Think-Realty-Magazine-July-August-2016

NUTS & BOLTS

TAX & LEGAL CONCERNS

SDIRADilemmas THE IRS IS LOOKING CLOSELY AT IRA ACCOUNTS, SO YOU SHOULD DO THE SAME.

by Clint Coons

f you have set up a self-directed IRA, you have probably done so with the intent to expand your investing options outside of securities and obtain higher returns. However, in pursuit of those returns, you may want to pause and consider whether you crossed any lines subjecting your IRA to taxes, penalties or disqualification. I bring this to your attention because of findings in the Treasury Inspector General’s Report, wherein it appears the IRS is turning its attention to IRA account owners. This report, cou- pled with a recent change in one of the annual reporting forms supplied by the IRS to your custodian, leads one to the obvious conclusion that the time for scrutiny of your IRA is now. The two areas under scrutiny by the IRS are: I

ans, followed up by an examination program of specified IRA accounts meeting certain characteristics. The following is a brief summary of the scrutiny and what you should do now to avoid problems in the future.

NON-TRADITIONAL INVESTMENTS From an investment standpoint, the IRS is concerned over IRAs holding specific types of assets that lend themselves to possible prohibited transactions. Real estate and business en- tities are of particular concern because IRA account holders are not fully aware of the prohibited transaction rules and have made mistakes with their investing, giving rise to taxes and IRA disqualification. Here is a partial list of problems I have discovered through my conversations with IRA account holders: • Loaning money to your IRA or IRA-owned LLC. • Personally rehabbing real estate held by your IRA or IRA- owned LLC. • Receiving a management fee for managing your IRA-owned LLC. • Handling all of the property management duties for IRA- owned real estate.

1 Non-Traditional Investments (NTIs) held in self-directed IRAs, which could lead to prohibited transaction violations.

2 Unrelated Business Taxable Income (UBTI) or Unrelated Debt Financed Income (UDFI) being generated by invest- ments in IRAs. The IRS’s quest to find the above missteps by IRA account holders began with the agency sending notices to IRA custodi-

114 | think realty magazine july :: august 2016

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