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Does having a Self-Directed IRA Trigger an IRS Audit?

It is not uncommon to hear some full-service custodians that do not work with the “checkbook control” self-directed IRA LLC to make claims that suggest that using a “checkbook control” IRA LLC could prompt an IRS audit. However, the facts suggest that this is nothing more than a negative marketing ploy.

When it comes to IRS reporting for a self-directed IRA, every IRA administrator or custodian is required to complete and file an IRS Form 5498. The IRS Form 5498 reports your total annual contributions to an IRA account and identifies the type of retirement account you have, such as a traditional IRA, Roth IRA, SEP IRA or SIMPLE IRA. Form 5498 will also report amounts that you roll over or transfer from other types of retirement accounts into this IRA. The “custodian” of your IRA, typically the bank or other institution that manages your account, will mail a copy of this form to both you and the Internal Revenue Service. The Form 5498 requests information pertaining to the IRA account, including the name and address of the IRA custodian, the amount of any IRA contributions or distributions taken during the year, and most specifically, the value of the IRA account as of December 31 of the prior year.

Does using a self-directed IRA LLC trigger an IRS audit?
Does using a self-directed IRA LLC trigger an IRS audit?

Interestingly, the IRS Form 5498 does not ask for the type of investments being made with the IRA funds. Hence, when the IRS receives a copy of the IRS Form 5498, the IRS does not know whether you have invested your IRA account in stock, mutual funds, gold, domestic or foreign real estate, notes, or a private business. This goes back to the intent of the form, which is to provide the IRS with a summary and overview of the current value of your IRA as well as the amount of contributions and/or distributions taken during the year in order to match those amounts on your individual tax return.

The fact that IRS Form 5498 does not provide the IRS with any information on the types of investments that have been made with your self-directed IRA would make it hard to argue that using a self-directed IRA LLC would trigger an IRS audit. If the IRS does not know what your IRA is investing in, for example, did it invest in stocks, mutual funds, a single member LLC, a partnership, a foreign entity, real estate in Texas, California, Texas, or even Canada, how could one argue that using a self-directed IRA LLC would trigger an IRS audit. With over 45 million IRAs in the United States and over 90% of IRAs investing in a traditional assets, such as stock and mutual funds, while also not receiving any information about the IRA investment, how exactly could one argue that using a “checkbook control” IRA LLC would trigger an IRS audit. It would seem that any such talk is merely marketing rhetoric, which is not founded on any fact or truth.

To learn more about the “checkbook control” self-directed IRA, please contact a tax expert at 800-472-0646 or visit us at

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Posted in Self-Directed IRA