An IRA owner (age > 75) has been receiving required minimum distributions from his IRA since obtaining age 70 1/2. A couple of years ago he invested 1/2 of the assets in the IRA in a "shady" investment which has now become worthless (the entity is in banruptcy with little prospect of recovery). Prior valuations of the "shady" investment asset were most likely fraudulent. Will the owner be required to consider the latest fraudulent valuation of this asset in the valuation calendar year to determine his required minimum distribution for the current distribution calendar year?

You said "Most Likely" fraudulent- I prefer not to make assumptions, especially when the IRS is involved.
If the client can prove that the valuations are in fact fraudulent- then the FMV used to figure the RMD can be reduced by the overstated amount. If it cannot be proven, then it is always best to err on the side of caution and take the required amount, by using the FMV, without the adjustment

Thanks for your thoughts. I am in the process of trying to determine whether the fraud can be proven. Otherwise, we will follow the safe route.