Audits Looming For Checkbook IRAs? Pending Implementation of More Detailed IRA Reporting Forces Checkbook IRA Holders To Consider Increased Audit Risk

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New Direction IRA, Inc. introduces strategy for Checkbook IRA holders looking to adapt to IRS reporting changes.

New Direction IRA responds to IRS reporting changes that may affect Checkbook IRAs.

The IRS is concerned about the potential for abuse, but, since Checkbook IRAs seldom file annual tax returns, the IRS hasn’t had an effective means to locate and review them. That is about to change!

Impending changes to IRS Form 5498, which incorporate information on asset classes owned by IRAs, will be mandatory for 2015 and optional for 2014. New Direction IRA believes this additional reporting information, soon to be in the IRS’s hands (or computers), may have a significant impact on IRA holders who have formed entities commonly called Checkbook IRAs, as they will be highlighted on the new form. Checkbook IRA owners must soon decide whether to keep the Checkbook IRA and face additional IRS scrutiny or dissolve the entity prior to the start of the new reporting.

The Checkbook IRA – basically a single-member entity owned by an IRA and managed by the IRA holder – is often promoted as a way for an IRA holder to have more immediate control over her or his retirement assets in the form of faster cash disbursal as well as saving on IRA provider fees. Using the Checkbook IRA idea can seem like an easy choice especially if the account holder only hears about the benefits; however, Checkbook IRAs come with attendant complexity for the account holder in terms of administration and following IRS rules.

The IRS is aware that the account-holder control created by this structure has resulted in prohibited transactions, both intentional and unintentional. Since Checkbook IRAs seldom file annual tax returns, the IRS hasn’t had an effective means to locate and review them regardless of their concern over potential abuse. That is about to change! With the new 5498 changes, LLCs, such as are used for a Checkbook IRA, will be broken out separately on the report and identified as private LLCs.

In addition, recent court cases have revealed a new focus on the part of the IRS when it comes to those attempting to stretch the rules for IRAs and or avoid the rules entirely. Taxes and penalties assessed by the IRS for violations can be significant, over $500,000 in one recent case (see PEEK v. COMMISSIONER140 T.C. No. 12, (May 9, 2013)). The courts have focused so far on prohibited transactions. The rules are very broadly laid out in Code Section 4975 and include limitations on actions such as providing services to your IRA, providing credit to your IRA and personal use of your IRA’s assets.

Recent IRS silence on questions such as “what does providing services mean?” and “where is the line between providing credit to my IRA and providing credit to my IRA’s asset”, has given Checkbook IRA owners and companies promoting them potentially false assurance that the IRS is not concerned about that fine a detail. The courts, however, are enforcing the broadest interpretation, basically saying that unless the code specifically allows it, for example, provision of credit to an asset owned by the IRA, then it is prohibited.

New Direction IRA, a leading self-directed IRA provider, has educational materials, webinars, and experts on hand who can provide explanation of the potential IRS issues and concerns and how they relate to Checkbook IRAs

Anticipating more IRS focus on Checkbook IRAs, New Direction IRA has developed an alternative approach for account holders who would rather avoid additional IRS scrutiny. New Direction’s proprietary client portal,, provides IRA owners much of the speed and convenience that they sought by choosing a Checkbook IRA without the added administrative burden and possible risk that comes along with that structure.

With the client may electronically:

  • Initiate new transactions,
  • Initiate bill payments directly at no cost,
  • Initiate and receive electronic payments from tenants, borrowers and others,
  • Open new accounts, initiate transfers and some distributions from accounts,
  • Review past transactions, bill payments, and other cash movements,
  • Initiate HSA distributions,
  • Request IRA distributions,

All users automatically have

  • Full annual account record keeping,
  • FDIC-insured cash accounts,
  • Daily account reconciliation,
  • Immediate access to cash available in the account.
  • Income and expenses categorized by asset,
  • Access to electronic payments (ACH), paper checks, and out-going wire services.
  • Online access to account balances, activity and information, 24/7
  • Access to incoming ACH, wire, electronic and paper checking services for payments into the account.

IRS changes to form 5498 create a decision point for Checkbook IRA holders. New account technology employed by New Direction IRA may provide a way to keep the operation of your IRA fast and convenient without exposing it to unwanted IRS scrutiny.

New Direction IRA is a trusted provider of investor education and record keeping services for self-directed IRA and precious metals IRA holders. Since its inception in 2003, New Direction IRA has been at the forefront of the self-directed retirement investment market. The company enables individual investors to take control of and diversify their tax-advantaged retirement funds using alternative asset opportunities such as real estate, precious metals, LLCs, notes and lending, and more. Headquartered in Louisville, Colorado, New Direction IRA administers more than $850M in assets on behalf of over 8,400 account holders. Visit the website at

DISCLAIMER: New Direction IRA, Inc. does not render tax, legal, accounting, investment, or other professional advice. If tax, legal, accounting, investment, or other similar expert assistance is required, the services of a competent professional should be sought. CIRCULAR 230 NOTICE: As required by U.S. Treasury rules, we inform you that if any Federal tax advice is contained in this email, including attachments (in spite of our best efforts not to provide any tax advice), it is not intended or written to be used, and cannot be used, by any person (1) for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service, or (2) to promote, market, or recommend to another party any matter addressed herein. CONFIDENTIALITY: This email message and any attachments are intended solely for the use of the addressee(s) and may be confidential. Any unauthorized review, use, disclosure, copying or distribution is expressly prohibited. If you are not the intended recipient, please contact the sender by reply email and destroy all copies of the original message and any attachments.

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Clay Malcolm
New Direction IRA
+1 303-546-7930 Ext: 113
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