Self-Directed ROTH IRA LLC - A Quandry

[Guest Jim1Best]

I am a newbbie to forums protocol so please forgive if this post is inappropriate. In particular, I have posted this question on another forum and have not received useful replies. Some direction is felt to be urgently needed, so I am asking for some guidance from your expertise. Thanks in advance!

I realize that the second point below is hardly apropos to this forum but any insight offered will be greatly appreciated. It is point (1), however, that is the most puzzling for me. FYI, I would probably be classed as a knowledgeable, responsible investor. I am well past retirement age, and have been managing my own investments, principally equities, annuities, and real estate, for nearly 55 years. I am now at a point that I do not need the RMD required of my Traditional IRA, and, in fact, could reduce taxes by managing my own annual withdrawal amounts. So, with that info:

Procedural Question:

Subject: LLC owned by Self-Directed ROTH IRA - Initial Formation Quandaries

Background:

In a couple of years (2010), certain investors will have the opportunity to convert existing 401K and Traditional IRAs into ROTH IRAs in a tax-advantaged environment. The requirements are straight forward and unambiguous - choose an acceptable ROTH Custodian, rollover the existing IRA funds into a newly established ROTH, pay the attendant taxes, and invest the ROTH funds in assets which are permitted by the Custodian and not disallowed by the DOL or IRS.

Interestingly though, there are additional provisions in the interpretation of ROTH rules and regulations which allow for the implementation of “checkbook control” of a self-directed ROTH IRA. However, the initial procedural steps necessary to properly structure such an entity are not well documented, and it is this area that I wish to pose the following questions.

1. The “operating” environment of a properly established LLC which is under the control of a self-directed Roth IRA (ROTH-LLC) is pretty simple. A Custodian administers the ROTH Account. The ROTH Account owns one asset - all membership units of an LLC (which were subscribed to and paid for from the capital deposited to the ROTH Account). The LLC is managed by the individual investor who owns the ROTH Account. All day-to-day business activity of the LLC (viz., investment and management of the assets represented by the influx of the original ROTH capital) is conducted by the manager, who, annually, reports the status of the LLC to the Custodian and to the responsible department of state in which it is registered.

But how one starts from scratch and arrives at the time when this environment is the norm is not clear.

Consider the following scenario. One of the most basic inhibitions of the ROTH-LLC body of regulations is that the investor/owner shall not co-mingle private and IRA funds. This is illustrated with the common example in which the LLC wishes to acquire an asset but does not have sufficient capital to purchase ownership. A tempting solution for the manager is to use his/her own capital in sufficient amount, when combined with that of the LLC, to effect the purchase. However, such deals are simply not allowed. Now, here is my quandary.

In the beginning, the LLC must be in existence before the ROTH Account can “invest” in it by purchasing all membership units. In order for the LLC to exist, the owner must supply at least enough capital to cover all state registrations and filing fees. Since no ROTH funds are accessible in this stage, the expenditures are necessarily funded by the investor/owner from non-IRA wealth. At a later date, assuming all other steps are successful, the Custodian “approves” the purchase of this new LLC for the ROTH Account. At this point, what exactly is the ROTH buying? The LLC at this point has not assets, no income, and only expenses to show for itself. Not a particularly attractive investment candidate for a due-diligence investor. Further, the LLC must have a bank account. To open an account requires the deposit of some minimal amount of cash. It seems that there is no way to rationalize away the fact that the cash in the bank, as well as the expenses carried on the books, represent owner-invested funds. So, can anyone explain the conundrum evident here?

2. A further point of my ignorance is that it is not clear what constitutes “doing business within a state”. Most states require a company, including LLCs, to register with the appropriate state department(s) if the company “does business” within that state. I have been repeatedly shuffled from agency to agency while attempting to obtain an answer from my state government what constitutes doing business within this state. Paraphrased, the bottom line answer has been, “you had better not be doing business in our state if we ask for your provenance and you can’t produce it”

My confusion is illustrated by the following example. An LLC is organized and properly registered in, say, Nevada. The only “asset” of the LLC is municipal bonds issued by, say, New York City. Now, how is the doing business concept applied in such circumstances? It seems obvious that the LLC is doing business in Nevada, but what does New York think? Is the LLC “doing business” there by purchasing municipal bonds specifically anchored to NY assets? Again, any clarification of such questions would be greatly appreciated.

