Self Directed IRA

[yeknod]

TP received a K-1 on a 1065.  It was made out to a self-directed IRA.  The IRA is a single member LLC.  Should this be reported on TP's 1040?

[sjrcpa]

No. The IRA may need to file a 990-T.

[yeknod]

When entering K-1 on 1040 and checking the box IRA I get an error.  It says not to report on the 1040, but I read an article that said if the IRA is a Single member to report on 1040.  Go figure...

[yeknod]

The IRA had a loss.  So, does the 990t need to be filed?  I read if a loss just keep K-1's until the 990t is required.  Does that sound right to you?

[sjrcpa]

Yes it does.

[sjrcpa]

That article is wrong. Income from a single member LLC that is disregarded for income tax purposes gets reported on the owner's tax return. Here the owner is the IRA.

[BobKamman]

Someone sophisticated enough to manage their PTP's in a self-directed IRA owning an LLC is surely bright enough to know some basic facts about tax returns.  

[qbteachmt]

"The IRA is a single member LLC"

"When entering K-1 on 1040 and checking the box IRA I get an error."

Let's restate this so it makes a bit more sense:

The IRA is your taxpayer's personal retirement account or could be held by a trust that was a beneficiary. The provisions for that type of account's activity are similar to having a trust. There is the ability to hold investments inside of that account. The IRA, then, is invested in one or more activities and holdings, one of which apparently is an LLC formed by the taxpayer, which then has invested as a partner in a different entity that issued that K-1 (not sure why tp created their own LLC to be the interim partner).

Even if all of the IRA is invested in that one LLC, which in turn is invested as a partner in only one entity, all the LLC did is provide a titling and funding mechanism. The IRA is not an LLC. It's an account.

[yeknod]

So, it appears to me that nothing should be reported on the TP's 1040.  Correct?

[qbteachmt]

Anything that happens inside of the IRA is not reported on the 1040, the same as usual. Distributions are reported, the same as usual, and will be ordinary taxable income, the same as usual. This is why self-managed IRA investments need to be done very carefully.