FEB. 28, 2010 
 
The IRS on Friday released temporary and proposed regulations relating to reduced estimated income tax payments for qualified individuals with small business income in 2009 (TD 9480 and REG-117501-09). The regulations provide guidance on who is a qualified individual and what is a small business for these purposes.

The American Recovery and Reinvestment Act of 2009 reduced the amount of estimated tax that certain individuals must pay for tax years beginning in 2009 from either 100% or 110% of the tax shown on the preceding year’s tax return to 90% (IRC § 6654(d)(1)(D)). The temporary regulations explain who is a qualified individual for these purposes.

A qualified individual is any individual whose adjusted gross income on the previous year’s tax return is less than $500,000 and who certifies that more than 50% of the gross income shown on that return is income from a small business. For married taxpayers filing separately, the $500,000 limit is reduced to $250,000.

Income from a small business is defined as income from a business with fewer than 500 employees in 2008. The temporary regulations specify that it must be a bona fide business and the individual must be an owner.

To certify that he or she is eligible for the reduced estimated taxes, the temporary regulations say the individual must file a certification with the IRS “in the manner and at the time prescribed in forms, publications, or other guidance” (Temp. Treas. Reg. § 1.6654-2T(a)(1)(ii)(D)). One way individuals can make this certification is to check box F in Part II of Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.

Source - http://www.journalofaccountancy.com/Web/20102664.htm

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. GVA has partnered with NAFEP for Estate Planning services. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.

Does your income exceed $1 million? How and why you might get audited this year.

Amid the IRS' much-discussed focus on closing the so-called tax gap (now estimated at approximately $350 billion per year), a quick look at the increasing number of IRS audits over the past few years could give any high-income taxpayer, no matter how diligent, a pang of panic.

In 2004, the IRS conducted 9,576 audits of taxpayers with $1 million or more in income. In 2009, the agency conducted 28,349 audits for the same income group. That looks like an increase of nearly 300%.

However, the situation is not as bleak as it may seem. Over the same time period, the number of high-income filings increased to 441,715 from 190,372 . That's not quite the same increase as in the number of audits (232%), but it does make the increase in audits appear to be far less dramatic, based on filings. Over the same five-year period, IRS audits of high-income individuals have only increased from 5.03% to 6.42%.

More reassuring, of the 28,349 audits conducted for taxpayers with $1 million or more of income in 2009, slightly less than half (45%) were carried out by correspondence--not in person. Indeed, a closer look at the numbers reveals that high-income taxpayers are not necessarily being singled out for increased scrutiny. The various types of tax audits are triggered by various factors, but for the vast majority of high-income taxpayers, income alone may not be not enough to warrant contact by an IRS examiner.

If the IRS is not more apt to audit based on income levels alone, what, then, triggers an audit?

Tax returns are selected for audits in several ways. The primary way that the IRS selects returns for audit is the Discriminate Function (DIF) system. The DIF system uses mathematical formulas to weigh the various characteristics of tax returns and score them accordingly, in an effort to find the returns that would most likely have a difference between taxes owed and reported. For example, if an individual earns $50,000 in a year and makes a charitable contribution of $5,000, that characteristic would more than likely carry a higher weight than it would for an individual who had $500,000 in income and made that same charitable contribution; the first return would receive a higher score. Generally, the higher the score, the higher the probability of a tax change; the highest scoring returns are then forwarded for further review.

While the DIF system is the primary vehicle for audit selection, there are several other ways that returns can be selected for further examination:

Corporate Officer Return Compliance Check
As a part of every corporate audit, the IRS will determine whether the corporate officers' returns have been filed. This typically includes the top management team and others "in a decision-making role." The IRS will review the return for items that appear large, unusual, or otherwise questionable and will then determine whether or not the return will be audited. This routine check does not constitute an audit, but as a result of it, corporate officers may be subject to a greater level of scrutiny than those who are not subject to this additional review.

Flow-through Examinations
If the IRS proposes a change to the filed return of a partnership, S-corporation or trust, the partners, shareholders or distributees of a trust may see their income changed as well. This may result in additional scrutiny of the individual's return and a possible separate examination.

