What can make this problematic is the some custodians of IRA annuities do not provide a year-end FMV for an IRA annuity that has been annuitized. Certainly the value should be included on line 6 of Form 8606 (also present on line 4 of the Taxable IRA Distribution Worksheet, if this worksheet is used) if the custodian provides a year-end FMV. However, the IRS has provided no guidance on what to do if no year-end FMV is provided by the custodian.
In the case where no FMV is provided, some people treat the FMV as zero. For an individual who has no other IRAs, this causes payouts to be treated as entirely nontaxable until all of the basis in nondeductible traditional IRA contributions has been consumed. That's probably good if the IRA annuity pays out for life since it leaves the individual with the minimum possible amount of basis at death. However, particularly if the individual has other types of IRA assets in excess of basis, I think it makes more sense to value the annuity one of two ways, either at the price of a new annuity that would provide the same terms and payout, or by using the calculation of the present value the annuity for estate tax purposes.
