Ask the IRA Expert: Do I Need to Worry Beyond Sweat Equity?

By John Bowens0 Comments

Question:
 
Dear Sir,

As I understand the IRA regulations, I cannot provide any services to my IRA in the form of sweat equity or management of the property held in the account. Perfectly understandable.

What about providing the services at tax sales of registering to bid, bidding, traveling to and from the tax sale, dealing with the recording of the deeds and subsequent sale of properties acquired?

Are these services according to black letter law?

Are these not services under the intent of the law?

Do you have any tax court rulings, memos, PLR’s or anything to address this question?

Thanks in advance,
Newt
 
Answer:
 
Hi Newt,
 
Thanks for your question. This is definitely a situation where I won’t be able to give you a definite ‘yes’ or ‘no’ or give any tax advice. What I can do is tell you a little bit about prohibited transactions that will hopefully clarify the rules. However, for your situation (or anyone for that matter) you definitely will want to speak with your tax advisor or financial professional.
 
As far as legal items to address this issue, the first place I would look is IRC 4975. This is where the IRS describes what constitutes a prohibited transaction and what type of activity may qualify as one. With regard to tax liens and other things, it’s difficult to say because Equity Trust does not perform the test of whether you are “furnishing goods, services or facilities to the IRA”.
 
I think the emphasis on sweat equity is perhaps the most important point. I haven’t heard of a situation where an IRA holder was audited for driving to a tax lien sale on gas they paid for out of pocket. However, doing repair work personally on a property that is held in your IRA is obviously a prohibited transaction as you are a disqualified individual and you’re adding value to an asset.
 
A tax advisor equipped with all of the details of your situation will be best suited to give you a response as far as which services are definitely prohibited and which are just functions of you holding a self-directed IRA, but I hope this has given you a starting point.
 
John Bowens
 
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