John Worley Blog

Checkbook Control IRA LLC

John Worley - Friday, December 15, 2017

A checkbook control IRA LLC is a self-directed IRA owning a limited liability company (LLC) where you are the manager, with checkbook control. Checkbook control means you need not wait for a custodians approval. The structure also provides a variety of options for investing the funds from your IRA. Examples of approved investments include tax liens, real estate, precious metals, franchises, foreign currency and others. A checkbook control IRA LLC provides complete control of your retirement funds, and opens up a broader range of investment opportunities.

Checkbook Control IRA LLC

Once your IRA LLC is established, a federal tax ID number is assigned to it. Next, a business checking account is opened, and the IRA funds are transferred to the LLC's account. Checkbook control offers the advantage of your being able to make investment decisions immediately, and to write a check for an investment without waiting for a custodians approval.

You can also write a check for expenses required for a real estate investment. For example, if a repair is required of a rental property, you simply write a check from the IRA LLC's checking account. There is no need to wait for custodian approval with a checkbook control IRA LLC. An additional advantage of the structure, is the avoidance of a custodian fee for the transactions made. Furthermore, if you own a 401K, you may have the option of rolling it over into the checkbook control IRA LLC when you retire.

There is no tax due on the gains the investment achieves, until you take a distribution. A checkbook control IRA LLC will require some personal responsibility, since there is no custodian to manage the specifics for you. The custodian will continue to have a role in overseeing the funds, and may charge an annual fee. However, no transaction fees are charged for the transaction you will be providing yourself.

Your Responsibilities

It will be up to you to learn and understand the market you choose to invest in.  You will also need to maintain a close eye on your portfolio, and on the market, in order to recognize new investment opportunities, or when to divest.


It is essential to have a thorough knowledge of all state laws, and the IRS rules that are associated with the IRA. An LLC is the same as any other business entity, and has the same responsibilities. If you are considering a checkbook LLC, give us a call for a no-obligation consultation to find out more about establishing a checkbook control IRA LLC.

The Process

John Worley, Attorney at Law can assist you to establish a checkbook control   IRA LLC. The process includes the following steps:

  1. Forming the LLC, drafting the Certificate of Formation and the Operating Agreement, and obtaining a federal tax identification number.
  2. Open a business checking account in the name of the LLC.
  3. Transfer the funds from your IRA to the new IRA LLC checking account.
  4. Invest in your chosen field, using the LLC's business checkbook.

Is it Right for You?

If you plan to invest in non-traditional investments routinely, and especially with assets that require fast payment, such as for real estate auctions, quick deeds and others, a checkbook control IRA LLC will greatly facilitate the transactions, ensuring you never miss out on a deal again.

Investment Options

Real Estate

Real estate is a popular choice for an IRA LLC, and includes rentals, foreclosures, tax liens and other. However, there are rules involved. For example, you cannot a property for personal use, or place the title in your name. The property is required to be titled to the LLC.  Maintenance and expenses must come from the IRA LLC account, it cannot come from your personal money. All gains remain tax free until you take a distribution. Ensure you know all the IRS rules and potential tax issues before using the checkbook control IRA LLC to purchase real estate. John Worley, Attorney at Law can assist you in setting up your IRA LLC and can provide the information you need for using a  checkbook control IRA LLC to purchase real estate.

Tax Liens

When property owners fail to pay the property taxes, the state, county or city government places a lien on the property. When investing in tax liens, you are paying the taxes owed to the government entity involved. The property itself is your security. However, each state and county may have different rules and procedures regarding foreclosure of the property. Once you sell or rent the property, all profits are deposited into the LLC bank account, and are tax deferred until you take a distribution.

Precious Metal and Coins

The IRS allows the investment of retirement funds in specific precious metals and coins. There are rules regarding investments that are required to be observed. For example, precious metals and coin investments are required to be secured in an approved depository, and cannot be stored in your home.

There are an abundance of investment options available for your checkbook control IRA LLC.  If you need additional information or help establishing a checkbook control LLC, or planning an investment strategy, call John Worley, Attorney at Law.

