In a recent Tax Court case, the taxpayers rolled over their retirement funds into an IRA. They instructed the IRA to buy stock in a newly-formed corporation that would acquire a business run by the taxpayers. The taxpayers relied on the advice of a broker, a CPA and an attorney regarding this transaction.
The IRS took the position that the taxpayers are responsible for the income on a deemed distribution from the IRA in excess of $431,500, along with a 10% additional tax because of the premature distribution, and the Tax Court agreed. The taxpayers were left with a huge tax bill as a result.
When dealing with one’s IRA, there are prohibited transaction rules in place to prevent taxpayers from using their IRA money in an improper fashion. Even though there is an industry that advises taxpayers how to use their retirement funds to run their own businesses, the prohibited transaction rules prevent the use of retirement funds in that fashion.
Have you used IRA money to invest in your own business? Has the IRS come after you because of this type of investment? Call us, we can help.
Serving the Chicago Area - Disclaimer