Self directed IRA questions

[Jim Bentley]

Hi, I'm planning on creating a self-directed IRA with checkbook control, and moving enough money into it to purchase two rental properties. I've talked to and read information from several LLC SDIRA companies (Broad/Guidant/etc.) along with others who offer only custodial SDIRAs, and I feel confident that I would prefer the LLC SDIRA. I have several questions, but the companies I've talked to or visited all seem highly biased towards the products they're offering and biased against the 'competing' products, so I hope I can get some better answers here.

The biggest question I have regards taxes on the LLC. Some people say that with an LLC SDIRA, you have to do a full tax preparation every year and pay taxes just as if it were a 'normal' LLC. Others say that's not the case -you don't have to do a tax return for the LLC. Which is correct?

Another difference between the custodial SDIRA and LLC SDIRA regards the valuation of the IRA at the end of the year. The custodial folks say that the LLC has to get an official appraisal, while the LLC proponents say that I just have to send my own estimate. Again, which is correct?

The non-LLC companies are also saying that the IRS is going to come down hard any year now on LLC SDIRAs with massive fines, total loss of the value of the IRA, etc. As long as I'm totally above board on all of my transactions and have all of my receipts, documentation, etc., is there really anything to worry about?

Finally, is it true that with a custodial (Non-LLC) SDIRA, that with rental property you MUST use an independent management company to manage the property? I'm planning on managing it myself, which is the main reason I want the LLC SDIRA.

Thank you

[Steven Hamilton II]

Jim Bentley,

I do not find it likely that the IRS will be disllowing this structure. Yes the LLC is required to file a tax return. Your IRA will be required to file as well. What type of entity is the LLC in your case? That will determine what type of return is filed.

You do not need a formal appraisal each year; however, an approximately market value of the property will suffice.

As long as there is no prohibited activity going on there are no issues with the structure.

You do not have to use an independent management company; however, you should not be providing services to your IRA above and beyond basic paperwork. It is one thing to call a plumber, it is another to be there snaking the drains.

Managing your rental is a passive activity as the IRS has stated. Doing much more and providing sweat equity to the IRA is what is disallowed.

-Steven