SDIRA w Checkbook Control & Prohibited Transactions

[David Fitch]

I know there are a number of threads on this topic, but none that I've found addressed my specific question / dilemma. 

I already have an established SDIRA, and have done a few investments through my current Custodian via their normal compliance review, and subsequent funding process on a deal-by-deal basis. I am now trying to establish a Single Member, Manager Managed LLC of which my SDIRA will be the sole member, and I will individually be the Manager. That will then become the only investment at the Custodian level, and all individual transactions will be owned by the LLC. Like many of you that have done this already, my objective is simply to have checkbook control and be able to move quickly when deals come along.

My current custodian is supportive of this model, however they said that if I register the LLC myself, that would be considered a prohibited transaction. Curiously though, they said I was free to use personal funds to pay an attorney to register the LLC for me, which seems to be MORE of a violation of the spirit of the rules than would be the act of registering an LLC. When I pressed them and asked for a link to a tax court pronouncement, or other IRS guidance on that, I was simply told "The IRS is quirky sometimes on how it decides things". That was not a satisfactory answer, and I'm skeptical that they even know what the IRS has "decided" on this topic, so I'm looking to others here that may have encountered this before.

I have exhaustively read IRC 4975 and related docs (even the IRS guidelines for auditors examining prohibited transaction violations), and I can't find anything to support what I was told by my custodian. Further, when I told them I was comfortable with my own analysis of the reg and that I would defend my decision to the IRS if ever required, they essentially said "OK, but our Compliance department may not approve the structure unless an attorney registered the LLC", which I find to be absurd. There is no legal basis for that requirement.

Anyone encounter this before, or have thoughts on this?

Thanks,
David