UBIT Self Directed IRA (wholesaling)

28 Replies

I'm brand new to Bigger Pockets (having signed up over this past weekend) and this is my first reply.  So please pardon me if I don't follow the rules properly.  Also, full disclosure: I work for a trust company that specializes in providing custodial services for self-directed IRAs.

My reason for offering a reply to this rather stale topic is that it seems to me there is a lack of clarity in the responses when viewed as a whole.

Let's look at the original post. The background is that a taxable LLC partners 50/50 with a self-directed IRA to do wholesaling. Let's assume for illustration purposes that the taxable LLC and the self-directed IRA form a new LLC with each being a member. Presumably the CPA's advice on taxation of each entity is based on consistent tax treatment were the entities members of this new LLC.

That is, if the taxable LLC receives a K-1 from "new" LLC in which business income is reported, the same should apply for the IRA. If the K-1 has capital gains for the taxable LLC, it should show capital gains for the IRA as well.

The same logic would apply if the taxable LLC simply co-invested with the SDIRA, without forming a separate LLC.

Otherwise, imagine trying to explain to an examiner why you reported the wholesaling operation as income for one partner, but capital gains for the other.

I would suggest, therefore, that when considering whether an IRA investment is subject to UBIT, first ask yourself how you would treat the taxes due if you used non-IRA funds instead.

And by all means talk to your CPA before making the investment.

Apologies if I misunderstood the original question and my reply is off base.

It would be great for someone with actual knowledge to post some case law.  There is a lot of copy and paste here of the IRS rules, which I think we all know if we have studied the subject of SDIRA's and Solo 401k's...

it would be helpful to know if anyone has ever survived an IRS audit and avoided UBIT who was wholesaling? I have heard great responses both for and against it, but no one who has been there and done it.  Has anyone here actually been audited and what were the actual results etc... and what did the IRS tell you in their findings?

Originally posted by @David Oldenburg :

It would be great for someone with actual knowledge to post some case law.  There is a lot of copy and paste here of the IRS rules, which I think we all know if we have studied the subject of SDIRA's and Solo 401k's...

it would be helpful to know if anyone has ever survived an IRS audit and avoided UBIT who was wholesaling? I have heard great responses both for and against it, but no one who has been there and done it.  Has anyone here actually been audited and what were the actual results etc... and what did the IRS tell you in their findings?

good question.. but I learned of UBIT 25 years ago.. not sure anything has changed.. by the time you get audited and create case law you probably spent more on legal fee's than most have in their IRA. LOL

 

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