Jim1Best

[QDROphile]

Have you considered whether or not investment by an IRA in an LLC managed by the IRA owner/beneficiary is a prohibited transaction?

[Guest Jim1Best]

QDROphile: I am convinced, from the research that I have done, that an IRA-owned LLC, managed by the IRA owner, is permitted by the current interpretation of the applicable law, and that this form of organization has been found to conform to the rules and regulations or the IRS and the DOL. More than a decade ago, the IRS challenged this type of structure in the Federal courts, and the courts found resoundingly in favor of the defendant, affirming its legality in both the sense of a business structure and from a tax compliance viewpoint. This landmark case has become know as the Swanson case.

[John G]

So.... you want to bet all your marbles that the IRS/courts will not find some minor difference between what you plan to do and the prior case law? The law is full of nuances, and finding one precedent in your favor is not enough. Are you a professional tax court researcher?

Are you planning to be your own lawyer here? Isn't there some saying about that?

I highly recommend that your find both a tax lawyer and accountant that not only completely agree with your conclusion, but will put their professional reputations (and liability insurance) on the line for your proposal. If you can find them, then by all means proceed.

But, then, if you are so completely sure of yourself on this proposal, what exactly was the purpose of posting here?

I can't give you a green or red light. But, I have seen enough crying towel stories to raise some cautionary flags. Its is absolutely not enough for you to believe in the interpretation of the tax law, you need more than a few lawyers, accountants and perhaps a judge to agree.

Also.... your plan seems to hinge on the 2010 relaxed rules of Roth conversion. That is almost eons away. We will have elected a new President and new Congress. There are all sorts of quirky tax rules that elapse, reset or go into limbo in the next few years. From my point of view, there is not a clear public purpose for these whiplash changes (such as the inheritance tax flip flops). I would expect many of these rules to be changed.

[Guest Jim1Best]

John G: The devil IS in the details. In my original post, I tried to give enough details and the general setting to make my uncertainty and my questions clear, but it seems that I missed the mark completely. I will try to clarify my query and provide some additional facts and thoughts to see if there is any help available.

I am sorry that I was not very clear about how much is at stake here. I do not, and never did, intent to “put all my marbles in one basket“. I have one annuity which will become distributable at the end of 2009. This, by the way, in no way constitutes a major portion of my “estate”.

However, it (the annuity) is held within a defined IRA retirement account, so the proceeds are eligible to be rolled-over within confines of the body of law which regulates IRAs. In planning ahead, as I am wont to do, and, since I do not “need” the mandatory RMD required of Traditional IRAs, I am exploring the feasibility of converting the funds into a ROTH Account. This, in turn, if done, creates a rather large tax event which I DO need two years (you must be awfully young if two years is equivalent to eons) to plan for and to raise the necessary funds from non-IRA sources to pay the tax bill, which is preferable to depleting the IRA fund of the cash to pay. In addition, 2010 is a rather special year in that one has the option of spreading the resultant tax load over a two year period. (Parenthetically, I am probably more of a pessimist than you are in regard to the government re-arranging the tax laws at their whim and to suit their purpose, but , as with a charging lion, you duck behind whatever rock is handy , not wait and hope that it really won’t eat you.)

Moreover, since ROTH is a vehicle especially suited for long range planning and for holding assets which grow in the long term, I would like to be free to choose what is held in the Account, and how it is held. And, I would like to minimize expenses associated with holding assets there. Paying a mutual fund management from 0.2% to 6% annually to let an investment sit and grow is not my idea of prudent fiduciary principles. In addition, most IRA Custodians charge annual maintenance fees, and on and on.

To wit, when I was a kid, I would buy stock in a company, the broker would send me a stock certificate which I would lock away in a strong box; I would then collect dividends until I thought it was time to sell - well you can see where this is going. The point is, I do not see that I need to pay a facilitator of any kind to do this kind of paper shuffling. So the Self-directed ROTH IRA-owned LLC seems like an attractive structure to explore. And, no, I am not a tax attorney or an accountant. So far, I have survived about 75 years without any mishaps resulting from this deficiency. Also, I am able to read and comprehend English. Using this talent, I have read extensively from the public information available about IRA, ROTH, LLC, DOL, and IRS topics. I was even interested enough to read the court transcript of the Swanson vs. the Commissioner pleading in which the legality of the IRA-owned LLC was confirmed. You seem to be not at all acquainted with this particular case, but it is a landmark, watershed, definitive, and so far, controlling, decision. (Unfortunately, I have yet to locate a relevent reference specifically including the ROTH Account within this framework (the Swanson case was decided before the advent of the ROTH)).