506 Reg. D Private Placement

John Worley - Wednesday, November 15, 2017

Private Placement Defined

A private placement refers to a securities offering exempt from SEC registration. Federal laws regarding securities prohibit a business from offering or selling securities, without either SEC registration, or an exemption. 506 Reg. D Private Placement can assist your business in obtaining accredited investors.

506 Reg. D Private Placement

The Securities Act of 1933 provides businesses with an exemption from federal securities registration, allowing them to solicit for private offerings. This enables business owners to raise funds for their business. As the issuer, the business owner can sell its securities to an unlimited number of “qualified investors”, and up to 35 non-accredited investors.

506 Reg. D Private Placements provide the business owner with valuable options, yet is often overlooked. In simplified terms, the original Rule 506(b) restricted potential investors to those already accredited and primarily to those they already know. Verification of investor status is not required by the business owner themselves, but they are unable to use general solicitation in order to obtain new investors. 506 Reg. D Private Placements under 506 (c) on the other hand, allow them to use general solicitation to reach new investors, but does require the verification of accredited investors. The new rule places more of a burden on the issuer, but it doesn't have to. John Worley Attorney at Law can ensure full compliance for your company's goals and security offerings.

Rule 506 (b)

The original Rule 506(b) does not place any limits on the number of accredited investors the issuer can sell securities to, but allows sale to only a few non-accredited investors. Furthermore, the issuer is not required to verify accredited investors. However, they are not allowed to publicly advertise their securities for sale. When using Rule 506 (b), issuers often sell only to the accredited buyers they already know. This limits their opportunities for selling their securities, and can slow down their goal of obtaining additional funds.

506 (c)Unlike Rule 506 (b), 506 Reg. D Private Placements under 506 (c) allows the issuer to publicly advertise their securities for sale. With general solicitation being allowed, a larger number of potential investors can be reached, increasing the potential for raising the needed capital. However, 506 Reg. D Private Placements under 506 (c) place more responsibility on the issuers part, such as verifying that each potential investor is accredited.

As with the original rule, 506 Reg. D Private Placement under 506 (c) require the issuer to provide complete disclosure in writing prior to the sale of securities.

Accredited Investor

An accredited investor can purchase securities that are not registered with the SEC. Examples of this group include individuals, banks, brokers, trusts and insurance companies that meet the requirements.

Verifying Accredited Investors

If you choose to take advantage of a 506 Reg. D Private Placement under 506 (c), it will be your responsibility to verify the status of accredited investors.

The SEC provides the following safe harbors for the issuer to verify an accredited investor:

Approved Safe Harbors

  1. Reviewing the purchaser's income, including a 1040 form, 1065, 1099 or W-2 forms for the past two years. The purchaser will also provide a written statement regarding their reasonable expectation of income qualifying them as an accredited investor for the present year.
  2. The purchaser will provide one or more of the following documents to the issuer, dated within the past three months. Furthermore, a written representation from the purchaser will provide a written representation that all liabilities have been disclosed. These documents will assist in determining the purchasers net worth.

a. Documents regarding assets, including bank statements, brokerage statements, certificates of deposit, securities holdings statements, or tax assessments and appraisal reports. All documents must be issued by third parties independent of the purchaser.

b. The purchaser is required to provide liabilities disclosure documents, and will include a consumer report, such as a credit report from a consumer reporting agency.

  1. The issuer will provide written confirmation from an SEC registered investment adviser, registered broker-dealer, a licensed attorney, or a certified public accountant that the he/she has taken reasonable steps to verify the purchaser is an accredited investor within the most recent three months.
  2. An accredited purchaser who previously invested in a 506 Reg. D Private Placement offering with the issuer, can provide a certificate stating they remain qualified as an accredited investor.

The SEC permits the issuer to rely on publicly available filings with government regulatory bodies, pay stubs for the past two years, or third parties, including attorneys, accountants, and securities brokers to verify a potential investor's accredited status.

