Posted by John K Haslach, CPA, MST on September 07, 2005 at 04:07:41:
If a tax exempt is considered to be in a trade or business, the income is subject to the Unrelated Business Tax (UBIT). If there are certain types of debt involved, it could be subject to the Unrelated Business Tax. I am not saying you will be subject to (UBIT), but you should be aware of it and make sure your tax advisor is comfortable with the area. I rarely see it discussed when talking about investing with IRAs.
IRA-owned LLC for flips - Posted by Lionel
Posted by Lionel on September 03, 2005 at 17:48:53:
I am considering creating an LLC owned by my IRA with me as manager. I want to use this to rehab and flip properties. Other posts on this forum recommend a C or S corp for flips. Will the IRA/LLC be okay to use for flips? Also, I will be doing flips in multiple states. Can I use the same LLC for each state (registering it in each state)? Does it need a checking account and resident agent in each state?
Swanson v. Commissioner - Posted by John Merchant
Posted by John Merchant on September 07, 2005 at 11:06:16:
Lionel, I forgot the recent Tax Court decision of Swanson vs. Commissioner which held that an IRA owner could do this: Set up a new LLC and have some of its units bought by his SDIRA and some bought by himself personally, with his being the Mgr of that LLC.
Go to Google and enter Swanson vs.Commissioner and you’ll be able to read this interesting decision.
Really interesting to me is the fact that the court was the Tax Court of the US, meaning (my opinion only)it’s normally a “safe” forum for the IRS and its policies and internal decisions about how they want the law interpreted…but in this dase the court didn’t agree with them, showing it’s still an independent Federal Court.
As I recall, in Tax Court, one has to pay all the taxes the IRS claims are/is due and then file a suit for reimbursement in that court, so it’s not the usual forum of choice for the besieged tax payer.
Re: IRA-owned LLC for flips - Posted by John Merchant
Posted by John Merchant on September 04, 2005 at 10:52:06:
First off, just buying, owning then selling investment RE of one’s own is NOT “Doing Business” in any state…thus NO other state registration is required.
If a corp (C,S,LLC) is just owner to buy and resell, it is then NOT doing business and not required to register in any but its state of incorporation.
But if the corp. entity is in the rental business in any other state, it is then probably required under laws of most states, to have registered agent for service as it is then DB in that state.
Understand? Mere ownership of RE is NOT DB! Whereas being in rental business IS DB.
Secondly, I’d advise you to check your LLC thoughts, as owning entity, (with you as the LLC manager)with Eq.Trust, or whomever is the chosen custodian. They’ll have ideas about that and about your being its manager.
IRS might disapprove of your being manager of an LLC using your own IRA money, as they may determine this is illegal “self-dealing” not permitted by IRC or regs.
A common and frequently used “way around” this issue is having your lawyer or accountant agree to be named as LLC manager, but relying on YOU to make the actual decisions about what, when to do with the property…unless you want to pay them for their time spent on such non-professional tasks.
Re: Swanson v. Commissioner - Posted by Lionel
Posted by Lionel on September 07, 2005 at 18:17:34:
This seems like good news so I can use an LLC to reduce custodial fees and higher management time. I assume it is okay to use an LLC that is wholly owned by my SDIRA, i.e., I have no personal membership/ownership, while still being the manager.
Re: IRA-owned LLC for flips - Posted by ken
Posted by ken on September 05, 2005 at 21:49:25:
I believe you will need to meet a given states requirements before selling or you probably will not get a title company to provide title insurance
Re: IRA-owned LLC for flips - Posted by Lionel
Posted by Lionel on September 04, 2005 at 14:48:20:
If I will do some flipping and some rentals with IRA money, should I have two IRA LLCs (one for each)?
On the self-dealing issue you rose, several companies will set up IRA LLCs with IRA beneficiary as manager(“checkbook control”) with attorney opinion letters that the set up is legal (such as www.myrealestateira.com). Are they being too aggressive?
New LLC only - Posted by John Merchant
Posted by John Merchant on September 09, 2005 at 11:22:07:
Under Swanson (as I recall it), the LLC must be a NEW LLC, not one that the SDIRA owner already owns, or even one that his SDIRA owns.
Re: IRA-owned LLC for flips - Posted by John K Haslach, CPA, MST
Posted by John K Haslach, CPA, MST on September 06, 2005 at 10:53:56:
Make sure you are comfortable with the unrealted business tax.
Re: New LLC only - Posted by Jennifer Vargas
Posted by Jennifer Vargas on December 12, 2005 at 18:45:03:
Absent obvious self-dealing, like the LLC paying you a salary, owning real or personal property which you or any other prohibited person occupy or use, paying your personal bills, lending money to your customers, lending money to yourself or other prohibited persons, etc…
Swanson v. Commissioner establishes that managing the LLC’s affairs, even to the extent of being a signatory for (and signing checks from) the LLC’s bank accounts, is not itself self-dealing? And as long as your avoid doing things like those above, you can make any investments that would be legal for an IRA (which in my case would be notes secured by mortgages on real property, options on real property, and judgment liens) without worrying about the IRA being disqualified?
Re: IRA-owned LLC for flips - Posted by Lionel
Posted by Lionel on September 06, 2005 at 23:02:40:
I read the IRS pub but it must be over my head. How would this relate to an IRA-owned LLC doing retail flips? I would pay cash for the properties. Does this mean I need to pay tax on the profits even though it is generated within an IRA?