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Is the Self-Directed IRA LLC “Checkbook Control” Structure Legal?

There is really no question today whether the self-directed IRA LLC “checkbook control” solution is legal. On October 2013, the Tax Court in T.L. Ellis, TC Memo. 2013-245, Dec. 59,674(M) (“TC Memo 2013-245”) held that establishing a special purpose limited liability company (“LLC”) to make an investment did not trigger a prohibited transaction, as a newly established LLC cannot be deemed a disqualified person pursuant to Internal Revenue Code Section 4975. Ellis was the first case that specifically addressed the use of a special purpose LLC wholly owned by an IRA and managed by the IRA holder to make investments. The Swanson Case and 2001 IRS Advisory opinion are important, but did not deal specifically with the LLC as the special purpose entity making the IRA investment. It is clear from the Ellis case that using a newly established LLC wholly owned by an IRA to make investments will not trigger a prohibited transaction. The IRS is more concerned about the ultimate investment then whether an LLC was used or not to make the investment (see Ellis case – https://www.irafinancialgroup.com/learn-more/self-directed-ira/self-directed-ira-the-law/).

Self-Directed IRA LLC with "checkbook control" is IRS Approved
Self-Directed IRA LLC with “checkbook control” is IRS Approved

In addition, below please find a link that describes the legality of the self-directed IRA LLC “checkbook control” structure in greater detail:

Self-Directed IRA Info Kit

The self-directed IRA LLC “checkbook control” structure is essentially a structure that uses a special purpose entity (LLC) as a means for allowing the IRA investor to make IRA investments quicker and with lower annual fees.

If you would like to learn more about the legality of the self-directed IRA LLC “checkbook control” structure, please contact a retirement tax specialist at 800-472-0646

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Posted in IRA Financial Group, Self-Directed IRA