Requiring only a questionnaire, or a signed form lacking the required purchaser information indicating their accredited status, is not considered acceptable verification according to the SEC.

506 Reg. D Private Placements under 506 (c) provide an alternative to the original rule, allowing you to reach a larger audience of potential investors with general solicitation. Contact John Worley, Attorney at Law, to schedule a consultation. We can provide answers to your questions, and explain the process regarding how 506 Reg. D Private Placements can assist your business needs.

Checkbook Control IRA LLC's in Dallas, TX

John Worley - Sunday, October 15, 2017

The advantages of checkbook control IRA LLC's in Dallas, TX are significant for those who would like greater control over growing their retirement funds.  Checkbook control can provide you with signing authority over your retirement funds without delays or fees. By forming an LLC, you become the manager of both the LLC and your funds. The flexibility and freedom to invest your retirement funds, without waiting for the permission of the IRA control custodian, increases the potential to grow your  funds. Furthermore, checkbook control enables you to act quickly on investment opportunities before they are lost to you. Checkbook control IRA LLC's  in Dallas, TX are issued a tax ID number and are approved by the IRS and tax courts. John Worley, Attorney at Law can provide the legal expertise you require to set up your checkbook control LLC today.

Checkbook Control IRA LLC's in Dallas, TX

With checkbook control,  you have the opportunity to take advantage of nontraditional investments. For example, you can invest in precious metals, private lending, tax liens, private businesses, franchises, real estate and others. While you may continue to have an IRA control custodian, you pay only a small annual fee, if they are required to oversee your account. In addition, if you also have a 401K, or additional IRA's, you may be able to roll them over into your LLC for greater investment opportunity.

Checkbook control is especially beneficial for investments that require immediate payment using cash, certified check, or money order. Examples of this type of investment include tax lien and deed auctions, foreclosure auctions, real estate short-sales, and sheriff’s sales. With checkbook control, you will no longer risk missing out on time limited opportunities.

The Steps to Checkbook Control

Deciding where you want to invest your retirement funds is the first step. Research your chosen industry, and seek professional advice. John Worley, Attorney at Law has extensive experience with checkbook control IRA LLC's in Dallas, TX. We can assist you to establish a solid investment strategy for increasing your wealth and securing your retirement.

The next step is the establishment of your LLC, owned by your IRA, the preparation and filing of the Certificate of Formation, and applying for a federal tax identification number. Once these steps are complete, you can open a bank account in the LLC's name, where you will have complete signing authority for approved investment purposes.  With a checkbook in hand, you can act immediately on investment opportunities, and repairs or maintenance needs for your LLC without waiting for a custodian's approval.

Manager Responsibility

Without a custodian over your account, it will be up to you to recognize a qualified investment. It will also be your responsibility to provide due diligence. For example, it is up to you to be aware of the costs involved, and other factors that may affect your LLC. This responsibility includes closely monitoring your portfolio, ensuring the capital is preserved, how much to invest, and when to divest.

Equally important is ensuring the compliance of all state laws and IRS rules affecting your LLC. Remember, your checkbook control IRA LLC's in Dallas, TX  is a legal business and subject to the rules and laws of any other business. Furthermore, as manager of your LLC, you are responsible for the bookkeeping and record keeping of all transactions. Being thoroughly informed and aware of all the aspects involving your LLC can prevent your being penalized.

