Creating an IRA LLC

Joetrader · Oct 1, 2006

zone,

Your IRA can invest in an LLC, just not one that you have ANY control over. Just contact any professional worth their salt and ask. You may as well just stop paying taxes and hope you never get audited. Hey but you want to learn the hard way and it is a free country so who am I to stop you?

ZoneTrooper · Oct 1, 2006

Hmm,

I guess that like saying your IRA can invest in Fidelity, as long as you don't have any decision in the trades????

The IRS could care less what you invest your IRA in for the most part as long as you DON'T receive a benefit from your IRA before it's time to take money of it.

Meaning, my IRA can buy a house, rent it out, sell it and so forth. And I can be involved in all the transactions.

But now, if my IRA buys a vacation home, and I should use it for my own pleasure, the the IRS can get quite nasty with me if they should find out.

As far as this LLC that I've created, and manage. It is set up in a way in which all the income ins PASSIVE income and there is NO chance of any UBIT. Also, no one receives a salary. And, there is actually no physical property.

I think the IRS would have a very difficult time showing that this LLC inured me in any way or anyone else. The only ones who benefit are the IRA;s and the Charity.

Now, the IRS may want to look at my charity a little closer, but there they will find, no salary for me nor my love ones, and that all the monies are actually used for charitable purposes.

The buy laws of both my LLC and the charity are set up specifically to prevent me or my family from benefiting and to prevent UBIT.

Now as for any tax accountant or lawyer worth his salt, I've found that few of these fellows are worth anything at all. Most of them like to play it safe all the time so that they can't be held liable. Also, if they are not playing it safe to the extremes, they tend to be idiots, and don't even have a clue on how to fill out someones taxes that trades in the FOREX markets.

I've found the better thing is for people to go and do their own research and actually read the tax regulations, and especially in the area of doing what I've done, you'll need to check out IRS Letter rulings, and Tax Court Rulings.

Another thing that one can do, is to write up a question to the IRS send it in with a few hundred dollars and get a IRS ruling on it. If you take the time to write up a good letter, and are aware of the laws this is not hard to do. And the IRS ruling will withstand any audit/court hearing.

I say, I think some people on these boards must work for the IRS, and are trying to scare people into paying more taxes than they are worth. You should see what some folks have posted on OANDA's boards about reporting FOREX trades. Search for my posts, and you will see what I mean.

Quote from Joetrader:

zone,

Your IRA can invest in an LLC, just not one that you have ANY control over. Just contact any professional worth their salt and ask. You may as well just stop paying taxes and hope you never get audited. Hey but you want to learn the hard way and it is a free country so who am I to stop you?

Joetrader · Oct 3, 2006

Actually, it is more like investing your IRA in fidelity stock if you are a majority owner of fidelity, which would also be self dealing. If your half baked idea would work every business in the US would be an IRA/pension owned LLC (or other entity) tomorrow. When a retirement plan owns more than 10% of a company it is considered beneficial interest and the plan is deemed to be operating a business via its ownership stake alone. Further, if you have any significant control of the company in which your pension invests then that is also self dealing. The plan is then fined, taxed, f'd, etc. Since your LLC is controlled by you (you are trading the money and you ar probably even the manager of the LLC) and since the IRA money is coming from your IRA or other IRA's that you have control over (make any decisions for), you are engaged in self dealing which is very illegal. There was a loophole in the law for a very short time that allowed a pension plan to own an S-Corp but that expired in dec 05. I understand what you are doing and I pay a big 4 firm to do research like this for me all the time. I have been down that road and you are going to screw yourself. I am not just another et big mouth but just remember you reap what you sow. I am giving you good advice for free. I think for your family's sake you should at least get a professional firm to review what you are attempting and I am sure that any competent firm will tell you a similar story.

ZoneTrooper · Oct 3, 2006

That what it would appear to be.

BTW, have you even bothered to do a google on IRA LLC?

Not that all those web pages would give you such great advise, but it's a starter to get you into something more authorative like an IRS Ruling Letter, or a judgement by a court.

Also, if you looked in my previous posts, Schwab has a guy dedicated to assist customer into buying into these IRA LLC's. Of people just like me.

Also the company I'm dealing with is a recongnized IRA custodian.

Normally IRA custoodian's won't let you make a transaction that would put your IRA into jepordy without telling you. Note, they have to report such transaction to the IRS.

BTW, I"ve have done the reseach. If I get time I'll see about posting up the IRS Rulings that I"ve found along with any court case from authorative web sites.

