Don't Confuse the IRS by Using the Wrong TIN for Your SDIRA Investment

One of the more common errors I have seen with single-member LLCs (aka "Checkbook IRA") in an IRA is the use of an incorrect TIN for an investment.

When you make a direct investment (IRA or taxable) in a fund or syndication you are required to provide a TIN on the subscription agreement (sometimes a W-9 is required as well). In the case of an investment using a SDIRA, the custodian should have procedures in place to make sure the correct TIN is shown before they execute the subscription agreement on behalf of your IRA.

This TIN will be provided to you by the custodian. It is not the actual EIN that the custodian is using to conduct its business; rather, it is a separate number that has been established to let the IRS know that income or gains reported by the fund have been passed-through to a tax-deferred entity (your IRA). This prevents the IRS from sending you a letter stating that you under-reported the gain/income for the tax year in which it occurred.

This same TIN should be used when making an investment from your Checkbook IRA or Trust IRA. This is the only way the IRS knows that the status is tax-deferred. If you use the TIN that you established for the LLC or Trust, then the IRS assumes that any gains reported by the fund or syndication (for example, in the K-1) should be taxed in accordance with the rules for that entity (LLC or Trust).