ILLMAS Posted March 27, 2014 Report Share Posted March 27, 2014 TP invested part of his IRA to purchase and rehab homes from an investment company, I have no issue with that, but this TP thought it would be easy for his wife open a corporation and for him to loan (was trying to copy investment co.) money to purchase and rehab homes for a profit. That didn't go well and ended using the money to buy building materials gave it to the first company he invested, he invested $60k at first, then he invested $40K in the wife's company, the 40k was used for materials. The legitimate investment company sold the property and the taxpayer recoup 100k and 19k in profits, how the heck do you account for this? Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 27, 2014 Report Share Posted March 27, 2014 You've got to be clearer as to what he's doing. I got lost after his IRA loaned money to wife's corp 1 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 27, 2014 Report Share Posted March 27, 2014 Yes, Marco, it's not clear to me either. Happy to help once I am clear on what happened. Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted March 27, 2014 Author Report Share Posted March 27, 2014 So sorry, I was trying to type my question, while waiting for Muppets Most Wanted to start, it was a family night and I should not been working. Here is the deal, TP was trying to copy how the investment company works, and thought it was a good idea to create an investment company under his wife's name, once established he loan money from his IRA to buy rehab properties. The idea failed, and his wife's company ended loaning the money the other investment company. My concern is if the second loan even qualifies as a loan or a distribution since it was not used for the intended purpose. My mini family vacation starts, heading off to Chicago Field Museum 1 Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 27, 2014 Report Share Posted March 27, 2014 I believe that your client has incurred a prohibited transaction, with the wife's corporation, that has disqualified his IRA and subjected it to tax and penalties. 2 Quote Link to comment Share on other sites More sharing options...
imjulier Posted March 27, 2014 Report Share Posted March 27, 2014 I'm not sure I agree with Jack just because I am not 100% certain. I do however have clients who use their retirement accounts to invest in real estate. In researching this, I found out about all the rules and prohibited transactions (which jack refers to) and determined that most clients are not savvy enough to do this on their own without significant guidance. Per your description, I suspect this is the case with your clients. That being said, I would have the concern that the IRA has become disqualified and is now fully taxable. This is one you need to spend some time and read up on. Not the most convenient right now but did they really just decide to tell you all this? If so, they can wait and live with the consequences. Where is the money? Is it back safely in an IRA or a legitimate self-directed IRA? I know this isn't that helpful but I'm just trying to throw some questions out there and continue the conversation.Julie 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 27, 2014 Report Share Posted March 27, 2014 I love the Field Museum! Quote Link to comment Share on other sites More sharing options...
North Idaho Rich Posted March 27, 2014 Report Share Posted March 27, 2014 I love the Field Museum! My favorites are the Shedd Aquarium and Science and Industry Museum. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 27, 2014 Report Share Posted March 27, 2014 Me, too. Favorite is the Science and Industry Museum. And, the Art Institute. Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted March 27, 2014 Report Share Posted March 27, 2014 I believe that your client has incurred a prohibited transaction, with the wife's corporation, that has disqualified his IRA and subjected it to tax and penalties. I like Jack's answer. Follow the money and draw straight lines thru it. $$$ to donuts you get to prohibited transactions. Rich 1 Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted March 27, 2014 Report Share Posted March 27, 2014 An IRA can INVEST into real estate. It can buy stock in a corporation. But the owner of the IRA can not invest into a corporation they own, or real estate they use. Rich 1 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 27, 2014 Report Share Posted March 27, 2014 I'm not sure I agree with Jack just because I am not 100% certain. I do however have clients who use their retirement accounts to invest in real estate. In researching this, I found out about all the rules and prohibited transactions (which jack refers to) and determined that most clients are not savvy enough to do this on their own without significant guidance. Per your description, I suspect this is the case with your clients. That being said, I would have the concern that the IRA has become disqualified and is now fully taxable. This is one you need to spend some time and read up on. Not the most convenient right now but did they really just decide to tell you all this? If so, they can wait and live with the consequences. Where is the money? Is it back safely in an IRA or a legitimate self-directed IRA? I know this isn't that helpful but I'm just trying to throw some questions out there and continue the conversation. Julie I think Julie is spot-on here. I would be very concerned that the IRA has become disqualified and is now fully taxable, but can't say for sure on the spotty details, but "Be afraid be very afraid". You are going to need to see documents on this one, not just the client's summary. And be sure you bill for the extra time, because even if he lucks out by some miracle, it's very important to establish the proof NOW. And if he is screwed, it's by his own doing, not your fault, but recognizing it and dealing with it now will still save him A LOT over what it would cost if not dealt with now, and the CP2000 comes 2 years later. Quote Link to comment Share on other sites More sharing options...
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