Crowd Funding question..........

[Robin Cornacchio]

Can a SD checkbook LLC, invest in crowd funding?

[Bernard Reisz]

@Robin Cornacchio

A Checkbook IRA-LLC is oftentimes the investment vehicle of choice for crowdfunding investments, as there are some crowdfunding platforms that do not accepts SDIRA investors - but utilizing the IRA-LLC enables you to get in.

An IRA can't be a shareholder of an S-corp due to a "technicality." S-corp is not a type of legal entity, but is rather an election by a business entity to be taxed under Sub-chapter S of the tax code, which provides for "pass-thru" taxation of the business's profits. However, a business that is owned by an IRA is not eligible for S-corp tax treatment. Therefore, the moment an IRA becomes an owner of an S-corp - it ceases to be an S-corp.

In contrast with the prohibited transaction rules to which IRAs are subject, investing an IRA in an S-corp would not violate IRA-rules and would not disqualify the IRA.

Once the rule is understood, the distinction between S-corp debt and equity investment by an IRA, is easily understood.