SD-IRA Tax Handling for Investing in Single-Member LLC

[Robert Borer]

Greeting BP RE tax gurus:

I've received a notice from my SD-IRA custodian to report the fair market value of my "investment".

I invested in a Single-Member LLC, of which I am the "Single-Member". The single-member LLC was created with a bank account with a starting balance. The LLC is nothing more than a vessel to hold my real estate funds within and doesn't provide any services or sell any products or actually generate any revenue. I've essentially used this LLC as a way to pay for real estate-related expenses.

I have two questions related to this.

First - would the "Fair Market Value" in this situation literally be the balance in the bank account for this LLC?

Second - Is there an ideal strategy for what that bank account balance should be at the end of the year?  Would there be a tax consequence if the balance at the end of the year was greater than the starting balance? Lower than the starting balance?  If so, what should I anticipate for taxes?

Thanks for your insights

[Dmitriy Fomichenko]

Robert, there would be no tax consequences regardless of what the account balance is. If there was some unrelated business income then UBIT tax would apply.

The value of the LLC consist of the assets of the LLC, if there are no assets it would be just the balance in your LLC checking account. If there are assets in the LLC you have to get the value of each, add them all up (including the balance in the bank account of the LLC) and provide that single number to your custodian.

You said that you used your IRA LLC to pay for real estate related expenses. What do you mean by that, which expenses did you pay?

Does the LLC own any real property?