Q: Taking assignment of a tax lien in a sdIRA.

[Paul Gold]

Hi all, hope you are well this evening. Considering the following scenarios and would like opinions about whether the IRS would consider them allowable transactions, please.

My brother and I each have our own portfolio of IL tax lien certificates, completely independent of each other. There is absolutely no common ownership. The tax liens are purchased directly from the County. If it does not redeem, we file a petition in court a couple years later asking the judge to issue a tax deed. At the time of the auction one can not know which certificates will become deeds. There is a decent profit potential for those that do become deeds.

What we would like to do is to have my sdRothIRA purchase some of those older liens that are about to become deeds from my brother's portfolio. His sdRothIRA would do the same from my portfolio. Essentially only cherry-picking the good stuff. The sdRothIRAs would quickly flip the properties. The gain would be taken into the Roth, tax free. Interested on thoughts on whether this would be an allowable transaction? Thanks!

A variation we discussed is to individually go to deed personally, then have the sdRothIRA buy an option to purchase (the price being some figure slightly above the after-rehab hard dollar cost) on or before some specified future date. Then we would find an arms length buyer and have two closing on the same day. The sdRothIRA buying from the brother, and that sdRothIRA selling to the new buyer. Again, the gain would be taken in the sdRothIRA, tax free.

These are pretty blatant moves to take the gains into the sdRothIRA, yet they seem to conform to the rules of the game. Are we missing something? Thank you!!