Eighth Circuit Court of Appeals Affirms Tax Court Decision On Self-Directed IRA

The Eighth Circuit Court of Appeals has recently affirmed a Tax Court decision that sustained penalties on a married couple using “their self-directed IRA plans to fund a business venture.”  The taxpayers created an LLC to sell use cars.  Two members were listed on the LLC operating agreement, one of them was a self-directed IRA owned by the husband.  The taxpayer was listed as the general manager and the LLC paid a salary.  The IRS imposed a notice of deficiency determining that the taxpayer committed prohibited transactions by giving his IRA membership interest in the LLC and receiving wages.  The Court of Appeals held that the taxpayers prohibited actions caused the IRA to lose its qualified status.  The Decision of the Eighth Circuit Court can be read here.

See Mel Schwarz, Dustin Stamper, and Shamik Trivedi, United States: Circuit Court Decision Reflects Risks Associated With Self-Directed IRA Plans, Mondaq, July 20, 2015.