September 4, 2013
Sinagpore
Several weeks ago, I
received some disturbing news from some of my closest advisers (all
professional tax attorneys) regarding IRAs.
They told me that
suddenly, practically overnight, many IRS employees at the agency's call
center who assign tax ID numbers were refusing to issue a federal tax ID
for US LLCs that are owned by an IRA.
This was a critical
piece of news given that millions of US taxpayers hold their retirement
savings in an IRA.
Most IRA accounts are
rather poorly managed by some big financial institution that rakes in huge
fees regardless of the performance of their clients' funds.
By setting up a
self-directed IRA structure, an individual can take back control of his/her
own retirement savings, opening up a whole world of investment
possibilities.
This even includes
shipping retirement funds overseas, which is something that makes a lot of
sense these days.
We've been writing
about this for years: history shows that governments deeply entrenched in
unsustainable debt positions almost routinely resort to plundering their
citizens' wealth.
Given the trillions of
dollars in retirement savings in the Land of the Free, IRAs are an awfully
tempting target.
And it's one of those
things that makes sense... no matter what. How is someone worse off for
taking control of their own retirement savings rather than letting some disinterested
bank skim off the top?
So when my advisers
told me this information, I was concerned. Because in order to set up one
of these structures, it's necessary to first obtain a tax ID number for an
LLC owned by your IRA.
And this is exactly what
some IRS agents started prohibiting.
We followed up on
multiple fronts, including with some contacts inside the agency itself. And
I was told unequivocally from sources within the IRS that this is a real
issue.
They explained to me
that the IRS is anything but a well-oiled machine that speaks with a
unified voice.
On the contrary, it's
an unwieldly, bureaucratic organization. And a number of 'fiefdoms' exist
in which mid-level managers pass edicts down to their underlings that are
not official policy.
Needless to say, not
everyone is on the same page. But my advisers' reports were definitely
confirmed from within.
There does not seem to
be any sinister intent. The main issue underpinning the move is that a
number of taxpayers have misused these structures.
Self-directed IRAs do
give people a tremendous amount of latitude over their own retirement
savings. But there are some 'prohibited transactions' that the IRS defines
very clearly.
You cannot, for
example, loan money from your IRA to your children. Nor can you purchase
real estate for your personal use with your IRA's funds.
Because there have been
so many violations of prohibited transaction rules, somewhere in the
agency, someone seems to have directed his/her 'fiefdom' to disallow the
issuance of tax ID numbers for these structures.
We'll never know
because it's not official policy. Not yet. And there are agents who have
never heard of any such directive and are still issuing tax ID numbers.
But my sources tell me
that these self-directed structures may end up on the list
of 'recognized abusive and listed transactions'.
This would be a
terrible outcome as it would effectively terminate one of the only real
options to move your retirement funds away from the control of an insolvent
government.
Needless to say, the
original article I wrote warning about this news triggered a wave of
indignant letters, mostly from vitriolic attorneys who charge thousands of
dollars to set up these types of structures for their clients. Some even
called this a "lie".
(Right, that makes so
much sense...)
I recognize that their
experiences may be different. And given that they stand to lose a lot of
business if this move becomes official policy, I understand the hostility,
however misguided it may be. I'm sure even more will follow now.
The good thing to come
from this is that the article also triggered a flood of calls to the agency
itself.
And the last thing the
IRS wants right now is additional scrutiny and negative headlines. So they
seem to have backed off for the time being.
However, I still plan
on forcing the issue with the IRS, and I've asked my advisers to seek
formal clarification from the agency.
My hope is that they
deny the whole thing and go on the record condoning self-directed IRA
structures. This would be a major victory.
But if they push back,
then we'll know that yet another destructive policy is afoot, something
that is tantamount to capital controls.
Given what's at stake,
this is a critical issue that's worth exploring, not dismissing. I'll have
more to follow, hopefully soon.
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