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When (if ever) Would The IRS Audit Your Self Directed IRA?

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Sunwest Trust is required to provide the IRS with an annual valuation of your IRA account, which is reported on form 5498.  The IRS does not require IRA custodians to tell the IRS specifically what is held in the IRA at this time.

We simply have to provide them an estimated fair market value (FMV) for the IRA account.  To my knowledge, the IRS very rarely audits a self directed IRA unless the IRS is completing a personal audit on an individual, which then evolves into a need to also audit the IRA.

A Few Tips To Survive a Self Directed IRA Audit

If your IRA is audited, then you will need to be able to show the IRS documentation for all of your investments to prove that you have not made any prohibited investments or transactions.  Your IRA custodian should have all of this documentation in your account file.

However, if you have an IRA LLC your IRA custodian will not have all of this information.  With an IRA LLC, it is particularly important for the IRA account holder to keep track of all of their own investments and produce documentation for all transactions in the case of an IRS audit.

Always, remember to:

  1. Keep your investments within the IRS guidelines and IRA rules.
  2. Complete proper asset valuations, and
  3. Maintain good records for your file in the event the IRS comes knocking on your doorstep.

In The Event of a Self Directed IRA Audit…

How Long Does One Need to Keep Records? Here’s What the IRS Says.

“Under the Income Tax Act and the GST Act, you are required to keep your business records for a period of at least five years, for records pertaining to accounting period ending on or after 1 January 2007. Business records for accounting period before 1 January 2007 must be kept for at least 7 years.”

When Will You Receive Your Submitted 5498 Forms?

The short answer is 5498 Forms will be sent to you and the IRS by the end of May.

Each year, Sunwest Trust is required to file a form 5498 on behalf of each of our IRA clients. This valuation form tells the IRS the total fair market value of your account and shows any contributions that were made during the year to your account and your IRA Fair Market Value to the IRS.

Since you have until April 15th to make prior year contributions, the form does not go out until May and by law Sunwest Trust is required to send out 5498 forms by May 31st of each year, but we always do our best to get them sent out as soon as possible. Most of you by the time you read this should have already received their 5498 forms. However, if you haven’t, then it will probably arrive in the next few weeks. We are sending out the last of the forms by the end of the month.

As you are aware, Sunwest Trust requires each client to fill out an Asset Valuation Worksheet on an annual basis.  This form is sent out in January and we require each client to fill it out and return it to us no later than March 31st.  This form is used to determine the fair market value of your IRA account.  We take the value of the assets, add any contributions that you make before April 15th and then add any money sitting in your cash account and this value is what is reported on the 5498 form.

The 5498 form is not needed to file your taxes.  When the 5498 form is completed, we send a copy to both the IRS and to our clients.  When you receive your copy in the mail, simply keep it for your records.


Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.