IRA's as Partners in an LLC

[Clarissa]

Situation: Client opens an LLC, one partner is a Roth IRA and the other partner is a traditional IRA.

I've not prepared a partnership return with other than Individuals as partners.

Want to clarify how to enter the partner information.

Thanks

[taxshack]

You would enter them on the K-1 worksheet according to entity type.  I haven't ever had to do this, so I'm not sure what the entity type is. 

You want to do your research and make sure your client is following the rules for his self-directed IRA's.  He cannot personally have any involvement in the running of the partnership that his IRA's are invested in.  There are very strict rules and I have found most people who have approached me with self-directed IRA's don't follow them.  That's why I haven't personally dealt with it.

[BobKamman]

Taxshack is right.  I would do a return for someone who just got off a plane from Beijing by way of Rome, before I did a return for someone with a self-directed IRA owning real estate.  And a partnership between two IRA's?  Make sure you get paid with two checks from the respective trustees.  

[Clarissa]

Hilarious reply.  🙄

Client is a long time repeat customer. Concerned that he may have been misled.  I am definitely treading cautiously.  

[Clarissa]

Treading cautiously.

[BobKamman]

If he is a long-time client and didn't rely on you for advice before getting into this mess, you need to replace him with a new client (who will probably pay you more than the old one -- that's usually how it works in this business).  

[Mark]

List the partner as an exempt organization. Make sure you enter the Unrelated Business Taxable Income calculation, UBTI. Tell your client, in writing. that they should be using a management company so they do not have to perform any services for a rental held in an IRA. The rest is as normal

[BobKamman]

I wouldn’t call the IRA trustee an “exempt organization.” The instructions are unclear, but they do say  “If the partner is a nominee, use one of the following codes after the word “nominee” to indicate the type of entity the nominee represents: I—Individual; C—Corporation; F—Estate or Trust; P—Partnership; DE—Disregarded Entity; E—Exempt Organization; IRA—Individual Retirement Arrangement; or FGOV—Foreign Government.”

The trend has been for the real estate to be placed in an LLC, with the IRA trustee as its (nominee?) owner. Since there are two different EIN’s and presumably just one trustee for both halves, is that what was done? I don’t think you’re using the trustee’s EIN.

You really don’t want to do this return, do you?