So, to try again to ask of what I am ignorant, I would like to hear ideas explaining the procedure for establishing a ROTH owned LLC. Preferably, the procedure will illuminate how and when the LLC is formed so that it is not a “disqualified person”. If you will, I am asking for a recipe (even be it sketchy), not advice on whether cake is good for your cholesterol.

Jim1Best

[John G]

"All your marbles" refered to your entire IRA/Roth account balanace. There are circumstances which will invalidate your tax shelter status which could trigger penalty and taxes. While rare, it can happen.

Swanson can be very narrowly construed by subsequent courts, and you bring up a classic example... would any court case extend to Roths. I have taken enough law classes to know that legal precedent is not absolute, but subject to interpretation and refinement... and you have that issue of getting overturned as well.

If part of your rationale is based upon reducing your costs, I believe you are mistaken. Custodians charge more for unusual structures. You may have to pay for an annual appraisal. You will have accounting and legal fees. {There are mutual funds and ETFs with annual expenses below 0.2%, and I don't know of any mutual fund that charges 6% annually... thats about 2x many hedge funds}

I will stand by my earlier advice. Go and find a local accountant and tax lawyer who will sign off on the details of your plan. What you will probably find is that they will either not want to be involved, or ask you to absolve them of any legal liability for their assistance because they do not want to be on the hook if your plan is disallowed. This is a simple test. Give it a try.

[Guest Jim1Best]

John G: I think I will bow out of this thread. You seem to be the only one responding, and you are either not understanding the subject of the thread or you are trying to pick a fight. I know of no other terms in which to couch my question and I have no desire to fight with you. I thank you for your time and have actually read and evaluated your comments.

I leave you with these final remarks:

There are a plethora of websites through which you can research mutual fund fees, custodian fess and other assorted fees associated with investments. My remarks concerning the range and totality of these fees can be easily checked at sec.gov, fool.com, free money.com, Wikipedia.com (mutual fund), BusinessWeek.com and on and on. To pick one example, Fidelity charges 1% expense ratio for their Low-Priced Stock fund plus a 3% sales charge. If this is held in an IRA, 401(k), or similar arrangement, the recurring custodial fee can be about 1%. The brokerage fee runs 1% upfront. Is this 6% yet. Or, a more subtle analysis - the tenets of probability (which, I submit, is the basic authority for the concept of “average”) require that, if the average mutual fund expense ratio is 1.5% and the low end is 0.2%, then there is as much range above the average as there is below it, or there are extremely high values which “pull up” the otherwise low average figure. Further, and more to the point, I content that I would have no trouble finding a fund that will gladly accept an expense ratio of 6% per annum, particularly if it is purchased through a financial adviser. On the other hand, I can very easily reduce my “expense ratio” to hundreds-of-a-percent (i.e., storing the stock certificates in my strong box). In order to be able to do this, I may be able to structure an LLC owned by an IRA and custoded (my word) by an intuition which charges, let us say, $200 per annum plus requisite annual state LLC filing fees of, say, $50. Compare this with a mutual fund (using your 1.5%) which would charge $1500 per annum for a $100,000 account. If I can make an extra $1,000+ for 20 years, I think that asking about a possible avenue to achieve that is at least due diligence.

I think you should check you figures or their source concerning hedge fund expenses. It is my understanding that 20% performance fees are rather the norm in the field, with these fees reaching as high as 50%. On top of these “off the top” charges, there are additional management fees, typically, around 2%. Again, it is not difficult to check these numbers on the web.

Finally, as you might have noticed, the trigger event which prompted this thread is the maturing of an annuity. Back in 1999, before the bear market, I decided that I should shift some wealth into a less volatile environment. To this end, I consulted a financial advisor, who, in turn, brought in his buddy, an annuity salesman. I (of my own volition, to be sure) purchased an annuity contract indexed to equity. Here, once again, you can easily find the current (rear-view) evaluation of this type of investment. It isn’t pretty, and I can attest to the fact that I have found the performance to be less than stellar. So, in reference to the last paragraph of your previous reply, I think I will distance myself from expert advice (particularly, if I am expected to pay dearly, and to absolve, the givers of any misjudgments which may be discovered).

