self-directed IRA LLC transaction reviewer?

[Eric Tomlin]

Hello,

I am wondering if anyone knows if every IRA LLC needs to have a transaction reviewer? We had a multi member IRA LLC created last year. Now, in addition to the IRA quarterly maintenance and filing fees we keep getting emails stating that we need to pay a yearly fee for them to be our transaction reviewer. The language is weird as well, as the email states: each self-directed IRA LLC is required to have a transaction reviewer, as per article 2 of your LLC Operating Agreement. A Transaction Reviewer can be an attorney, CPA, or accounting firm. Although there is no regulatory requirement that you consult with your Transaction Reviewer periodically, it is nonetheless a regulatory requirement of the structure, and not an option.

Does anyone have any experience with this?

Thanks!

[Brian Eastman]

@Eric Tomlin

This requirement stems from your custodian, and not the IRS. While marketed as a way to protect both you and them, it is really just a move to cover their backside and does very little for you other than create administrative work and expense.  The reality is that if you engage in a prohibited transaction in June and your reviewer discovers that in November, it is still a prohibited transaction and there is no undoing that fact.  The custodian will be alerted and get to drop you like a hot potato, but it does nothing for you.  

A pre-transaction review would be meaningful and most smart investors will ensure they have proper guidance in advance of embarking on a new venture, but any custodial requirement for such would be entirely impractical.

Further, most custodians requesting this are fully aware that some LLC providers are actually providing the review service and others are just allowing you to sign off saying they are your reviewer when they have no real intention of performing the service - at least not in a meaningful way. In effect, any facilitator actually disclosing this service up front and adding a fee for the review service will be pricing themselves out of the market with most investors, because someone else is willing to sweep it under the rug and undercut them on price.

We have been implementing the IRA LLC for more than a decade, and used one custodian for many, many years (they will remain unnamed). When they added this requirement, that was one reason we decided to switch to using a much more reasonable and customer-focused custodial institution as the back-end for our programs. (There were other reasons too). Our ownership team and legal counsel had a pretty extensive and heated discussion with our original custodian, and from that experience, I can vouch for the fact that the points made above are exactly what is going on. They actually granted us an exemption from the requirement for some time, because A) they knew is was really not viable, and B) we have a solid track record of providing quality client education that they could trust.

One option may be to move your IRA-owned LLC to another custodian that does not have this requirement, which really is meaningless window dressing.

I will add, we are a very compliance oriented firm with a distinctly conservative approach to reporting and operations using the IRA LLC platform. We would have no problem with this layer of a review service if it was meaningful and broadly applied across the industry, but it is neither.