If I can't be comfortable with the SD IRA companies, the only alternative is to pay the federal & state income taxes & 10% federal early withdrawl penalty, so we can buy things other than what the brokerages offer.

Be mindful that if you have a 401k and it's not kept in compliance, it will make things really easy for the IRS to simply condemn the plan and present you with taxable assets.

Anything of value in exchange for work is income.You may be required to provide withholding deposits as well, state and federal.

The interesting observation is those proclaiming this position the loudest are often the ones who have done little or nothing in legalizing their lending operations, let alone worked to achieve compliance under state and federal law.

This is Federal law.

They manage their taxable income and let there overall investments grow and take out what they choose.I run across a lot of people making large incomes that are accumulating some net worth.

Bankruptcy is a federal code, with state specific laws.

Or is there federal incentive for them to hold onto them?

HAving say a 250 dollar a onth mortgage you can deduct that from your NOI to lower your taxable income.

That's reality.Which I'd say why that association of private lenders chose the term, to soften public perception.Hard money lender really isn't a proper term, some state law may use the term to describe who might be regulated or define a lending practice but it's not in federal law that I know of, private lender is.The issue of an individual who wants to be in the business using "Private Lender" is obvious, they don't want any negative connation, if any, related to Hard Money Lender and they don't want to just say Mortgage Lender as that can bring regulators snooping at the door since they are regulated.