee]

My question was about Roth conversion of stocks not about donated stocks, could you shed light on how the two are related?

[JohnB5677]

The process is consistent.  Assuming there is an active market for the contributed stock, the fair market value of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date.   The donated stock value per the IRS publication is a consistent standard

Also, see § 25.2512-2 Stocks and bonds. Section (b)(1)  In general, if there is a market for stocks or bonds, on a stock exchange, in an over-the-counter market, or otherwise, the mean between the highest and lowest quoted selling prices on the date of the gift is the fair market value per share or bond.

[EdtheMerlin]

TDA Ameritrade clearly states that when doing a ROTH Conversion and transferring a stock from an IRE to a ROTH IRA account that the value will be the Closing Price of the previous day.

[Philip62]

For Fidelity Investments, "Fidelity determines the value of any conversion for tax reporting purposes based on the closing prices of securities on the day of conversion." This is stated in the Terms and Conditions on the IRA to ROTH Conversion page.