The National Research Program
In this program, the IRS conducts examinations to gather data for use throughout the IRS in an effort to improve the tax system. Returns are randomly selected to allow the IRS to collect statistically valid information about how taxpayers meet their taxpaying responsibilities. These audits are generally more thorough than the so-called regular types of audits because of their basis in research.

Matching Programs
Under this type of audit the IRS would match various reporting documents, such as Forms 1099 for dividends or interest, with the income reported on the tax return. If there is a mismatch or a missing amount, the IRS will contact the taxpayer for more information. The taxpayer must then respond to the IRS with an explanation of the difference or an agreement to pay the amount due.

Global High Wealth Industry (GHWI) Group
The IRS announced the GHWI group in November 2009 to examine the tax returns of wealthy individuals in the totality of their financial and business arrangements, rather than on an individual-filing basis. Since then examiners have been selected and some audits have been initiated; the IRS continues to staff the group and expects it to be fully operational within one to two years. IRS Commissioner Douglas Schulman has said the group will enable the IRS to "take a unified look at the entire web of business entities controlled by high-wealth individuals, which will enable us to better assess tax risk and compliance risk. Our goal is to better understand the entire economic picture controlled by individuals." The group is expected to focus exclusively on taxpayers with tens of millions of dollars in annual income.

What is the difference between the different types of audits?

There are three types of tax examinations: the correspondence audit, the office examination and the field examination.

A correspondence audit is conducted via mail of items on a tax return that require additional verification, such as home interest deductions and charitable contributions. This type of audit is usually less intrusive than the others and is conducted by an IRS tax examiner.

Office exams are face-to-face interviews conducted in an IRS office. These tend to be more in-depth and require more documentation and verification. Office exams are conducted by tax compliance offers who generally have a higher level of technical tax training and experience. In each of these exams, some type of limited income probe is required to determine whether or not all of the taxpayer's income is reflected on the tax return as filed.

Finally, field examinations are face-to-face exams generally conducted at the taxpayer's place of business or their representative's office. Field examinations are generally more in-depth and are conducted by revenue agents with an advanced level of technical tax training. Many of these agents are certified public accountants, and some have higher degrees in taxation or accounting. Field examinations can ultimately consist of audits of so-called related returns and may include an examination of Forms 1120, 1120S, 1065 or 1041. This type of audit will also include some type of minimum income probe including, potentially, a request for the taxpayer's personal and business bank statements.

It is anticipated that the IRS focus on taxpayers with incomes exceeding $1 million will continue in the future. In fact, President Barack Obama's fiscal 2011 budget request seeks an increase of $293 million for the IRS' enforcement programs, a portion of which will be earmarked for high income taxpayers.

Michael Tonkovic, 02.16.10, 06:00 PM EST

Michael Tonkovic is a director of PricewaterhouseCoopers' Washington National Tax Services group.

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. GVA has partnered with NAFEP for Estate Planning services. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.

Getting ready to file your tax return?  Make sure you have all your documents before you start. You should receive a Form W-2, Wage and Tax Statement from each of your employers.  Employers have until February 1, 2010 to send you a 2009 Form W-2 earnings statement. If you haven’t received your W-2, follow these four steps:

1. Contact your employer : If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS : If you do not receive your W-2 by February 16th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:  

• Employer’s name, address, city and state, including zip code and phone   number
• Dates of employment
• An estimate of the

wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return :You still must file your tax return or request an extension to file by April 15, even if you do not receive your Form W-2. If you have not received your Form W-2 by April 15th, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X :On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. GVA has partnered with NAFEP for Estate Planning services. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.

The Government Accountability Office today released Tax Gap: Actions Needed to Address Noncompliance with S Corporation Tax Rules (GAO-10-195):

According to IRS data, about 68% of S corporation returns filed for tax years 2003 and 2004 (the years data were available) misreported at least one item. About 80% of the time, misreporting provided a tax advantage to the corporation and/or shareholder. The most frequent errors involved deducting ineligible expenses, which could decrease S corporation shareholder tax liabilities. Even though a majority of S corporations used paid preparers, 71% of those that did were noncompliant. Stakeholder representatives said that preparer mistakes may be due to the lack of preparer standards as well as their misunderstanding of the tax rules. Shareholders of S corporations also made mistakes in calculating basis – their ownership share of the corporation – when taking losses passed to them from the corporation, potentially decreasing their total taxes. IRS officials as well as stakeholder representatives said that calculating and tracking basis was one of the biggest challenges for shareholders, and that S corporations themselves were in a better position in most cases to calculate basis for their shareholders.