The Pros and Cons in Summary

  • Possessing checkbook control IRA LLC's in Dallas, TX provides you with fast access to your IRA funds.
  • With checkbook control, you have access without authorization delays, or bureaucratic interference. You can take advantage of investment opportunities by simply writing a check.
  • Provides a wider variety of investments to choose from, and the ability to act quickly when opportunities arise.
  • Can eliminate the transaction fees of an IRA control custodian, who receives only a small annual fee.
  • If your investments also include funds in other retirement plans that do not allow you the freedom to invest, the Checkbook IRA can provide a solution. You can rollover or transfer those funds tax-free into your checkbook control IRA LLC in Dallas, TX and start investing.
  • The checkbook IRA offers the advantages of a traditional IRA and more. The IRA LLC allows all profit, gains and income generated by the investment to go back to the IRA on a tax-deferred basis.
  • The disadvantages tend to fall under the manager's responsibility. You are responsible to uphold state laws and IRS rules. In addition, as with any other business, you are responsible to provide proper stewardship of your LLC and its funds.
  • There is also risk involved when you forgo a custodians experience and expertise in overseeing your account. For example, the custodian ensures your taxes are paid on time, and that you do not commit to a non-approved investment or engage in a prohibited transaction, to name a few of their responsibilities. In addition, as the manager of your checkbook control IRA LLC in Dallas, TX, you will not have a custodian's experience, which may lead you to make a bad investment . This can deplete your retirement portfolio completely. If you have specialized knowledge in the area of an approved investment, your chances of success may be higher in the area of your specialty.
  • A common mistake investors make with checkbook control IRA LLC's in Dallas, TX is engaging in a prohibited transaction, which means doing something that directly or indirectly benefits yourself or a related party. The rules governing the structure are based on tax laws and rules that are best understood by a qualified attorney.

We Can Help

John Worley, Attorney at Law can assist you every step of the way, providing a solid foundation for your checkbook control IRA LLC's in Dallas, TX. Contact our office today to schedule an appointment, and let's get started growing your investment potential.

506 Reg. D Private Placement

John Worley - Friday, September 15, 2017

In the United States, in order to offer and sell securities, the issuer is required to comply with the registration requirements according to the amended Securities Act of 1933, or pursuant to an exemption from the requirements. Rule 506 Reg. D Private Placement is often used as a private offering exemption. In 2013, the Securities and Exchange Commission (SEC), lifted a ban on general solicitation or advertising in certain offerings of private securities. Called the “final rule”, it allows businesses to take advantage of broader opportunities for raising money for their business. With the ability to publicly advertise their offerings. Business owners can attain their financial goals and grow their business from qualified investors. However, compliance requirements still apply.

506 Reg. D Private Placement

As any business owner knows, raising capital involves its own risks, and the desire to avoid mistakes often causes hesitation. However, 506 Reg. D Private Placement provides the issuer the opportunity to reach a greater number of potential investors, and can reduce the cost of raising capital for their business. The advantage also extends to potential investors, as it provides them with the opportunity to participate in private placements.

Rule 506 (b)

According to the “old” Rule 506(b), companies could sell securities to any number of accredited investors, and a handful of other potential purchasers. With the old rule, issuers do not have to verify potential accredited investors themselves, but they are not allowed to publicly advertise in what is known as “general solicitation”. They typically are cautious to offer securities to the buyers they already know and consider to be accredited. This limits their range of potential investors, and can slow down the process of raising capital for your business.

Rule 506 (c)

A 506 (c) Reg. D Private Placement allows public advertisement, significantly increasing your audience of potential investors for your company, and increasing the opportunity to raise capital for your business. However, there are a number of requirements involved. For example, businesses may only sell to accredited investors. Furthermore, each potential investor must be verified as an accredited investor.

The 506 (c) Reg. D Private Placement amendments do not affect the obligation of the issuer who utilizes safe-harbor to provide complete disclosure with the offering. Under safe-harbor, the disclosure is required to be issued in writing prior to the sale of securities, whether general solicitations or general advertising is used under 506 (c) Reg. D Private Placement.

Accredited vs. Non-Accredited Investors

Businesses will be required to decide whether or not to use general solicitation.  With the use of general solicitation the business will be limited to selling securities only to accredited investors. Without general solicitation, businesses can sell to as many as 35 non-accredited investors.

Verifying Accredited Investors

Under general solicitations, a reasonable effort is required to verify each potential accredited investor. The SEC provides four non-exclusive safe harbors for the issuer to verify the status of an accredited investor. Guidelines have been established by the SEC for determining whether or not an issuer has provided reasonable effort to verify an accredited investor.