Jim1Best

[Guest mjb]

Jim:

You need to take John's advice and retain competent tax counsel to make sure that the LLC is properly set up as an asset of the IRA in conformance with the tax laws and laws of the state in which the LLC does business.

The Swanson decision and an IRS advisory notice permit ownership of the following entity: an IRA has $20,000 in cash in addition to other investments. The IRA owner acts as the incorporator to organize the LLC under a state in which it will do business and issue units that comprise an ownership interest in the LLC. The IRA owner directs the IRA custodian to purchase the entire offering of units of the LLC, e.g., 1000 units at $20 per unit. The LLC now has $20,000 in capital to use for making investments and the IRA owns all 1000 units of the LLC as an asset. As the LLC invests the assets the gains will be used to make other investments or the LLC will pass the gains to the IRA as dividends or profits which will not be taxed until distributed to the IRA owner. If the LLC is sold or dissolved the IRA will recieve the proceeds in a non taxable transaction. If the Roth IRA is the owner of the LLC then amounts received from the LLC will never be taxed.

What is ignored by most commentators is that the corporate entity owned by the IRA in the Swanson case was DISC which under a now repealed IRC provision was a money machine in which corporate income earned by the DISC from off shore activities was exempt from US taxation and passed though to the IRA as dividends exempt from income tax. The use of the IRA as a tax avoidance device to avoid taxation of DISC income is what provoked the initial IRS response of a prohibited transaction (sale of assets between the IRA and owner) which was later recinded by the IRS because under the IRC a subscription to purchase an initial offering of securities is not a sale.

I dont see any issue in the application of the Swanson case to a corporate entity set up under a Roth IRA because IRC 409A(a) provides that a Roth IRA shall be treated for the purposes of the IRC in the same manner as an IRA. The IRS has also issued a Rev. Rul. stating that transactions between the IRA owner and a Roth IRA can be regarded as abusive transactions subject to penalities under the tax law which is why you need to retain tax counsel.

I dont understand why you would need an LLC to hold stock certificates instead of having them held by the IRA unless the certificates would consist of securities that the custodian would not want to hold outright, e.g., non publicly traded securities, off shore securities or other assets such as real estate. However many custodians will reject holding an LLC that invests in foreign seucrities or may be invested in activities susceptible to money laundering or a violation of the PT rules.

One more thing you need to consider is whether you want to pay the taxes on a Roth converson since you are losing the future investment value of the taxes paid as an opportunity cost. In other words if you pay 35% in taxes on a $100,000 conversion you will have given up 70,000 in assets after 8 years assuming a 9% return. The only reason to do a Roth conversion is if you are subject to Federal estate tax, payment of tax on the Roth conversion would reduce your taxable estate by 70,000 which would save $31,500 in estate tax at a 45% rate.

[John G]

"I think you should check you figures or their source concerning hedge fund expenses. It is my understanding that 20% performance fees are rather the norm in the field, with these fees reaching as high as 50%. On top of these “off the top” charges, there are additional management fees, typically, around 2%. Again, it is not difficult to check these numbers on the web."

Your comments suggest that you do not understand how hedge funds work. If you rely upon the "web" for you information, then you need to understand the meaning of what you read. Performance fees are not "off the top", they are based upon performance.

I have run a hedge fund and have two associates that own other hedge funds. These three funds were set up with 1.2 to 1.5% annual expense. Each had a 20% performance rate which only kicked in if the fund exceeds a "high water mark", which were set at 10, 10 and 12%. In most hedge funds, the performance fee generally applies to the gains beyond the benchmark. Example: if the first fund achieved a 20% raw return in a year, the fund kept 1.2 plus 2.0% (twenty percent of the amount over the benchmark) or a total of 3.2%, so the net return for the customer was 16.8%. The performance rewards only kick in if you have a good year. If the fund in the first year had a raw return of just 8%, then there was zero performance fee. The rules governing most hedge funds raise the benchmark higher in the following year, in this example, the 8% would push up the high water mark above 12% in the following year.

