The Best Retirement Plan

The Self-Directed IRA Structure has remained in use for some 35 years, nevertheless, the principleof using an entity possessed by an Individual Retirement Account making an investment was firstreviewed by the Tax Court in Swanson V. Commissioner 106 T.C. 76 (1996). In Swanson, the TaxCourt, in ruling versus the Internal Revenue Service, held that the funding of a brand-new entity byan IRA for self-directing possessions was an allowed deal and not restricted pursuant to Code Area4975. The Swanson Case was later affirmed by the Internal Revenue Service in Field ServiceSuggestions Memorandum (FSA) 200128011. In FSA 200128011, the IRS, in providing guidance toIRS agents for purposes of carrying out audits, confirmed the Tax Court's holding in Swanson andheld that a recently established entity owned by an Individual Retirement Account and managed bythe Individual Retirement Account owner may make investments making use of IndividualRetirement Account funds without breaking the forbidden transaction rules under Internal EarningsCode Area 4975. In October 2013, the Tax Court in T.L. Ellis, TC Memo. 2013-245, Dec. 59,674(M)held that establishing a special purpose limited liability company ("LLC") to make an investment didnot trigger a forbidden transaction, as a recently established LLC can not be deemed a disqualifiedperson pursuant to Internal Profits Code Area 4975. The effect of the effect of this judgment ismassive since it straight supports the position that a retirement account can fund a recentlydeveloped LLC without triggering a forbidden deal. The Ellis case is definitive because it willcertainly silence anybody who asserts that utilizing a special purpose LLC to make IndividualRetirement Account investments would activate a forbidden deal.

But just mentions what types of transactions are forbidden when it comes to making IndividualRetirement Account investments the IRS does not state which transactions are enabled. TheIndividual Retirement Account restricted transaction guidelines are detailed in Internal Income Code Sections 408 & 4975 and typically include the restriction against using Individual RetirementAccount funds to buy life insurance, collectibles, or participate in any transaction with a"disqualified individual". As per the Internal Profits Code, a "disqualified person" is typically definedas the IRA holder and any of his/her lineal descendants or any entity controlled by such individual(s).

The following is a summary of the vital cases & opinion confirming the legality of the Self-DirectedIndividual Retirement Account LLC:

Swanson V. Commissioner 106 T.C. 76 (1996).

The appropriate facts of Swanson are as follows:.

1. Mr. Swanson was the sole shareholder of H & S Swansons' Tool Business (Swansons' Device).

Mr. Swanson organized for the company of Swansons' Worldwide, Inc. (Worldwide). Mr. Swansonalso arranged for the development of an individual retirement account (Individual RetirementAccount # 1).

3. Mr. Swanson directed the custodian of his Individual Retirement Account to execute asubscription agreement for 2,500 shares of Worldwide initial issued stock. The shares wereconsequently released to Individual Retirement Account # 1, which became the sole shareholder ofWorldwide.

4. Swansons' Tool paid commissions to Worldwide with respect to the sale by Swansons' Tool of

export building. Mr. Swanson, who had actually been called president of Worldwide, directed, withthe IRA custodian's permission, that Worldwide pay dividends to IRA # 1.

5. A similar arrangement was established with regards to IRA # 2 and a second corporation calledSwansons' Trading Company.

6. Mr. Swanson received no payment for his services as president and director of Swansons'Worldwide, Inc. and Swansons' Trading Company.

The Internal Revenue Service attacked Mr. Swanson's IRA transactions on 2 levels. First, the IRSargued that the payment of dividends from Worldwide to Individual Retirement Account # 1 was aprohibited deal within http://www.taxpolicycenter.org/publications/url.cfm?ID=1000535 themeaning of Code Area 4975(c)(1)(E) as an act of self-dealing, where a disqualified individual who is afiduciary handle the possessions of the plan in his own interest. Mr. Swanson argued that heparticipated in no activities on behalf of Worldwide which benefited him aside from as a recipient ofIndividual Retirement Account # 1.