The legality of the Checkbook IRA structure has not come under question since the IRS conceded that investing IRA funds in a wholly owned entity is not a prohibited transaction in the U.S. Tax Court case Swanson V. Commissioner 106 T.C. 76 (1996).
In light of Swanson, some IRA custodians are still trying to mislead individuals without any legal basis that the “checkbook control” IRA structure could at some point become prohibited by the IRS. These IRA custodians, who are not able to provide any type of legal advice to their clients or are trained legal experts on this subject, are nevertheless misleading anyone who will listen on the legality of the checkbook IRA structure. The reason is obvious – money and higher account fees. These IRA custodians are aware of the checkbook IRA and it’s ability to provide the IRA holder with greater control and freedom with their retirement funds. Greater control and investment freedom translates into lower custodian fees and makes it much harder for these IRA custodians to compete with the IRA passive custodian servicing “checkbook control” IRAs. With this in mind, some IRA custodians have been trying to convince investors that the “checkbook control” IRA solution could potentially come under IRS attack.
The legality of the “checkbook control” IRA structure is unquestioned as it has been recognized by the U.S. Tax Court in Swanson v. Commissioner and later confirmed by the IRS in Field Service Advice Memorandum 200128011. Since the Tax Court’s ruling in Swanson and the IRS ‘ issuance of Field Service Advice Memorandum 200128011, the IRS has never re-questioned the legality of the “Checkbook Control” IRA structure.
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