To improve compliance with shareholder basis rules, Congress should require S corporations to calculate and report shareholder’s stock and debt basis as completely as possible. S corporations would report the calculation on the Schedule K-1 and send it to shareholders as well as IRS. If Congress judges that stock purchase price information that is currently only available to shareholders should not be transmitted to the S corporation due to privacy concerns, an alternative is to require that S corporations report less complete basis calculations using information already available to the S corporation.

To help address the compliance challenges with S corporation rules, we recommend that the Commissioner of Internal Revenue take the following four actions:

• Identify and evaluate options for improving the performance of paid preparers who prepare S corporation returns, such as licensing preparers and ensuring that appropriate penalties are available and used.
• Send additional guidance on S corporation rules and record-keeping requirements to new S corporations to distribute to their shareholders, including providing guidance on calculating basis and directing them to the specific IRS Web site related to S corporation tax rules.
• Require examiners to document their analysis such as using comparable salary data when determining adequate shareholder compensation or document why no analysis was needed.
• Provide more specific guidance to shareholders and tax preparers, such as that provided to IRS examiners, on determining adequate shareholder compensation through means such as IRS’s Web site.

• Web CPA, GAO Sees Problems With S Corp Tax Compliance

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. GVA has partnered with NAFEP for Estate Planning services. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.
 

WASHINGTON — The Internal Revenue Service today released the new form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.

Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks. In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

1. A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
2. For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
3. For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate. In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:
4. Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
5. Property tax records or
6. Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those homebuyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.

The IRS encourages taxpayers to use direct deposit to speed their refund. In addition, taxpayers can use Where's My Refund? on IRS.gov to track the status of their refund.

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. GVA has partnered with NAFEP for Estate Planning services. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.

Your chances of winning a fight with the IRS are about as great as your chances when fighting City Hall.

National Taxpayer Advocate Nina Olson, in her recently-released annual report to Congress, listed the 10 tax issues most litigated in the federal courts. Of the 923 cases involving those issues, taxpayers prevailed in whole, or in part, in 132, or roughly 14 percent.

Taxpayers who were represented by counsel did somewhat better when the numbers were broken down—they won 20 percent, or 54 of 265 cases; pro se taxpayers prevailed in 12 percent, or 78 of 658 cases.

Olson reported that the trend of significant numbers of pro se taxpayers continued during the reporting period of June 1, 2008 through May 31, 2009. Taxpayers represented themselves in 71 percent of the 923 cases. The highest percentage of pro se taxpayers went to court over penalties for frivolous issues or positions raised or taken on returns, family status issues, failure to file returns and estimated tax penalties. Pro se taxpayers, however, had significantly greater success than represented taxpayers in litigation over frivolous issues penalty and family status, according to the report.

“With respect to the frivolous issues penalty, the data suggest either (1) an unwillingness on the part of representatives to accept these cases, or (2) a lack of demand for representation by these taxpayers,” said Olson. “In addition, the data for family status issues suggest that there may be a lack of access to representation for the low and middle income taxpayers impacted by the various family status provisions of law, and a need for more low income taxpayer clinics and clinic volunteers to provide free or low cost representation.”

She also suggested that the higher success rates for pro se taxpayers on these two types of issues “indicates a potential failure in communications between taxpayers and the IRS at the administrative level.”

The 10 most litigated tax issues, in order of greatest number of cases, are:

1. collection due process hearings;
2. summons enforcement;
3. trade or business expenses;
4. gross income;
5. accuracy-related penalty;
6. frivolous issues penalty;
7. civil actions to enforce federal tax liens or to subject property to payment of tax;
8. failure to file penalty and estimated tax penalty;
9. family status, and
10. relief from joint and several liability for spouses.

Posted by Marcia Coyle on January 13, 2010 at 03:56 PM

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. GVA has partnered with NAFEP for Estate Planning services. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.

By Jeanne Sahadi, senior writer

January 7, 2010: 7:47 AM ET

NEW YORK (CNNMoney.com) -- The tax man has gotten a lot more aggressive in slapping liens on taxpayers who are seriously delinquent in their payments.