I remember seeing a 50% performance fee - it was from some hot hedge fund that got lots of publicity but was basically shutting the window on an existing fund. After operating for a few years, the fund jacked up the rate for newcomers, while simulatenously opening a new fund. P T Barnum would have blushed at how many news outlets like CNBC gave the fund free publicity.

{General readers: Hedge funds are restricted to "sophisticated investors" and "qualified investors". These terms are narrowly defined by the SEC based upon income and assets and only a small percent of the households in the US will qualify. The regulatory presumption is that these households or individuals have accountants and investment advisors and do not need the protection of the general investor. Minimum investments at some hedge funds can start at $500,000.}

"Paying a mutual fund management from 0.2% to 6% annually to let an investment sit and grow is not my idea of prudent fiduciary principles. In addition, most IRA Custodians charge annual maintenance fees, and on and on."

The above stats are misleading. First, the low end of the range is now below 0.2% if you consider funds that solicit large block commitments, restricted trade/exit, or the most efficient index mutual funds. Some ETFs are also below 0.2%.

Six percent is not the high end of annual expenses. Funds that have loads greater than 1.7% typically are old school outfits relying upon their reputation, narrowly cast sector (specific industry) funds, international or country specific funds. There are not many mutual funds that charge more than 2%. When you throw in a "load" of 3% or more, you are now mixing apples and oranges. "Loads" are a one time charge not an annual fee. The "load" side of the business is shrinking as the major fund families respond to market forces and increase the number of no-load funds, that have no up front or back end commission. There are thousands of no-load funds. With more than 10,000 mutual funds, there are many choices that have reasonable annual expenses.

You also throw in annual maintenance fees. Any customer with a IRA/Roth in excess of $10,000 can find plenty of custodians that will waive their annual fees. Others waive the fees if you elect electronic delivery of statements, or have other accounts with the custodian.

On and on? I have no idea what this refers to. In football this might be called pilling on.

[Guest Jim1Best]

mjb: Thanks for your response. I sincerely appreciate the time and effort you expended.

Although your example, outlining an IRA-LLC structure, is considerably more lucid than the two-liner that I started out with, I think both capture the important elements of the premise that I was trying to explore. Unfortunately for me, it doesn’t address the issues of which (IRA or LLC) comes first and how the "down-the-road" status quo obtains while avoiding prohibited behavior.

Also, I appreciated that the Swanson case was fully justified from the point of view of the IRS, and that the IRS, for the most part, prevailed in challenging the tax avoidance issues of the case. Bottom line, Swanson was using the IRA-LLC to accomplish the moral equivalent of laundering money through a faux bank account. The relevant point to this discussion , though, is that the judge (two successive senior fed judges in fact) found that, although the IRA-LLC was used for questionable transactions, the underlying structure was sound - the “bank account” aspect of the scheme was totally legitimate, if you will. From this point in time, it appears that the anchor to which the legitimacy and legality of the IRA-LLC is firmly pinned is the wording of this - the Swanson - decision.

I also would thank you for pointing out the reference in the IRC which specifically addresses the equivalency of Trad. IRAs and ROTH IRAs so far as the IRC is concerned. I had known of that provision, but had failed to make the connection that was needed to answer my own question.

I will have to think further about your comment regarding abusive transactions between an IRA owner and a ROTH IRA. First, I must locate the Ruling and read it just to try to understand where the IRS is coming from, then see if I can judge whether it may apply to me.

In reply to your last two points, I will need to inject a comment trying to explain my own curmudgeon personality. I am a real independent, class A, “if this is my responsibility, then I am going to do it myself” person. This usually not a pleasant was to conduct business, since I get a lot of advice encapsulated in the phrase, “well, why don’t you just hire an expert”. This is extremely hard for me to do - it just goes against the grain for me to hire an expert to, say, file a document with a state agency, particularly when I have to do the research to provide the expert with the information needed in the filing, then expert needs to charge a couple of hundred dollars (because he/she is a highly qualified expert) to file a $35 document. I could go on and on, particularly in the field of real estate where qualified experts end up costing almost as much as the property. (end of rant).

