Practical tax tips: pension plans, "trading" partnerships, reviewing tax forms and more.

• Author: Williams, Leonard W.
• Position: California tax

Which Keogh/IRA/Pension Plan Custodians Will Handle Real Estate investments?

Although it doesn't come up very often, clients sometimes will want to invest their retirement funds in trust deeds or realty ownership. Most banks, stock brokerage firms or mutual funds, however, won't handle such situations.

A potential tax pitfall in realty ownership by an IRA or qualified plan is that it must be free of indebtedness. If there is a mortgage, then the IRA or qualified plan will have to pay unrelated business income tax (UBIT).

Several TaxTalk listserve participants offered names of custodians that will handle such investments, and shortly thereafter, similar information appeared in the July 23 edition of The Wall Street Journal.

The WSJ article listed the following custodians: Lincoln Trust of Denver; Pensco Inc. of San Francisco; and Sterling Trust of Waco, Texas. IRA Resource Associates in Washington and Arrowhead Trust Inc. in Irvine weren't mentioned in the WSJ article, but appeared in an April 2003 Los Angeles Times article.

Records Retention

For some reason, clients act like records retention is a big imposition. But retaining records is usually to their advantage.

Johanna Sweeney Salt has a good general letter to clients on this topic and will send it to CPAs who request it. Her e-mail is j.saltcpa@verizon.net.

A TaxTalk participant suggested that any such letter include a disclaimer that the retention advice is limited to what is needed for income and other specified tax purposes. And that another paragraph cover keeping records for all gifts and inheritances, including tracing all transactions related to those assets until they have been spent to zero.

A couple of examples were given of records retention paying off.

One CPA's client had purchased a "lifetime" roof for her house. Twelve years later some of the roof tiles began to disintegrate. There was a class action lawsuit, and because of the client's records, she received a refund of 75 percent of the roof's cost and a patch job on the defective tiles.

Another CPA said a client, about 75 years old, had kept meticulous records of the gifts and inheritances she received, the reinvested dividends and money earned and spent since she was 16. The records were invaluable in computing the cost basis of stock sold, determining her separate property and withstanding IRS audits.

How is a "Trading" Partnership Categorized for the Purpose of Applying the Rules Pertaining to Limited Partnerships?

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