In fact, the Internal Revenue Service issued 475% more liens last year than it did in 1999.

But it hasn't been doing so judiciously, which is causing unnecessary harm to some taxpayers and, ironically, to federal coffers, according to national taxpayer advocate Nina Olson.

"Taxpayers are being greatly harmed for very little benefit to the government," Olson told CNNMoney.

Olson is a government official whose job is to highlight for Congress the most serious problems facing taxpayers. Lien issuance makes her top 5 list.

In her annual report to Congress, released on Wednesday, Olson says the IRS must do more to assess whether the benefits of a tax lien outweigh its harm to the taxpayer.

The IRS imposes a lien on a person's property to ensure the government is first in line to be paid if a delinquent taxpayer sells or refinances property. The lien is issued when an agent determines a taxpayer can't pay up.

But IRS agents only take into account a person's income and expenses and not other debts and assets when sizing up his ability to pay, according to Olson. Then, the decision to issue the lien is typically not reviewed by higher-ups at the agency.

"Employees should look at all the facts and circumstances," said Olson.

That's because issuing a lien against someone who can't pay and who doesn't have any assets can create a "lose-lose" proposition for both the taxpayer and for the government, she noted in her report.

Here's why: A lien slams a taxpayer's credit score and can remain on a credit report anywhere from 10 years to 15 years or more, depending on the policy of the credit bureau.

That means it harms a person's ability to get an affordable loan. And it can hurt his chances of getting a job or an insurance policy since employers and insurers often check credit history. So potentially his costs go up while his earning potential goes down along with his potential to be a source of tax revenue for Uncle Sam in the future.

Worst case scenario: It may mean the taxpayer ends up needing to tap Uncle Sam for cash.

"If the filing of a tax lien drives up a taxpayer's costs and renders him or her unemployed or underemployed, the government may be forced to make outlays in the form of unemployment benefits, food stamps and the like," Olson wrote.

To measure the effectiveness of liens in collecting revenue, Olson's office tracked the cases of 270,000 taxpayers who first had a tax balance due in 2002 and on whom the IRS later put a tax lien.

One of the findings: Lien issuance doesn't boost revenue collection.

Last year the IRS issued 966,000 liens, up from 168,000 in 1999. During the same decade, however, the money the agency collected in delinquent cases fell by 7.4% after adjusting for inflation.

Another finding from the study: In many cases where money is recovered, it's not because of the lien.

More than 80% of the money the IRS collected was the result of of other measures - such as the withholding of a taxpayer's refunds.

The IRS contested Olson's finding. It said the study's methodology - for instance, only considering payments that had been coded as a lien payment - "limits the ability to draw meaningful conclusions" since the study ended up excluding 56% of the payments made.

In addition, liens can spur taxpayers to pay up, the agency said.

"Taxpayer actions such as making installment payments, filing an offer in compromise or paying the liability in full may be motivated" by the filing of a lien or even the threat of one, the IRS said.

And it did not agree with a recommendation that employees get managerial approval for liens in cases where the taxpayer has no current assets.

The story isn't over. Olson said she would continue to press her recommendations with the IRS. And key lawmakers are already weighing in.

"I worry that the IRS is reverting to some old habits to taxpayers' detriment," Sen. Charles Grassley, R-Iowa, said in a statement. "The IRS has to use its discretion to determine when liens are the best course to improve tax collection and when they are just a knee-jerk enforcement tactic that will do more harm than good."

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.

IR-2010-1, Jan. 4, 2010

WASHINGTON –– The Internal Revenue Service kicked off the 2010 tax filing season today by issuing the results of a landmark six-month study that proposes new registration, testing and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.

To bring immediate help to taxpayers this filing season, the IRS also announced a sweeping new effort to reach tax return preparers with enforcement and education. As part of the outreach effort, the IRS is providing tips to taxpayers to ensure they are working with a reputable tax return preparer.

"As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year. The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers," said IRS Commissioner Doug Shulman. "Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation's tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”

Based on the results of the Return Preparer Review released today, the IRS recommends a number of steps that it plans to implement for future filing seasons, including:

• Requiring all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN). These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.
• Requiring competency tests for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.
• Requiring ongoing continuing professional education for all paid tax return preparers except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.
• Extending the ethical rules found in Treasury Department Circular 230 -- which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS -- to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.

