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New Tax Law Proposal Will Kill Private Placements in IRAs

New tax laws by Democrats are on deck and in the books. And if you have an IRA or will inherit one, these changes may impact you in a huge way.
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Private Placements

Proposed Tax Law

The Responsibly Funding Our Priorities Act as proposed by the Democrats Ways and Means Committee in the House will kill private placements in IRAs. 

Section 138312

Sec. 138312. Prohibition of IRA Investments Conditioned on Account Holder’s Status. The bill prohibits an IRA from holding any security if the issuer of the security requires the IRA owner to have certain minimum level of assets or income, or have completed a minimum level of education or obtained a specific license or credential.

For example, the legislation prohibits IRAs from holding investments which are offered to accredited investors because those investments are securities that have not been registered under federal securities laws. IRAs holding such investments would lose their IRA status.

This section generally takes effect for tax years beginning after December 31, 2021, but there is a 2-year transition period for IRAs already holding these investments.  

Not only will you no longer be able to buy such investments, as worded you will have to sell those you already own within two years.

Section 138313

Sec. 138313. Statute of Limitations with Respect to IRA Noncompliance. The bill expands the statute of limitations for IRA noncompliance related to valuation-related misreporting and prohibited transactions from 3 years to 6 years to help IRS pursue these violations that may have originated outside the current statute’s 3-year window. This provision applies to taxes to which the current 3-year period ends after December 31, 2021. 

Section 138314

Sec. 138314. Prohibition of Investment of IRA Assets in Entities in Which the Owner Has a Substantial Interest. To prevent self-dealing, under current law prohibited transaction rules, an IRA owner cannot invest his or her IRA assets in a corporation, partnership, trust, or estate in which he or she has a 50 percent or greater interest. However, an IRA owner can invest IRA assets in a business in which he or she owns, for example, one-third of the business while also acting as the CEO. The bill adjusts the 50 percent threshold to 10 percent for investments that are not tradable on an established securities market, regardless of whether the IRA owner has a direct or indirect interest. The bill also prevents investing in an entity in which the IRA owner is an officer. Further, the bill modifies the rule to be an IRA requirement, rather than a prohibited transaction rule (i.e., in order to be an IRA, it must meet this requirement). This section generally takes effect for tax years beginning after December 31, 2021, but there is a 2-year transition period for IRAs already holding these investments.  

 Section 138315

Sec. 138315. IRA Owners Treated as Disqualified Persons for Purposes of Prohibited Transactions Rules. The bill clarifies that, for purposes of applying the prohibited transaction rules with respect to an IRA, the IRA owner (including an individual who inherits an IRA as beneficiary after the IRA owner’s death) is always a disqualified person. This section applies to transactions occurring after December 31, 2021.  

These sections, especially 138312 and 138315 are very damaging. 

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Proposed Solution

Those restrictions are across the board, not just striking back at those making millions. 

Supposedly the concern is a level playing field. 

But if leveling the playing field is the genuine concern, instead of disallowing these investments, how about opening them up to everyone?

I am not sure what ****head proposed these rules, but we need to raise a fuss over these provisions now. 

Find Your Representatives

Please take action. 

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