EIN and Checkbook IRA LLC

[Matthew Will]

I have created a Checkbook IRA LLC.

I have formed a Single Member LLC (SMLLC) with the sole member being the CUSTODIAN FBO ME IRA. The SMLLC has a checkbook and EIN. My goal is to invest in Private Equity through the SMLLC. Until all capital is called I desire that my SMLLC invest in mutual funds and need to set up a brokerage account.

Some brokerage firms will not allow me to create an account if the beneficial owner is my IRA. Those that will, require me to enter the SSN/EIN of the Single Member (i.e. CUSTODIAN FBO ME IRA) and I do not have one.

My custodian advises me to obtain an EIN for CUSTODIAN FBO ME IRA and not use my personal SSN. The IRS website says ” An individual retirement arrangement, or IRA, is a personal savings plan that allows you to set aside money for retirement, while offering you tax advantages. The IRS will only issue an EIN for an IRA trust account if the individual intends to file Form 990-T (Exempt Organization Business Income Tax Return) or Form 1041 (U.S. Income Tax Return for Estates and Trusts).”

Questions

1. Do you concur that my IRA (CUSTODIAN FBO ME IRA) needs an EIN?
2. If yes, do I need to file a tax form each year for CUSTODIAN FBO ME IRA as indicated on the IRS website?

3. If yes, which form do I file?

4. Am I correct to assume I must still file the form even since there will not no income tax due?

[Mat Sorensen]

Matthew, Yes, the TD Ameritrade account for IRA/LLCs is the best option if you want to use a brokerage account. That's a pretty new option but I'm so glad the brokers are finally figuring this out. The other options we tell clients is to move money from the IRA/LLC bank account back to the Self directed IRA and to do a transfer from the self-directed IRA to the brokerage IRA. This is a viable option if you move money around only once or twice a year. The other option, of course, is a regular brokerage account in the LLCs name (no margin account) but we have seen issues with this (as has been noted in the prior posts) and 1099 reporting and withholding done by the brokers.

As to what EIN to use, first, use the LLC EIN where possible. When using a W-9 the instructions on a single member LLC say you need to list the EIN of the underlying owner (e.g. the IRA). What I recommend is to list the IRA as the underlying owner (e.g. ABC Trust co FBO Mat Sorensen IRA) and then list the custodians reporting tax ID. That way you don't end getting the tax reporting personally. Another option is to list the IRA as the owner as Mat Sorensen IRA (how the IRS recognizes IRAs) as the owner listing the owner's SSN (this is the tax ID for the IRA until it obtains its own) or the IRAs own Tax ID if you have one (you'd only have one if you had UBTI and were doing 990-Ts). Using the custodian's Tax ID is best as it keeps the owners SSN off the tax reporting but both methods would be correct.

I hope that helps.