Other measures the IRS anticipates taking are highlighted in the 55-page report released today. (See link http://www.irs.gov/pub/irs-utl/54419l09.pdf)

Currently, anyone may prepare a federal tax return for anyone else and charge a fee. While some preparers are currently licensed by their states or are enrolled to practice before the IRS, many do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.

For view the complete press release on IRS.gov, go to http://www.irs.gov/newsroom/article/0,,id=217781,00.html

Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.

What is a Self Directed IRA?

A Self Directed IRA is an IRA that allows you to buy or invest in things other than Mutual Funds, Stocks and Bonds. Self Directed also means that the custodian is merely a holding bank account for your retirement funds and you have to “Direct” them to buy or invest in the Asset you want to hold in your retirement account. The “Direction” for the custodian, i.e., you tells the custodian what to do, what to expect. If you have specific knowledge about some area that makes money then you can profit from that in your IRA. There is very little that you cannot invest in with IRA funds.

A self-directed IRA is technically no different than any other IRA. A self directed IRA is unique because of the available investment options. Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. A truly self directed IRA custodian, allows those types of investments in addition to real estate, notes, private placements, tax lien certificates and much more.

What are the benefits of a self-directed IRA over a Traditional IRA and a Roth IRA?

There are only two types of IRA’s, Traditional and Roth IRA. Either can be Self Directed.

In addition to the tremendous IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), you will be able to invest tax-free in investments that you know and understand, which through the power of compounding interest, will create true wealth for you and your family. The reason you want to Self Direct your IRA is so that you can use your specific knowledge to help your retirement account grow instead of relying on others opinions and management skills.

A Traditional IRA is best for people who need an immediate tax break or expect their income-tax rate to be lower at retirement.

A Self-Directed IRA: A Self-Directed IRA on the other hand, allows you much more freedom in selection of investment vehicles

Why haven’t I heard of a self-directed IRA before?

While the concept of investing in real estate and other assets in retirement plans has been around for more than 30 years, the concept hasn’t received large attention because most custodians who offer IRAs (banks and brokerage firms) focus on mutual funds and CDs because they have vested financial interests in you selecting those investments from them. Because the majority custodians focus on stocks and CDs there is a misperception that that is your only investment option for retirement plans, which is not the case.

Allowable investments include the following:

• Residential real estate—including apartments, single family homes, and duplexes
• Commercial real estate
• Undeveloped or raw land
• Real estate notes (mortgages and deeds of trusts)
• Promissory notes
• Private limited partnerships, limited liability companies, and C corporations
• Tax lien certificates
• Foreign currencies
• Oil and gas investments
• Publicly traded stocks, bonds, mutual funds
• Private stock offerings, private placements
• Judgments/structured settlements
• Gold bullion
• Car paper
• Factoring investments
• Accounts receivable
• Equipment leasing

What CAN’T I invest in with an SD IRA?

·          Artworks

·          Rugs

·          Antiques

·          Metals

·          Gems

·          Stamps

·          Coins

·          Alcoholic beverages

·          Certain other tangible personal property

How much can I invest in one?

If you already have a Roth or Traditional IRA established at another custodian you can roll it over to a Self Directed custodian. Right now the IRA says you can contribute $5,000 per year. This figure can change as dictated by the IRA and congress.

Can I be assured that self directed IRAs are allowed under IRA rules?

As long as you follow relevant rules the answer is yes. There are specific rules regarding IRAs, and in particular, self directed IRAs that you should be familiar with to ensure compliance. There are certain types of transactions that you cannot perform through an IRA. Most importantly, the IRS prohibits “self dealing,” which are investments in which you or your family members of lineal descent have prior ownership.

Are self directed IRAs for everyone?

Self directed IRAs are not for everyone, they are for those who want to create wealth using their knowledge of investments outside of stocks, bonds, and CDs.

Are self directed IRA investments guaranteed?

Self-directed investing is not for everyone. However, most successful investors feel that the investment risk in assets they know and understand is much less than that associated with investing solely in conventional IRAs.

 Contact sales@globalvalueadd.com OR Call 210-248-3397, India +91-80-41633973, if you are looking for professional advisory services. GVA is not an attorney or attorney firm. GVA has partnered with NAFEP for Estate Planning services. Unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein.