LOUISVILLE, Colo.--(EON: Enhanced Online News)--The May 2013 Peek, Fleck vs. Commissioner U.S. Tax Court decision may put Checkbook IRA holders at risk of prohibited transactions, New Direction IRA CEO Bill Humphrey said this week as the self-directed IRA company unveiled new technology to expedite IRA transactions without using the LLC-IRA structure.
“Although bringing in someone to do the grunt work like bookkeeping, preparation of financial statements, bank reconciliations, tax filings and more usually involves a cost, it can help delineate the line between deciding and making it so”
The ruling clarified the Court’s focus on the “broad language” in Section 4975 in IRA prohibited transaction cases, Humphrey said. The use of broad language is “is intentional and aimed to prohibit a wider variety of acts than would be prohibited without it,” the court said before adding that it will focus on the spirit of the law rather than looking for specific prohibitions.
It was a narrowly-focused 1996 tax court ruling (Swanson vs. Commissioner) relating to IRA-owned entities and their creation that is commonly referenced as tacit court approval of the IRA-LLC structure as a whole. This includes providing management services, even though the case does not specifically address the day-to-day operations of the entity, nor the potential of that activity being deemed the prohibited provision of services by the IRA owner.
“The IRS, which has previously expressed concerns over such entities, may use the new court ruling as an invitation to revisit the issue,” Humphrey said.
“In anticipation of rulings like this, New Direction IRA, a self-directed IRA provider, renewed its focus on developing industry best technology to help clients address concerns over transaction speed, while providing them cost effective accounting services,” Humphrey said.
IRA holders can open accounts online, make payments, exchange IRA-held precious metals and they will soon be able to receive rent checks for IRA-held real estate and contribute money to their accounts online, Humphrey said. These developments expedite IRA transactions and purchases—which is one appeal of Checkbook IRAs—while staying within stated IRS guidelines.
How could the IRS attack IRA-LLCs?
For small companies like IRA-LLCs, the burden of decision-making is generally on the company owner or the IRA owner. However, the burden of implementing the decision goes to an employee or contractor of the company. In the non-IRA world, the person who implements may be the owner.
However, when the IRA-LLC owner both makes decisions and runs day-to-day operations, it may constitute providing services to the IRA and thus be prohibited by 4975 under the broad reading of the code which says any “direct or indirect— furnishing of services between a plan and a disqualified person” is prohibited.
“If your company is owned by your IRA, you might consider channeling Star Trek’s Jean-Luc Picard and direct someone other than yourself to ‘make it so,’” Humphrey said.
Some IRA owners have opted to have the IRA-LLC engage a non-disqualified person to take over the day-to-day functions while retaining strictly decision-making functions themselves.
“Although bringing in someone to do the grunt work like bookkeeping, preparation of financial statements, bank reconciliations, tax filings and more usually involves a cost, it can help delineate the line between deciding and making it so,” Humphrey said.
As IRA owners consider the viability and necessity of the IRA-LLC structure, New Direction IRA continues to enhance technology and online systems to serve those who forgo the IRA-LLC.
Bill Humphrey is the CEO of New Direction IRA. NDIRA provides bookkeeping and administration for self-directed IRA accounts. NDIRA provides industry best technology, client support staff and education via webinars, workshops, articles and more at www.newdirectionira.com.