"Retroactive" sale of IRA assets?

[Guest krijowri]

I'm at a loss here. The trustee of a self-directed IRA has been directed to sell a limited partnership interest held by the IRA to a third-party in exchange for cash. No big deal. HOWEVER, for whatever reason, the IRA owner is directing the trustee to make the effective date of the sale retroactive to LAST year (January 1, 2011). From what I can tell, this probably presents tax fraud issues for the partnership/partners BUT from the trustee's perspective as a directed trustee, should the trustee nonetheless agree to complete the transaction retroactively? It seems like it would be complicit in the fraud. What I'm not sure about is how this would impact the IRA itself (would it somehow be disqualified or would the cash received from the sale somehow be treated as a distribution/contribution)? The IRA trustee hasn't done any year-end reporting yet, so I think that's probably not at issue. I work only with qualified plans/health plans/exec comp and know NOTHING about IRAs (other than stuff related to rollovers and SEPs/SIMPLEs generally), so I just need some help with issue-spotting or a nudge in the right direction. This seems like more of a partnership tax (or even personal income tax) issue to me, which means I'm entirely out of my depth. I've ruled out a prohibited transaction, so no comments in that regard please. Any thoughts?

[mbozek]

I'm at a loss here. The trustee of a self-directed IRA has been directed to sell a limited partnership interest held by the IRA to a third-party in exchange for cash. No big deal. HOWEVER, for whatever reason, the IRA owner is directing the trustee to make the effective date of the sale retroactive to LAST year (January 1, 2011). From what I can tell, this probably presents tax fraud issues for the partnership/partners BUT from the trustee's perspective as a directed trustee, should the trustee nonetheless agree to complete the transaction retroactively? It seems like it would be complicit in the fraud. What I'm not sure about is how this would impact the IRA itself (would it somehow be disqualified or would the cash received from the sale somehow be treated as a distribution/contribution)? The IRA trustee hasn't done any year-end reporting yet, so I think that's probably not at issue. I work only with qualified plans/health plans/exec comp and know NOTHING about IRAs (other than stuff related to rollovers and SEPs/SIMPLEs generally), so I just need some help with issue-spotting or a nudge in the right direction. This seems like more of a partnership tax (or even personal income tax) issue to me, which means I'm entirely out of my depth. I've ruled out a prohibited transaction, so no comments in that regard please. Any thoughts?

I am having a problem understanding how the owner can order the trustee to back date the date of sale. In accordance with its reponsibilities under the IRA agreement the trustee will record the sale on the date the property is sold. period. The IRA owner has no authority to direct the trustee to back date the date of the sale. If the IRA owner persists in this illegal request the trustee will resign as custodian. End of story.

What am I missing?

[Guest Rajeev]

krijowri,

mbozek is absolutely correct....

Unless there is an LOI or agreement that had the date of Jan 01, 2011 and executed but the IRA trustee in place, which shows the depiction of the sale as of that date, there may be a possibility of achieving what is requested, and even they the actual sale date would considering factor...

This sounds like a fraudulent request on part of the IRA owner...

[John G]

I guess I would leave the door open that a transaction had been requested and somehow was fouled up. Its odd that no reason was given.

If no documentation is forthcoming, or if somehow this was a verbal understanding, then I have a huge problem with a whole year passing and the IRA owner not being deligent in ensuring that the transaction had been posted.

Transactions of this kind are not something that is completed in a 48 hour turnaround. The IRA owner should have requested the transaction months before year end. I don't understand the significance of why the January 1 back dating. Is there a lawsuit or divorce pending and this is an attempt to get out of the partnership interest? If it is a real estate partnership, I wonder if someone is trying to manipulate the ownership so they can get a tax write off or other advantage.

The easy answer to this inquiry is NO.