Now to your last comments, I would like to construct a fanciful “supposing”. Last May, a new ETF (I am not sure what the protocol for naming specific products is in a forum such as this, but the name can be supplied) was issued. Its initial offering price was about $40. Last Friday, the closing price was just under $60.

Case 1: I am not at all sure, in the time between when I learned of the offering and the offering itself that I could have contacted my custodian, supplied him/her/it with whatever documentation that was “needed” to satisfy due diligence, get institutional approval for the purchase, get a check issued and then convince the selling broker that I did, indeed, have the authority to spend money that he had received from some unknown custodian. It seems that it would be much simpler to convince myself that the purchase of this particular ETF was not a prohibited transaction, call the broker and write a check. Hopefully, he (the broker) would not have reservations about sending the proof of ownership of the ETF to an LLC registered to do business in the state. (Unfortunately, I have yet to get a handle on what constitutes “doing business“.)

Case 2: Let us say I purchased $100,000 worth of the ETF at $40 with traditional money (i.e., not tax advantaged). Today, it would be worth $150,000. If I sell it, the tax burden (in round numbers) would be $16,000 for a profit of $34,000.

Or, say, I purchased the same $100,000 worth inside an IRA (with $100,000 basis). If I cashed out the IRA, then essentially the same figures obtain - I pay $16,000 in taxes and have $34,000 profit.

But, say that I had converted the IRA to a ROTH. If the original $100,000 IRA is rolled over to the ROTH and tax ($30,000) is paid with non-IRA funds, then the ROTH-held ETF is worth $150,000 tax-free for a "profit" of $20,000. This scenario doesn't sound inviting unless you extend it in time - the question then becomes, when does the break-even point occur for $20,000 tax-free to grow to as much as $34,000 working in a taxed environment, considering further that the $20,000 is really $50,000 worth of earning power.

I know and concede that these are a simplistic examples which can be picked apart easily, but it also illustrates the wonderful power of a spreadsheet analysis even if done on the back of an envelope, so to speak.

Again - thanks, Jim1Best

[Guest mjb]

Jim:

No one is going to provide answers to the questions you raise for free. Investors hire tax advisors and counsel with the training and experience to research the complex issues that you have asked in order to properly structure the transactions so as to avoid tax penalties.

As far as the benefit of converting to a Roth IRA, think of the Roth conversion opportunity as a game of three card monte where the government is the dealer and the taxpayer has to guess which card will have a higher tax rate in retirement than in the year of the conversion which will result in a tax savings by converting to a Roth and paying taxes in that year. The three face down cards each have a % representing the tax rates in retirement: same tax rate, lower tax rate and higher tax rate where the govt gets to change all three tax rate cards both before and after every hand is dealt. The taxpayer has only one chance to correctly guess which card will be the higher tax rate card at retirement at some date in the future after the government has several more opportunties to change the tax rate in the card the taxpayer has chosen.

As the man says: Do you feel lucky today?

[John G]

I have completed about two dozen "outside" IPOs from both a Roth and IRA accounts from three different brokerages. The process is straightforward: produce the prospectus, which demonstrates that the shares will trade on a stock exchange, and request the custodian to send a check FEDEX. Two brokerages (regional boutique operations in the niche of the IPOs) do not charge for this service. Schwab did not originally charge, but now collects a fee (I think it is $175) for processing the request. This process can take as little as 5 days, but the brokerages ask for earlier action if possible.

I doubt there would be much of an issue with an ETF. This would be especially true if your custodian had business ties to the firm, such as ETF creators Barclay's, Vanguard and State Street.

One of the issues with unusual investment products is being able to determine the value at year end. That problem goes away with valuations set by market/trading.

I don't see why you would want to consider an LLC format if buying ETFs when initially offered was the primary issue.

MJB's comments about Roth conversion are very appropriate. Conclusions about conversion benefits are driven by assumptions about current and future tax rates. It is extremely difficult to predict federal/state tax policies. For some folks, it is also difficult to predict future wealth/income. We have seen in posts on this message board that many folks have problems comprehending the opportunity costs issues and correctly framing the mathematics.

