Questions regarding of Self Directed IRA

3 Replies

Hello,

I have some questions regarding of SD IRA.

Our company is a property investment company mainly concentrated on State Auction and we've been funded by the several clients through their SD IRA LLC accounts.

Per loan agreement between our company and the clients, we provide a specific rate of return yearly to our client who lend us their fund through their SDIRA LLC

We mainly flip the properties and sell them within three months. I don't think there is no tax consequences on client's ends since they lend us the fund as a loan which they are not directly involved in real estate. I wanted to make sure.

Should we provide documents such as a statement to our clients which shows the interest earnings we have promised to pay?Where should we deposit the interest rate to; Client's SDIRA Trust account FBO client's name or Client's SDIRA LLC checking account?

Your reply will be greatly appreciated. Thank you.

@Peter Yoo

It sounds as if the clients are simply lending money on an unsecured basis to your firm.  I personally would not do that as an investor.  The better option would be to have a deed of trust as security for a note, secured by a specific property being invested into.

In the IRA LLC model, all of your interactions are with the LLC, not the underlying IRA that owns the LLC.

If the client is purely receiving interest on a note, this is deemed passive and not subject to taxes such as UBIT.  If the income is in any way a "cut of profits" on deals, then that could have UBIT exposure.

Peter, congrats on pulling the plug and making your first comment on the forum!

There would be no UBIT exposure if what your clients do is simply lending funds to your company (you said there is a loan agreement between your company and their IRA's or IRA owned LLC). 

@Peter Yoo  

Do you issue a K-1 or a 1099-INT to the IRA LLC?

For example, generally a K-1 would only apply if the investment is treated as an equity investment instead of a promissory note.

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