Self-Directed IRAs Under IRS Scrutiny: Successfully Clearing the Legal and Tax Minefield Avoiding Valuation Errors, Prohibited Transactions, and UBTI; Protecting Tax-Deferred Status WEDNESDAY, MARCH 18, 2015, 1:00-2:50 pm Eastern IMPORTANT INFORMATION This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . Listen on-line via your computer speakers. • Record verification codes presented throughout the seminar . If you have not printed out the “Official Record of • Attendance”, please print it now . (see “Handouts” tab in “Conference Materials” box on left -hand side of your computer screen). To earn Continuing Education credits, you must write down the verification codes in the corresponding spaces found on the Official Record of Attendance form. Complete and submit the “Official Record of Attendance for Continuing Education Credits,” which is available on the • program page along with the presentation materials. Instructions on how to return it are included on the form. To earn full credit, you must remain connected for the entire program. • WHOM TO CONTACT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Program : -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.
FOR LIVE EVENT ONLY Sound Quality When listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, please e-mail sound@straffordpub.com immediately so we can address the problem. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to “Conference Materials” in the middle of the left - • hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides and the Official Record of Attendance for today's program. • Double-click on the PDF and a separate page will open. Print the slides by clicking on the printer icon. •
Self-Directed IRAs Under IRS Scrutiny: Successfully Clearing the Legal and Tax Minefield Mar. 18, 2015 Warren L. Baker, JD, LLM James A. Jones Fairview Law Group Self-Directed IRA Investment Institute warren@fairviewlawgroup.com jamesalfredjones@verizon.net Kristen M. Lynch Elizabeth Trebotich Fowler White Burnett Growth Equity Group klynch@fowler-white.com lt@growthequitygroup.com
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 5
JAMES A. JONES SELF-DIRECTED IRA INVESTMENT INSTITUTE (602) 325-1222 jamesalfredjones@verizon.net
What is a Self-Directed IRA? A Self-Directed IRA or SDIRA is an IRA that is designed to let the IRA holder invest in alternative assets other than stocks, bonds and mutual funds. They are like any IRA in regards to IRS Publication 590 in regard to contributions, distributions, rollovers and transfers Self- Directed IRA’s are available in Traditional, Roth, SEP’s, I - 401K’s, HSA’s, and Coverdell Educational Accounts www.linkedin.com/in/selfdirectediravisionary James A. Jones – Self-Directed IRA Investment Institute 7
Investment Options in a Self-Directed IRA Precious Private Metals Peer-2- Secured Air – Water Investment Tax Lien Equity and (certain Peer Promissory – Mineral Real Estate Certificates Debt metals Lending Notes Rights types) www.linkedin.com/in/selfdirectediravisionary James A. Jones – Self-Directed IRA Investment Institute 8
Private Equity and Debt Private Equity & Real Estate Debt • Asset class has • Is the fastest traditionally growing asset represented the class in the last largest asset 3-4 years. class. • Average growth • Averaging 60- rate of 25-50% 70% of SDIRA’s. www.linkedin.com/in/selfdirectediravisionary James A. Jones – Self-Directed IRA Investment Institute 9
Private Equity and Debt Defined Private Equity Private Equity Investment Is an asset class Will generally be consisting of equity made by a private securities and debt in equity firm, a venture operating companies capital firm, an angel that are not publicly investor, or accredited traded on a stock investor exchange. Note – while private equity firms and venture capital firms invest other people’s money. www.linkedin.com/in/selfdirectediravisionary James A. Jones – Self-Directed IRA Investment Institute 10
Reasons for Explosive Growth of Private Equity and Debt The 2008-2009 Global Market Meltdown • Has left huge opportunities for the top private equity firms using leveraged buyouts generating $ trillions in new equity and debt. The Same Meltdown Resulted in Huge Losses for Investor Savings and Retirement Funds • And investor disillusionment with Wall Street investments and the move toward diversifying in alternative asset classes. SDIRA Industry Education and Growth Efforts • Along with industry mergers, acquisitions and break-ups. The Emergence of Crowdfunding and Crowd Finance www.linkedin.com/in/selfdirectediravisionary James A. Jones – Self-Directed IRA Investment Institute 11
What is Crowdfunding and Crowd Finance? Online Exchanges That Matches Investors (the crowd) With Investing Opportunities Can be Equity, Debt or Peer Lending Based Can Now Advertise and Solicit Accredited Investors but not yet Non-Accredited Investors Non Credited Investors can Invest in P2P or Marketplace Opportunities www.linkedin.com/in/selfdirectediravisionary James A. Jones – Self-Directed IRA Investment Institute 12
Issues Associated with Private Equity and Debt IRS Prohibited • Not nearly the same potential problems as real estate other than not investing in an LLC owned Transactions by more than 50% of a disqualified person(s). SDIRA Custodian • Review the subscription agreement (investment Compliance offering) but their internal policies vary greatly in the time required. Reviews SDIRA Custodian • Time-consuming 3-step manual process of (1) opening the account, funding the new SDIRA Processing account via transfer or rollover, and (3) Directing Times the Investment . www.linkedin.com/in/selfdirectediravisionary James A. Jones – Self-Directed IRA Investment Institute 13
Update on federal oversight and more legal/tax problems to consider… W ARREN L. B AKER JD, LLM F AIRVIEW L AW G ROUP , PS 1910 F AIRVIEW A VE E., S UITE 500 S EATTLE , WA 98102 P : 206-753-0305 E : warren@FairviewLawGroup.com
Form 5498 Update and GAO Report Warren L. Baker – Fairview Law Group, PS 15
Form 5498 Reporting Changes • Form 5498: once-per-year disclosure form from IRA custodian to IRS (similar to Form 1099 from custodian to IRA owner) – IRA contributions – Rollover contributions – Roth IRA conversions – Required Minimum Distributions (if required) – Fair Market Value of IRA • Effective 2015: two new “boxes” on Form 5498 – 15a: Fair market value of “certain specified assets” – 15b: “Code” corresponding to the type of asset listed in 15a Warren L. Baker – Fairview Law Group, PS 16
Government Accountability Office (GAO) Report • GAO commissioned by U.S. Senate Finance Committee to look at “Large Balance IRAs” • Preliminary report: – 9000 IRAs worth more than $5 million (as of 2011) – 314 IRAs worth more than $25 million (too low?) • Final report: GAO-15-16 (publicly released: 11/19/14) , entitled “IRS Could Bolster Enforcement on Multimillion Dollar Accounts, but More Direction from Congress Is Needed” Warren L. Baker – Fairview Law Group, PS 17
GAO recommendations Congress should consider revisiting the use of IRAs. Options: 1) The types of assets permitted in IRAs. 2) The minimum valuation for an asset purchased by an IRA. 3) The amount of assets that can be accumulated in IRAs and employer- sponsored plans that get preferential tax treatment. Warren L. Baker – Fairview Law Group, PS 18
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