CPAs and tax cheats

Let's say I have a limited partner interest in a piece of rental property and the LP interest throws off phantom income on the annual k1 but no distributable cash.

Can I buy the interest with my 401k to avoid the annual passive income? If I do this and then sell the interest for $1 in ten years will I be able to offset the phantom income with the final year loss?
The big question is could this net out to be tax neutral? Alternatively shall I challenge Mr. Phantom Income to a ski off and hire a CPA?

There's got to be someone here doin taxes for the dentists...



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No, No, No. I am no CPA, but I think your problem with all these is that they are not "arms length transactions" and are "self dealing."

Assuming they are arms length, would I be OK?

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This is not a good idea, I don't do this kind of tax litigation but if your set on this make sure the benefit is worth the substantial risk, we better be talking six digits or something.

Lastly spend a few minutes with a local tax attorney to get an understanding of the landscape in your area regarding enforcement. Make sure you like him because your probably going to see him again real soon. If you decide to do this delete this post, its a real fucking long shot but this kind of statement puts you in the fraud category rather than an oops I suck here's your money and interest deal.

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Originally Posted by reganized

Let's say I have a limited partner interest in a piece of rental property and the LP interest throws off phantom income on the annual k1 but no distributable cash.

Can I buy the interest with my 401k to avoid the annual passive income? If I do this and then sell the interest for $1 in ten years will I be able to offset the phantom income with the final year loss?
The big question is could this net out to be tax neutral? Alternatively shall I challenge Mr. Phantom Income to a ski off and hire a CPA?

There's got to be someone here doin taxes for the dentists...



Sent from my HP 12C

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Not a CPA, but I believe thats a 'prohibited transaction' - cant use your IRA or 401k to buy/sell anything from you or your business

I think you'd just be asking for an audit. Will the amount saved, be greater than the cost of professional representation?
I wouldn't go without it unless you're ready for a poopenhuasing.

As someone who has been audited by the IRS, I would not screw with any income (phantom or real) that gets reported to the IRS on your K1's, W2G's etc. Once you walk in their doors because of discrepancy on those, they look for other stuff as well on the "where there is smoke there is fire" principle.

There may be things the partnership can do to minimize the amount of phantom income to its partners and increase the tax efficiency of the LP. I think that would be the most productive thing to look into.

Timberridge is right in that you should be looking at the business entity itself to try and minimize the effects.

Also, its not impossible to invest or do deals with your own company through an IRA, but there are many more hurdles to jump through. Notably the structure of the company to begin with, as well as a trusted executor of the account, etc.

You need a real CPA if you want to go through with this. Without seeing numbers I say its not worth it, but you're going to have to pay for the opportunity to work it out. No CPA worth anything is going to do this type of stuff for free.

You DO realize that our every move is tracked by the NSA and the IRS now, right? I'd suggest deleting this thread ASAP.

http://news.yahoo.com/irs-high-tech-...202006116.html
http://rt.com/usa/information-tax-media-social-526/

and tons more articles if you look it up. I'd suggest just making sure you have a damn good CPA to help make sure you're in accordance with the law and go from there. Trust me, you do NOT want the IRS screwing with you. They've been hassling me for the last few years and I've been paying everything I should have. They're just hurting for money, so doing everything they can to nail anybody they can, even if the IRS is in the wrong, like they were with me. My CPA had to fight them time and time again. The lesson here? Keep your stuff straight. There is no more screwing around with these sorts of things.

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Originally Posted by AustinFromSA

You DO realize that our every move is tracked by the NSA and the IRS now, right? I'd suggest deleting this thread ASAP.

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Too late, the IRS drone already left the tarmac. Be afraid, be very afraid.

I'm turning you in for the reward.

The cool thing is the NSA now knows I'm turning you in and they have already paypalled me.

Wait, why is it generating taxable income but no cash? That there is your problem. You do know that is the opposite of how investing in real estate is supposed to work?

Realize as an LP, your control over is limited but -

Assets fully depreciated? Sell and roll the proceeds into a new property through a 1031 exchange to avoid cap gains.
High principal payment? Refi that bitch.
High capital replacements / additions? Time them to max out 179 deductions and be aggressive with what is capitalized verses expensed.

Its gonna throw off phantom income regardless.

I can buy the LP interest for $1. Deal with phantom income until they sell the property (10-20 years) and then make significant cash. Since my 401k is not taxable until I take $ out. About 30 years from now property will have been sold and loss will offset the phantom income and I'll owe cap gain on profit.

Seems totally legit to me. And buying enough of them could turn my crappy 401k into a Romney style 401k. Most people want to unload these because the phantom income hits them and they are too old to dump into 401k.

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what's to worry about? nothing's going to change with big data and tax enforcement in the next 30 years, you'll definitely be fine junior wannabe mogul

All 401k proceeds are taxed as regular income, not capital gains. Your LP would probably also fall under "disqualified persons" if it involves any family members.

Listen to ABC and the others. I'm no tax jock but I've seen people get stung big time on this sorta stuff. Non-institutional RE investment in a retirement plan is a HUGE audit red flag.

When I get involved in deals that throw off phantom income we look for ways to get a cash distribution out to cover the tax obligations of the partners/members. That only works if there's cash to pay out, of course.

ETA: Limited partnership? Are people still doing those?

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Originally Posted by Big Steve

partnership? Are people still doing those?

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Fixed. And seriously. Why?

There's still a place for joint ventures, a subspecies of general partnerships.

I ran into a foreign entity last year that insisted on an LP, said it had something to do with the entity's domestic laws.

Had initial talks with CPA and tax lawyer, seems legit so far. These would be institutional investments. When investing in 25 year old partnerships, they are LPs. Newer ones are llcs.

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