Law Offices of Givner & Kaye Newsletter | August Issue 


         People with IRAs want to control their investments.  So they are attracted to something called a "Checkbook IRA."  The basic idea is that the IRA custodian allows your IRA to own all of the interests in an LLC and appoint you, the IRA owner, as the manager of the LLC.  The problem with that structure is that it is an attempt to get around the statutory requirement that an IRA have a custodian or trustee.  The IRS has not formally objected to the structure, though at conferences IRS personnel have informally grumbled about it.


          People pushing this structure cite the Swanson case, 106 T.C. 76 (1996) as justifying you being the manager of the IRA's single member LLC.  They also cite FSA 200128011.  However, both the case and the IRS Field Service Advice involved operating businesses.  By contrast, most checkbook IRAs involve the investment in trust deeds on real property. 


          In any event, if you are interested in this structure, let's talk.  There are prohibited transaction and unrelated business taxable income issues to be addressed in each situation.  There is one big reason to keep your money in a qualified plan rather than switching to an IRA: if there is a prohibited transaction in an IRA, you are immediately taxable on 100% of the account.  By contrast with a qualified plan there is simply an excise tax, usually only 15% of the "amount involved." 


          Best regards.


                    Bruce Givner

                    Owen Kaye

                    Kathleen Givner

                    Neda Barkhordar

Featured Article: Pros & Cons of Non-Grantor Trusts for Large Capital Gains

      Joe has an asset that will be sold in the next few years for a large capital gain.  His first instinct is to move to Nevada to avoid the California tax which, at 13.3% and non-deductible if the gain is large (because in the AMT the state tax is non-deductible), makes the total tax rate on capital gains 37.1%.  However, to move he must uproot his children from their schools and his wife from her home which has a view of the beach.  Is there an alternative?


          A Nevada non-grantor trust (or a Wyoming non-grantor trust or a Delaware non-grantor trust) can be created to own the asset.  If none of the trustees and none of the beneficiaries are California residents, then on the asset's sale the gain will not be subject to California tax.  How can Joe accept not being a beneficiary of the trust?  It is a technical point, but California does not count as a beneficiary someone whose interest is subject to the trustee's discretion.  So if Joe, his wife and the children are beneficiaries but the trustee has the discretion whether or not to distribute anything to them, they do not count as beneficiaries for purposes of determining whether the trust has California beneficiaries.  This trust will allow Joe to decide, perhaps many years in the future, to move out of California and, at that point, take distributions from the trust.


          This is a complex topic but it may be worth exploring for large gains.


       Contact Us today to learn if an out-of-state non-grantor trust is the right option for you.

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Attorney Spotlight: Upcoming Engagements

Bruce and Neda will be speaking on August 15 at the Olympic Collection to the Hollywood/Beverly Hills Discussion Group of the L.A. Chapter of the California CPA Society on "International Estate Planning." 


Bruce will be speaking with Bill Staley on August 29 to the same group on "Basis Planning Is The New Estate Planning." More info.


Owen will be speaking to the L.A. Chapter of the Californnia CPA Society on August 26th about "LLCs - Beyond the Basics." More info

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Tax Tip of the Month

Checkbook IRAs are getting great publicity.  One firm - Equity Trust of Ohio - argues that they cannot possibly work.  Another firm - of Arizona - argues that they are great.  The answer is probably somewhere in between.  The IRS has not blessed Checkbook IRAs, as Equity Trust warns.  However, they can work, as suggests.  If your retirement assets are in a qualified plan, it is safer to make investments in the qualified plan.  Why?  Because if your IRA gets into a prohibited transaction, that causes you to be immediately taxed on 100% of the value of the IRA (and possibly a 10% premature distribution excise tax).  By contrast, if your retirement plan engages in a prohibited transaction, that results in a 15% excise tax.  If you decide to explore this option, give us a call.  Sound tax law advice can make the difference between a good and a disastrous result. 


Bruce Givner & Owen Kaye
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Upcoming Thursday Insights Series Seminar:  
Section 482: Transfer Pricing Problems and International Tax Planning Opportunities with Bruce Givner 
Aug 21 2:30pm-4pm
We will discuss some problems of interpretation under the statute; interpreting the arm's length standard in the regulations; the best method rule;
and some examples.
Join us in the office or online via webinar, where you can watch the folks in the room listen to and question Bruce.  
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August, 2014

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