The information contained on our IRA resources page is for informational purposes only and is not intended to substitute competent legal, tax or investment advice. Much of the information herein merely quotes relevant IRA code, law, authoritative opinions and public information. This information is subject to change at any time and you are encouraged to check back frequently for updates.
IRA LLC Law
DOL Advisory Opinions
Under Presidential Reorganization Plan No. 4 of 1978, the authority of the Secretary of the Treasury (IRS) to issue interpretations regarding section 4975 of the Code (Prohibited Transactions) has been transferred to the Secretary of Labor (DOL) and the Secretary of the Treasury (IRS) is bound by the interpretations of the Secretary of Labor (DOL).
For your reference we have gathered IRA LLC relevant advisory opinions directly from the Secretary of Labor (DOL).
Advisory Opinion 2000-10A – Opinion where the DOL takes the position that an individual acting in the capacity of a general partner (similar to manager) in an entity that is owned by his IRA and the IRAs of other family members (similar to the IRA LLC) would not violate section 4975 as long as the individual did not receive a salary or fiduciary conflicting benefits.
Advisory Opinions 97-23A and 2005-03A – show us that the DOL has taken the position that an entity owned 100% by a plan (IRA) is a plan asset and any dealings the plan has with this asset is considered the same as if the plan were dealing with itself rather than a party of interest (disqualified party).
Case law is basically a set of prior rulings which have made interpretations of law and, therefore, can be cited as precedent. For your reference we have gathered cases that can be relied upon as IRA LLC law.
Swanson v. Commissioner is a landmark case for the IRA LLC strategy. This is a tax court case where an individual (Swanson) formed an IRA owned entity (owned by his IRA and the IRAs of his 3 children) and controlled the entity in the capacity of director. The IRS initially challenged Swanson on the arrangement but when it was escalated to the tax court Swanson was awarded for legal expenses.
“We find that it was unreasonable for [the IRS] to maintain that a prohibited transaction occurred when Worldwides stock was acquired by [Swanson’s IRA]…the issuance of stock to [Swanson’s IRA] did not, within the plain meaning of section 4975(c)(1)(A), qualify as a sale or exchange, or leasing, of any property between a plan and a disqualified person…Therefore, [the IRS’s] litigation position with respect to this issue was unreasonable as a matter of both law and fact…”
Some would argue that the Swanson case sets a precedent for the IRA LLC industry but in reality Swansons arrangement was much more aggressive than a typical IRA LLC.
Ancira v. Commissioner is a tax court case where an individual instructed his IRA custodian to send him a check for a private investment in which his custodian refused to hold. Along with a check made payable to the private investment was a form 1099R reporting an IRA distribution to Ancira. The IRS challenged Ancira on the basis that the check from his custodian constituted an IRA distribution. Ancira won the case because he essentially only acted as a conduit for the custodian and never physically took possession of the IRA funds:
“The IRA was a custodial account, and Pershing was the trustee thereof, as well as the holder of the assets in the account…Petitioner exercised his right, under the IRA agreement, to direct investments of the IRA assets…petitioner acted as a conduit for Pershing…We are not aware of any provisions of the Internal Revenue Code, applicable regulations, or case law that prohibit a taxpayer from acting as a conduit for an IRA trustee…”
This is a powerful case for checkbook IRAs because Ancira took checkbook control to a whole new level AND WON!
Ellis v. Commissioner is a more recent and more relevant IRA LLC case than Swanson v. Commissioner (which some institutions still refuse to recognize). The court held that forming, capitalizing and using an IRA LLC to make an investment would not trigger prohibited:
“…the formation of CST, an entity owned by Ellis’s IRA The end result of this transaction was the creation of a new entity, CST, with Mr. Ellis IRA as a founding member…CST had no outstanding owners or ownership interests before the initial capital contribution and therefore could not be a disqualified person at the time of the investment by Mr. Ellis IRA. Accordingly, petitioners did not engage in a prohibited transaction when they caused Mr. Ellis IRA to invest in CST…”
Unfortunately for Ellis, the court did determine that his IRA entered into a prohibited transaction when he caused the IRA LLC to pay him a salary.
Sources for IRA Rules
IRA rules are found in the tax code, which is provided to the public by congress for free. Due to the tedious nature of legal code; regulators will make “layman’s terms” publications as well as other valuable information available to the public in. For your reference we have gathered relevant sources to find the actual code cases that can be relied upon as IRA LLC law.
Self Directed IRA LLC Restrictions – Layman terms for the prohibited investments and prohibited transactions within a self directed IRA LLC.
Section 408 – Individual Retirement Accounts – Just like you will find the legal code for 401(k)’s in IRC section 401, you can find the legal code for IRAs in IRC section 408.
Section 4975 – Tax on Prohibited Transactions
IRS Publication 590 – Publication for IRA Code
IRA LLC Resources
LLC State Information – LLC name search, state departments, etc…
LLC State Fees – Up front and ongoing LLC maintenance fees
Type of IRAs – Information on the various type of IRAs