All Forum Posts by: John Hyre

Based on the feedback from a high net worth client in the RE industry (you'd know his name if I mentioned it):  Very expensive, nothing he hadn't heard elsewhere in re tax planning, much more interested in up-sells.  I read his book (in both English & Spanish, good practice).  Nothing in there that the dozen or so tax pro's who post here wouldn't know.  Useful tips, very "Tax Planning 101".  In fairness, I'd not expect more from a mass market paperback.  

There are a number of people who post here who will likely provide way better bang for the buck.  When you are dealing with someone who is as well publicized as Wheelwright, you pay a premium for the name.  

@Michael Plaks, as toFLP's & FLLC's - we only recommend them for clients with either $1M+ net worth or in situations where a trustee is needed because the beneficiaries might do Bad Things with the money.

I second @Michael Plaks question (I think NV, WY, DE LLC's for RE are amusing but not really useful, holding companies excepted in certain circumstances) and will add one:

What is the benefit of a Series LLC over a regular LLC, other than cost savings? I think that the asset protection of Series is actually inferior to that of regular LLC's. Why? Because regular LLC's have been tested, whereas Series LLC's (especially in states where the statutes are not well drafted) are untested. Why risk it for a fairly minor cost savings?

Also: Isn't it silly that some states would create a Series LLC, including a whole new statute, instead of just dropping the price on regular LLC's?

@Brian Eastman, here's the language from 4975(c)(1):

"(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;

(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest or for his own account; or

(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan."

I do not see that it is multi-directional based on the language above.

Now, I can see why as a matter of policy or advising clients why one might broadly advise "no benefit either way" - belt & suspenders, easy to communicate & understand, more protective.

It's been a relevant issue, because I have had clients who thought, usually based on feedback from custodian, that they had a PT because they benefited the account.  I advised no PT, because benefit did not go the "wrong" way.  Probably an excess contribution under 4973, but those are very lightly penalized compared to PT's.

@Carl Fischer and others, any thoughts?  I really am looking to see if I am missing something.

@Brian Eastman, let's have a technical discussion.  

1st, I agree with what you and the the posters are telling the OP, though for perhaps a different reason than is being expressed. Specifically, it's a PT to provide services (whatever that means) to one's own IRA.

But I'd assert that it is not a PT to provide the IRA a benefit - it is only a PT when the IRA provides you or another DP a benefit. Your providing the IRA a benefit is an excess contribution - but not a PT.

Am I mistaken?

Good comments.  

@Natalie Kolodij's comment is spot on:  You are asking us to help you hide a  clear and premeditated PT.  No thanks, I like my license, my freedom, and my reputation.  I am pretty darned aggressive, but what you ask is well beyond the pale.

I have taken SDIRA's through audits and Tax Court.  I won both Tax Court cases without having to litigate (IRS conceded the cases before trial).  I am one of the few people who has seen how the IRS deals with these issues.  They can and sometimes do look deep.  

For example: In a case where a client had a bunch of rentals in an IRA-owned trust, the IRS contacted the trustee, property manager, and some of the contractors and inquired as to both what they did with the properties, as well as what the IRA owner did. And while it sounds all "tough guy" to say you or your cronies will keep mum when the IRS asks questions.....that is not what happens in practice when they shine the light on you.

Tracking source of funds to a separate LLC that you funded in a "private" state - even if it is "owned" in "someone else's name" (aka via a nominee) is easily done if you are the IRS. That is a 101 type of technique, the IRS is very aware of it.

If "I won't get caught" is the approach, then you can whack anyone you want - as long as nobody wonders why the rose bushes in the back yard are growing so nicely and digs to find out.  But asking us to participate in structuring the cover up, not to mention posting it online, strikes me as rather poor judgment.

There are plenty of ways to grow SDIRA's/401K's/HSA's/CESA's legitimately.  I'd focus on those.

And spare the "Show Me How, Be Happy & Positive, Don't Be Negative and Tell Me No" pablum.  It's my job to interpret the tax laws aggressively (if the client is aggressive and understands the risks) and to save the client money.  It's also my job to keep clients from crossing clear black & white lines.

@Brandon Hall, well stated, good citations.  Thanks!

Natalie,

I'll agree on risk tolerance.  I suspect that you and I are different in that regard.  And of course, so is each and every client.  My clients tend towards the aggressive side.  I adjust for the more conservative ones.  Their money, their call.  I  also have to stop some of them short of recklessness.  It's a judgment call, and that's what we each get paid for - Judgment.  

As to "political attack ads" and similar rhetoric....such language is not designed to elicit a mild response.  Gonna dish it, be ready to take it.  I prefer to disagree in a cordial manner....and to push back if I think I am being addressed in something other than a cordial manner.

No one welcomes questions from the IRS.  Those take time, cause stress, and cost money.  But one does more than hope such questions won't materialize.  One prepares for them.  I see no need to fear such a thing in this case.  The law is less clear than we'd like, but still very much on our side.

I prefer to agree or disagree on the substance.  I laid out why I think as I do.  Not everyone will agree.  That's fine, especially if one can lay out their reasoning for how & why they think.  Did you disagree with the substance of what I wrote or have countervailing law that I did not think of?

You have made some great posts, and lots of them.  Looking forward to more.

Brian,

Knock on wood.  I hope they come out with something more definitive.

But I suspect they'll leave it as is, at least as far as this issue is concerned.  Much of the legislation was rushed due to political reasons - get it done before year's end and before new Senator from Alabama showed up.  Further - the bureaucracy at Treasury and IRS are not nearly as taxpayer-friendly as those who voted for the legislation.  And those same people like to give themselves lots of room to make decisions aka exercise "discretion", or more bluntly put, power.

Most people won't have to litigate.  A strong showing in audit with the case law I cited should do it in most instances.  I'll add:  Litigation on an issue like this is not usually as expensive as most people would think.  That's because most Tax Court cases are never seen by an IRS lawyer.  Appeals settles most of it before it gets that far, and often with a minimum of effort by taxpayer's counsel.  If the counsel is honest, that is....I've seen the process needlessly dragged out to run up hours in some cases.

I really do think that the case law is very much on the taxpayer's side insofar as rentals treated as a TB is concerned.....but most non-specialized tax advisers are not aware of it.  As it becomes an issue, more of this sort of data will get around.

Thanks for your posts - I have found them helpful.  I'd like to post more often, but probably will not find the time for another x number of months.  Practice is booming, and we are moving to Puerto Rico for Act 20/22 & IRC 933 benefits.  My practice is virtual and my wife & I are of Latin extraction, so it's a perfect fit - welcome to circa 6% federal, state, and local combined tax rates!  But it's killing me time-wise.  Good, first-world problem to have.

Mike Dymski, thank you for the kind words.  I have profited from this website, including posts from people who presently disagree with me on 199A & rentals.  I am glad to share, I learn a lot here.

And yes, my present opinion is that if the syndication (presumably via LLC or LP) is a itself is a TB, then the partners, no matter how "passive" they are personally, get to use 199A on pass-thru K-1 income.