![]() ![]() According to the Tax Court, it was unreasonable for the IRS to claim that this is a prohibited transaction. The Tax Court didn’t agree with the IRS’ position. Nevertheless, the Tax Court ruled against the IRS and in favor of Mr. It filed a notice of no objection to an earlier motion by the Swanson’s for partial summary judgment on that issue. The IRS conceded the prohibited transaction issue in the Swanson case. ![]() The IRS attacked the transaction, arguing that the establishment of the special purpose entity the IRA owns is an IRS prohibited transaction. Swanson established a special entity the IRA owned and Swanson managed to make an investment. The idea of using an entity the IRA owns to make investments was first reviewed by the Tax Court in Swanson V. Investors wanted the ability to have more control over their IRA investments. However, beginning in the early 1990s, individuals began using special purpose entities that the IRA completely owns to make investments. Most IRA custodians want you to believe that the only way to use IRA funds to make non-traditional investments with your IRA is through a custodian-controlled IRA account. These investments are tax-free and penalty-free! In fact, the IRS only has a few restrictions on what investments you can make using your IRA funds. These include real estate, precious metals, tax liens, private business and much more. Fewer individuals know that the IRS allows you to use IRA funds to invest in alternative assets. Traditional investments include stocks, bonds and mutual funds. Many know that the IRS allows you to use your IRA to make traditional investments. Unknown to some, not all Self-Directed IRAs are the same. ![]() What is a Self-Directed IRA with Checkbook ControlĪ Self-Directed IRA is a type of IRA structure that allows the IRA holder (you) to have more control over your retirement funds. The IRS later confirmed the ruling in Swanson by releasing IRS Field Service Advice Memorandum 200128011 (“FSA 200128011”). The legality of the Checkbook Control IRA structure has not come under question since the IRS conceded that investing IRA funds in a completely owned entity is not a prohibited transaction. Tax Court Confirms Validity of Self-Directed IRA LLC Solution Therefore, the use of a Checkbook Controlled Self-Directed IRA LLC is perfectly legal. A newly established LLC is not a disqualified person pursuant to Internal Revenue Code Section 4975. Ellis held that establishing a special purpose Limited Liability Company to make an investment did not trigger a prohibited transaction. However, only recently did the Tax Court confirm that the use of a newly established Limited Liability Company (LLC) an IRA (individual retirement account) completely owns and the IRA holder manages will not trigger a prohibited transaction. The ability to invest retirement funds in a newly established special purpose entity that the IRA owns 100% of, and is managed by the IRA holder is legal by the Tax Court and IRS (Internal Revenue Service). ![]()
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