Learn the facts you need to know about Checkbook Control IRA LLC accounts. We dig through the myths and give you the straight answers here.
Entity Investments in Your IRA – Swanson v. Commissioner and the “Checkbook Control” IRA-Owned LLC
One of the most popular ideas in the self-directed IRA industry today is the “checkbook control” IRA. You may have wondered what exactly it means to have “checkbook control” over your IRA’s funds. In this article we will examine the celebrated case of Swanson v. Commissioner, on which the idea of “checkbook control” is based. The entire text of the Swanson case is available on our website at www.QuestIRA.com. The essential facts of Swanson are as follows: 1) Mr. Swanson was the sole shareholder of H & S Swansons’ Tool Company (Swansons’ Tool). 2) Mr. Swanson arranged for the organization of Swansons’ Worldwide, Inc. (Worldwide). Mr. Swanson was named as president and director of Worldwide. Mr. Swanson also arranged for the formation of an individual retirement account (IRA #1). 3) Mr. Swanson directed the custodian of his IRA to execute a subscription agreement for 2,500 shares of Worldwide original issue stock. The shares were subsequently issued to IRA #1, which became the sole shareholder of Worldwide. 4) Swansons’ Tool paid commissions to Worldwide with respect to the sale by Swansons’ Tool of export property. Mr. Swanson, who had been named president of Worldwide, directed, with the IRA custodian’s consent, that Worldwide pay dividends to IRA ...
Entity Investments in Your IRA – Who Cares About the Plan Asset Regulations?
This article is part of a series of articles discussing some issues arising when investing your IRA into an entity, such as a limited liability company, corporation, limited partnership, or trust. In this article we discuss the plan asset regulations and how they may impact your investment in an entity. What are the plan asset regulations and why should you care about them if you are investing your IRA through an entity? If the plan asset regulations apply to your entity investment, there are two major effects. First, your IRA is deemed to own not only the equity interest in the entity but also an undivided interest in the underlying assets of the entity for purposes of the prohibited transaction rules of Section 4975. To see how this works, suppose you want to sell a piece of real estate to your IRA. Unfortunately, the prohibited transaction rules say you cannot sell any property to your IRA. So can you form an LLC owned by your IRA and sell the property to that LLC instead? The answer is no, because under the plan asset regulations selling the property to your IRA-owned LLC is the same as selling it directly to your IRA, ...
Self Directed IRA Myths – Groom Law Group
Written by Richard Matta of Groom Law Group A search of the internet quickly reveals that there are hundreds, if not thousands, of websites promoting one of the hottest financial concepts – the so-called “self-directed individual retirement account.” These range from sites offering simple “hands off” custody and recordkeeping services, to traditional broker-dealers marketing trading accounts, to promoters of “how to” books, to what amount to little more than modern-day snake-oil sales pitches. Similarly, bookstore shelves are lined with guides to building IRA wealth through nontraditional investments. Many of these products are quite legitimate, and the sponsors work hard to provide meaningful information to help accountholders distinguish between legally acceptable investment practices and activities that may result in unfavorable tax consequences or, worse, complete loss of the tax-advantaged IRA status. Sometimes it is simply impossible to cover a subject in a comprehensive manner, and the materials warn accountholders to hire knowledgeable counsel. Nonetheless, in the opinion of the author, most of these materials perpetuate certain myths – even among the lawyers – that range from merely incomplete to outright wrong. Why? In part, because neither the Internal Revenue Service (“IRS”) – which has jurisdiction over IRAs themselves – nor the Department of Labor ...
“What the Swanson Case Did Not Do For Us”
By Catherine Wynne BACKGROUND The Swanson Decision has been lauded as a “landmark decision” for the “checkbook control IRA”. An entire industry has been built around this decision and the internet has become the platform for launching products designed to give “checkbook control” and “reduction of custodial oversight” to the IRA holder based solely on this case. Briefly stated, checkbook control is accomplished by setting up a single member LLC which is purchased 100% by the IRA. The IRA holder is subsequently appointed the LLC manager after funding the LLC share purchase. The IRA holder has complete control over all monies of the LLC and therefore the IRAʼs monies. Companies promoting the checkbook control concept have three things in common: 1. They rely entirely on the Swanson Case to justify the legality of the IRA/LLC arrangement 2. They capitalize on the IRA ownersʼ desire for complete control of IRA funds and disenchantment with the securities industry. 3. They promise “checkbook control” of these funds without the “interference” of an IRA custodian. WHAT DID SWANSON DO? Mr. Swanson caused a corporation called “Worldwide” to be created and his IRA purchased 100% of the outstanding shares of that corporation. After funding the IRA share purchase, Mr. Swanson was appointed president ...
Checkbook Control IRA-Owned Entities Under Attack
By: H. Quincy Long A very popular idea in the self-directed IRA industry is to have what some have termed a “checkbook control” IRA. Basically this involves the following steps: 1) an IRA is formed with a self-directed IRA provider; 2) a brand new LLC or other entity is formed with the IRA owner as the manager or a director and officer; and 3) the IRA custodian is directed to invest the IRA funds in the newly formed entity. Voila! The IRA owner has checkbook control over his or her IRA funds and can do deals quickly without anyone looking over their shoulder to see that the rules are being followed. Admittedly, this sounds like a wonderful idea from the IRA owner’s perspective, but it is fraught with danger and traps for the unwary, as some taxpayers are now discovering. The IRS has been attacking this type of setup, especially when they involve Roth IRAs. The genesis for the idea is largely attributable to the case of Swanson v. Commissioner, a Tax Court case which was decided in 1996. In that case, Mr. Swanson set up a self-directed IRA at a bank and formed a corporation ...
Checkbook Control IRA-Owned LLCs Just Got Riskier
By: H. Quincy LongAttorney at Law and CEO of Quest Trust Company A very popular idea in the self-directed IRA industry is to have what some have termed a “checkbook control” IRA. Basically, this involves the following steps: 1) an IRA is formed with a self-directed IRA custodian; 2) a brand-new LLC or other entity is formed with the IRA owner as the manager or a director and officer; and 3) the IRA custodian is directed to invest the IRA funds in the newly formed entity. Voila! The IRA owner has checkbook control over his or her IRA funds and can enter transactions quickly without anyone looking over their shoulder to see that the rules are being followed or doing any paperwork required by the IRA custodian. Admittedly, this sounds like a wonderful idea from the IRA owner’s perspective, but it is fraught with danger and traps for the unwary, as some taxpayers are now discovering. Most published Tax Court rulings on this topic have resulted in negative tax consequences for the taxpayers who set up a checkbook IRA. The purveyors of checkbook IRAs will point to a few cases that came down in favor of the taxpayers to ‘prove’ the legitimacy of ...