Several weeks ago, I received some disturbing news from some of my closest advisers (all professional tax attorneys) regarding IRAs.
They told me that suddenly, practically overnight, many IRS employees at the agency’s call center who assign tax ID numbers were refusing to issue a federal tax ID for US LLCs that are owned by an IRA.
This was a critical piece of news given that millions of US taxpayers hold their retirement savings in an IRA.
Most IRA accounts are rather poorly managed by some big financial institution that rakes in huge fees regardless of the performance of their clients’ funds.
By setting up a self-directed IRA structure, an individual can take back control of his/her own retirement savings, opening up a whole world of investment possibilities.
This even includes shipping retirement funds overseas, which is something that makes a lot of sense these days.
We’ve been writing about this for years: history shows that governments deeply entrenched in unsustainable debt positions almost routinely resort to plundering their citizens’ wealth.
Given the trillions of dollars in retirement savings in the Land of the Free, IRAs are an awfully tempting target.
And it’s one of those things that makes sense… no matter what. How is someone worse off for taking control of their own retirement savings rather than letting some disinterested bank skim off the top?
So when my advisers told me this information, I was concerned. Because in order to set up one of these structures, it’s necessary to first obtain a tax ID number for an LLC owned by your IRA.
And this is exactly what some IRS agents started prohibiting.
We followed up on multiple fronts, including with some contacts inside the agency itself. And I was told unequivocally from sources within the IRS that this is a real issue.
They explained to me that the IRS is anything but a well-oiled machine that speaks with a unified voice.
On the contrary, it’s an unwieldly, bureaucratic organization. And a number of ‘fiefdoms’ exist in which mid-level managers pass edicts down to their underlings that are not official policy.
Needless to say, not everyone is on the same page. But my advisers’ reports were definitely confirmed from within.
There does not seem to be any sinister intent. The main issue underpinning the move is that a number of taxpayers have misused these structures.
Self-directed IRAs do give people a tremendous amount of latitude over their own retirement savings. But there are some ‘prohibited transactions’ that the IRS defines very clearly.
You cannot, for example, loan money from your IRA to your children. Nor can you purchase real estate for your personal use with your IRA’s funds.
Because there have been so many violations of prohibited transaction rules, somewhere in the agency, someone seems to have directed his/her ‘fiefdom’ to disallow the issuance of tax ID numbers for these structures.
We’ll never know because it’s not official policy. Not yet. And there are agents who have never heard of any such directive and are still issuing tax ID numbers.
But my sources tell me that these self-directed structures may end up on the list of ‘recognized abusive and listed transactions’.
This would be a terrible outcome as it would effectively terminate one of the only real options to move your retirement funds away from the control of an insolvent government.
Needless to say, the original article I wrote warning about this news triggered a wave of indignant letters, mostly from vitriolic attorneys who charge thousands of dollars to set up these types of structures for their clients. Some even called this a “lie”.
(Right, that makes so much sense…)
I recognize that their experiences may be different. And given that they stand to lose a lot of business if this move becomes official policy, I understand the hostility, however misguided it may be. I’m sure even more will follow now.
The good thing to come from this is that the article also triggered a flood of calls to the agency itself.
And the last thing the IRS wants right now is additional scrutiny and negative headlines. So they seem to have backed off for the time being.
However, I still plan on forcing the issue with the IRS, and I’ve asked my advisers to seek formal clarification from the agency.
My hope is that they deny the whole thing and go on the record condoning self-directed IRA structures. This would be a major victory.
But if they push back, then we’ll know that yet another destructive policy is afoot, something that is tantamount to capital controls.
Given what’s at stake, this is a critical issue that’s worth exploring, not dismissing.
Via: Simon Black
SovereignMan.com
Start now to make sure you are staying prepared.
Follow
Leave a Reply