Quote from Joetrader:

Actually, it is more like investing your IRA in fidelity stock if you are a majority owner of fidelity, which would also be self dealing. If your half baked idea would work every business in the US would be an IRA/pension owned LLC (or other entity) tomorrow. When a retirement plan owns more than 10% of a company it is considered beneficial interest and the plan is deemed to be operating a business via its ownership stake alone. Further, if you have any significant control of the company in which your pension invests then that is also self dealing. The plan is then fined, taxed, f'd, etc. Since your LLC is controlled by you (you are trading the money and you ar probably even the manager of the LLC) and since the IRA money is coming from your IRA or other IRA's that you have control over (make any decisions for), you are engaged in self dealing which is very illegal. There was a loophole in the law for a very short time that allowed a pension plan to own an S-Corp but that expired in dec 05. I understand what you are doing and I pay a big 4 firm to do research like this for me all the time. I have been down that road and you are going to screw yourself. I am not just another et big mouth but just remember you reap what you sow. I am giving you good advice for free. I think for your family's sake you should at least get a professional firm to review what you are attempting and I am sure that any competent firm will tell you a similar story.

ZoneTrooper · Oct 3, 2006

JoeTrader:

Check out this link. Not a goverment web site, but it does explain what I'm doing?

http://www.webcpa.com/article.cfm?articleid=20043&searchTerm=maxwell

And as far as every bussiness being structured as a IRA LLC. Well, that would be a bit impossible, unless every bussiness ONLY performed PASSIVE activities such as investing. If the IRA LLC should start doing ACTIVE activities then the whole thing will fold on it's self.

For other folks, you will not find any mention of IRA LLC in tax regulations. Anything comming form the goverment on this issue has been in Court Rulings, and IRS Opinion Letters....

Quote from Joetrader:

Actually, it is more like investing your IRA in fidelity stock if you are a majority owner of fidelity, which would also be self dealing. If your half baked idea would work every business in the US would be an IRA/pension owned LLC (or other entity) tomorrow. When a retirement plan owns more than 10% of a company it is considered beneficial interest and the plan is deemed to be operating a business via its ownership stake alone. Further, if you have any significant control of the company in which your pension invests then that is also self dealing. The plan is then fined, taxed, f'd, etc. Since your LLC is controlled by you (you are trading the money and you ar probably even the manager of the LLC) and since the IRA money is coming from your IRA or other IRA's that you have control over (make any decisions for), you are engaged in self dealing which is very illegal. There was a loophole in the law for a very short time that allowed a pension plan to own an S-Corp but that expired in dec 05. I understand what you are doing and I pay a big 4 firm to do research like this for me all the time. I have been down that road and you are going to screw yourself. I am not just another et big mouth but just remember you reap what you sow. I am giving you good advice for free. I think for your family's sake you should at least get a professional firm to review what you are attempting and I am sure that any competent firm will tell you a similar story.

ZoneTrooper · Oct 3, 2006

Here's a good example of what I am talking about. When I did my previous searching on this topic, I found many of the Letters.

http://www.dol.gov/ebsa/regs/AOs/ao2000-10a.html

And everytime, it came back, no self dealing as long as you do NOT benifit financially or in any other way.

Meaning the IRS would have to prove two things to get at you.

1. That your trade caused ACTIVE income.

2. That the IRA owner or disqualified party received some kind of benifit. And even then that water merky as far as other disqualified persons.

Maybe you should try a different firm that you are going to. It's probally the case that they are too lazy to keep current on current laws and regualtions....

Quote from Joetrader:

Actually, it is more like investing your IRA in fidelity stock if you are a majority owner of fidelity, which would also be self dealing. If your half baked idea would work every business in the US would be an IRA/pension owned LLC (or other entity) tomorrow. When a retirement plan owns more than 10% of a company it is considered beneficial interest and the plan is deemed to be operating a business via its ownership stake alone. Further, if you have any significant control of the company in which your pension invests then that is also self dealing. The plan is then fined, taxed, f'd, etc. Since your LLC is controlled by you (you are trading the money and you ar probably even the manager of the LLC) and since the IRA money is coming from your IRA or other IRA's that you have control over (make any decisions for), you are engaged in self dealing which is very illegal. There was a loophole in the law for a very short time that allowed a pension plan to own an S-Corp but that expired in dec 05. I understand what you are doing and I pay a big 4 firm to do research like this for me all the time. I have been down that road and you are going to screw yourself. I am not just another et big mouth but just remember you reap what you sow. I am giving you good advice for free. I think for your family's sake you should at least get a professional firm to review what you are attempting and I am sure that any competent firm will tell you a similar story.

Joetrader · Oct 4, 2006

Read your own example letter very carefully...

"The Partnershipâs assets are managed by Bernard L. Madoff Investment Securities (Madoff), which is unrelated to Mr. Adler. Madoff requires entities to maintain a minimum capital account."

