New GAO Study Could Inspire Further IRS Guidance for Self-Directed IRA Investing

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Self-directed IRA account holders may be seeing improved guidance by the IRS concerning alternative asset investing. In a recent publication by the US Government Accountability Office (GAO), titled “Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets”, the IRS “generally agreed” with recommendations made by the GAO to improve guidance for self-directed IRA account holders on ongoing federal tax liability and determining fair market value of hard-to-value alternative assets. The publication was publicly released on January 9th, 2017.

The GAO conducted this study because recent federal and state investigations and litigations have sparked interest in whether investing in alternative assets (those which lie outside the stock market) may put IRA owners at risk of penalties and jeopardize the accounts' tax-favored status.

The GAO's review of self-directed IRA industry documents found that tax payers who invested their IRA in alternative assets (such as real estate, precious metals, private equity and more) generally understand their role as account owners. Self-directed IRA owners assume a fiduciary role, which means responsibility for overseeing the selection, management, and monitoring of their account investments. This responsibility also includes accepting the consequences of decisions which affect their accounts. These consequences include both IRS rules and regulations, and asset performance.

The GAO found that current IRS guidance provides little information to help self-directed IRA owners understand their responsibilities and potential challenges associated with investing in alternative assets. The GAO believes that targeted IRS guidance for self-directed IRA owners may help them navigate potential compliance challenges associated with certain alternative assets.

According to the article, the GAO is making three recommendations to the Commissioner of Internal Revenue to “improve guidance for account owners with unconventional assets on monitoring for ongoing federal tax liability and to clarify how to determine the fair market value of hard-to-value unconventional assets.” GAO reports that the IRS “generally agreed” with these recommendations, so self-directed IRA owners may be seeing expanded guidance by the IRS concerning alternative asset investing in the future.

In the meantime, New Direction provides its clients with industry-best educational sources to improve their knowledge of self-directed IRA investing. Explore our educational tools and contact us today with any questions or concerns about your current or future accounts.

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