[Guest Jim1Best]

Mjb:

John G:

Thanks, you guys, for an insightful discussion. I am digesting each of your comments. However, I come back to my stated position, viz:

A contrived analogy might be start out with a half-eaten apple. If one just chucks it out in the back yard, there is a small but real possibility that one could end up with an apple orchard in a few years time, particularly if the back yard is an unattended lot. (Read analogy as - an “investor” throws a few loose bucks into a stock picked almost at random.) In the event that the seeds do germinate, the resulting orchard almost certainly will be undesirable, and the fruit almost guaranteed to be withered, scrawny, blighted and worm-eaten. (There is also a vanishing small chance that a new, wonderful, exceedingly covenanted variety will emerge)

Extending the fantasy , one could buy some land, purchase proven varietal stock , tend the growth for a few years (if not continuously, at least conscientiously). The almost certain result is that the grower could start harvesting respectful, well-formed, delicious fruit in a reasonable time frame. At that time, the grove does have a small chance of producing a real state-fair-winner, but a much greater normal expectation of producing an excellent attractive marketable and profitable crop of fruit. The grower can also expect a significant but manageable percentage of any year’s harvest to be below average - diseased or deformed.

Now, my personality rears its head. Is it really necessary for the grower to hire a geologist to ok the land soil composition, contract with a botanist to choose the variety, employ a horticulturist to tend the growth, retain a civil engineer to harvest the grove, and finally, give exclusive rights to a New York advertising consultant to market the crop?

Go one step further, I contend that I can buy the land in a recognized apple growing area without undue additional expenses (if I pay cash, and carry the deed to the registrar myself), till the land with my trusty front-loader, attach a apple-picker to that front-loader for harvest, buy some crates at the local apple-boxes-are-us.com, and haul the fruit to the farmer’s market in my pickup. Is this any more labor intensive (or risky) than getting a day job to pay all those experts to tend the planting? Moreover, I am sure that I could get all the free advice I wanted from the local grower’s “web”. I just need to use a little due diligence in sifting through it to isolate the nuggets of usefulness.

And talk about uncertainty, I don’t even pretend to understand the concepts of risk-management, except in the sense that it’s a sure looser to bet more than 6:1 odds at rolling any given number on one toss of a di. (Unless you “know” that the di or the roller are influencing the outcome.) In this sense, I have trouble in trying to forecast what might happen if I do or if I don’t take some course of action. Just walking down the carnival of life, I have to decide whether to pay three card monty at the apple grower’s booth or at the stock seller storefront. After making that, at best, 50% chance of success decision, I still need to pick one of your three metaphorical cards. You tell me how quickly the chances diminish to either discover a delicious apple variety on the one hand or a Berkshire-Hathaway on the other. An enlightened expectation is just to come out “average” which I feel that I can do by buying some reasonable asset, holding ownership in my strongbox, and spraying regularly for pests.

But this philosophical detour is a long, long way from the original subject of this post. I certainly apologize if I have intruded or wasted your time. But I think I will call the Secretary of Commerce in the next state over and ask if I buy some of their tax liens whether that constitutes doing business there, particularly if it is a private corporation doing the buying.

Thanks again - Jim1Best

[Guest mjb]

Mjb:

John G:

But this philosophical detour is a long, long way from the original subject of this post. I certainly apologize if I have intruded or wasted your time. But I think I will call the Secretary of Commerce in the next state over and ask if I buy some of their tax liens whether that constitutes doing business there, particularly if it is a private corporation doing the buying.

Thanks again - Jim1Best

Are you willing to accept greater than 6 to 1 odds that a state employee will give you a incorrect answer? In my experience state employees are the least knowledgeable persons to provide correct answers to the legal question what constitutes doing business in a state. But the advice is free.

As the man says " Do you feel lucky today?"

[John G]

I don't understand why you post questions here, you don't seem very receptive to advice.

If you read some of my historic posts, I often have suggested that folks need to educate themselves about investing and risks. Its your money, and you have the single strongest interest in making it grow. These posts were about making asset allocation decisions, choosing funds, choosing stocks, and thinking long term about your investments.

But, I draw the line on complex issues of accounting and law where misunderstanding the issues can be extremely expensive. This is why I have suggested that you take your ideas to a local tax accountant or tax lawyer.

Lots of folks can scratch the soil and plant a garden or an orchard. Few understand the nuances of the tax code. Self-help gardening is common. Why not, as the worse case maybe just nothing grows. Self-help on IRA conversions, setting up LLCs, doing real estate transactions..... that's something completely different.