The key word in this sentence is UNRELATED. An IRA can invest in a company, any company, LLC or otherwise, but read carefuly as they specifically say Madoff which is unrelated to any of the IRA owners. I have lots of Schwab IRA investors in my onshore hedge fund (which is a US LP). It is not a problem, until you have a beneficial interest or personal control of the investment. So, in your example above you are similar to mr adler except that you do control the IRA. So if you write the exact same letter and change the unrelated to related the IRS writes back and says everyone is f'd. I am done with this subject now. If you want to know which firm gave me the opinion IM me and we will talk offline. I think you must know you are playing with fire. Anyhow, your big enough to take your own medecine. Good Luck!

ZoneTrooper · Oct 4, 2006

Looking at the reprentations is great. Looking at the actual opinion is better.

" You ask whether the investment by the IRA in the Partnership will give rise to a prohibited transaction under section 4975 of the Code. Section 4975(e)(1) of the Code, in relevant part, defines the term âplanâ to include an IRA, described in section 408(a) of the Code. Section 4975(e)(2) of the Code defines âdisqualified person,â in relevant part, to include a fiduciary, a relative, and a partnership, of which (or in which) 50 percent or more of the capital interest or profits interest of such partnership is owned directly or indirectly, or held by a fiduciary. Section 4975(e)(3) of the Code defines the term âfiduciary,â in part, to include any person who exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control regarding management or disposition of its assets. In order for a prohibited transaction to occur under section 4975 of the Code, there must be a transaction involving a disqualified person with respect to a plan. Where none of the relationships described in section 4975(e)(2) of the Code are found to exist, an entity would not be a disqualified person with respect to a plan."

Hmm, Look like Mr. Alder does have pretty much full control, since he's making the investment decitions, and all the people in the partnership are pretty much related to him. Butt the DOL dosn't see it that way.

"Section 4975(c)(1)(A) of the Code prohibits any direct or indirect sale or exchange or leasing, of any property between a plan and a disqualified person. Section 4975(c)(1)(D) of the Code prohibits any direct or indirect transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan. Section 4975(c)(1)(E) of the Code prohibits a fiduciary from dealing with the income or assets of a plan in his or her own interest or for his or her own account. Section 54.4975-6(a)(5) of the Pension Excise Tax Regulations characterizes transactions described in section 4975(c)(1)(E) as involving the use of authority by fiduciaries to cause plans to enter into transactions when those fiduciaries have interests which may affect the exercise of their best judgment as fiduciaries."

Key words, "direct" and "own intrests"

As a trustee with investment discretion over the assets of his IRA, Mr. Adler is a fiduciary, and therefore, a disqualified person under section 4975(e)(2) of the Code. Mr. Adler is also a disqualified person in his capacity as the general partner of the Partnership to the extent he exercises discretionary authority over the administration or management of the IRA assets invested in the Partnership. In addition, although Mr. Adler, his son and his daughter are disqualified persons, you represent that the investment transaction is between the Partnership itself and the IRA, and not with Mr. Adler and his family, except as fellow investors in the Partnership. Mr. Adler owns only 6.5 percent of the Partnership, and therefore the Partnership itself is not a disqualified person under section 4975(e)(2)(G) of the Code which defines a disqualified person to include a corporation, partnership or trust or estate of which 50 percent or more of the capital interest is owned directly or indirectly, or held by persons described as fiduciaries.

Again, on face value, the DOL is stating if you take the wooden interpitation of the REG, there is a conflict. But is there really....

Based solely on the facts and representations contained in your submissions, it is the opinion of the Department that the IRAâs purchase of an interest in the Partnership would not constitute a transaction described in section 4975(c)(1)(A) of the Code (prohibiting any direct or indirect sale or exchange or leasing of any property between a plan and a disqualified person).

Hmm. DOL say, na. There's no conflict. Just as long as he dosn't get at the money via a paycheck or dosn't benifit in some other way before he can collect on his IRA.....

Quote from Joetrader:

Read your own example letter very carefully...

"The Partnershipâs assets are managed by Bernard L. Madoff Investment Securities (Madoff), which is unrelated to Mr. Adler. Madoff requires entities to maintain a minimum capital account."

The key word in this sentence is UNRELATED. An IRA can invest in a company, any company, LLC or otherwise, but read carefuly as they specifically say Madoff which is unrelated to any of the IRA owners. I have lots of Schwab IRA investors in my onshore hedge fund (which is a US LP). It is not a problem, until you have a beneficial interest or personal control of the investment. So, in your example above you are similar to mr adler except that you do control the IRA. So if you write the exact same letter and change the unrelated to related the IRS writes back and says everyone is f'd. I am done with this subject now. If you want to know which firm gave me the opinion IM me and we will talk offline. I think you must know you are playing with fire. Anyhow, your big enough to take your own medecine. Good Luck!