Approved Safe Harbors

Acceptable safe harbors include the following:

  1. Reviewing the purchasers IRS that report income, including a filed 1040 form, 1065, 1099 or W-2 forms for the two most recent years. In addition, the purchaser will also provide a written statement regarding their reasonable expectation of reaching the income level qualifying them as an accredited investor during the current year.
  2. Review of one or more of the following documents, dated within the past three months, in addition to a written representation from the purchaser that all liabilities have been disclosed, in order to determine net worth.

a. Assets including bank statements, brokerage statements, certificates of deposit, securities holdings statements, or tax assessments and appraisal reports issued by independent third parties.

b. The purchaser will provide liabilities disclosure documents, including a consumer report. A consumer report can be a credit report from one or more of consumer reporting agencies. The purchaser will also provide a written representation that all liabilities have been disclosed to the issuer. These documents assist the issuer in a determination of the net worth of a potential purchaser.

  1. The business will provide written confirmation from an SEC registered investment adviser, registered broker-dealer, a licensed attorney, or a certified public accountant that the issuer has taken reasonable steps to verify the purchaser is an accredited investor within the most recent three months.
  2. An accredited purchaser who previously invested in a 506 Reg. D Private Placement offering prior to the effective date of Rule 506 (c) and remains an investor of the issuer, satisfies the verification requirement of 506 Reg. D Private Placement. The purchaser will provide a certificate at the time of the sale stating that they remain qualified as an accredited investor.

The SEC permits the issuer to rely on publicly available filings with government regulatory bodies, pay stubs for the past two years, or third parties, which includes attorneys, accountants, and securities brokers able to verify a person's accredited status.

According to the SEC, requiring only a questionnaire, or a signed form without purchaser information indicating their accredited status, is not considered reasonable steps for verification.

The General Solicitations allowance in 506 (c) Reg. D Private Placement enables businesses to take advantage of opportunities for your business. Contact John Worley, attorney at law, today to schedule a consultation. We will provide the information you need, and answers to your questions regarding how a 506 Reg. D Private Placement can raise money and assist your business to grow.

Checkbook Control IRA LLC in in Dallas, TX

John Worley - Thursday, August 10, 2017

Investing in Your Future

A checkbook control IRA LLC is a term used when a self-directed IRA owner forms an LLC providing them with complete signing authority over their retirement funds. As the Manager of your funds and an LLC, possessing signing authority allows you greater freedom and flexibility to invest the funds without seeking the permission of the IRA custodian. By eliminating custodial permission, you can act quickly on investment opportunities without the traditional two to three day waiting period. You may also avoid the custodial fees involved with transactions and investments. A checkbook control IRA LLC  is an IRS and tax courts approved, and is a legal company that will be issued a tax ID number.

Checkbook Control IRA LLC in in Dallas, TX

A checkbook control IRA LLC  allows you to make non-traditional investments. It is especially popular among real estate investors, and allows you to manage assets, and control your retirement goals. While real estate is popular, you can invest in a number of options, including precious metals, franchises, foreclosures, private business entities, foreign currency and other investments. In addition, you can rollover a 401K into the LLC when you retire. You also have the option to close other IRA accounts and move them into your LLC to increase your investment potential.

You may continue to have a custodian who oversees the account, but no transaction fees are involved with investment activity and/or transactions in checkbook control. When the custodian is required to oversee the account, a small annual fee may be charged.

Establishing Checkbook Control

Once you have an idea as to how you want to invest your retirement funds, become familiar with the market of your choice. We offer expert advice for a checkbook control IRA LLC, assisting you to establish a solid investment strategy for expanding your wealth and securing your retirement future.

Setting up a checkbook control IRA LLC  requires the establishment of an LLC that is owned by your IRA. You will also  prepare and file the Articles of Incorporation, and apply for a Federal Tax ID number,. Once obtained, you will be able to set up a bank account in the LLC's name.  As the manager of your LLC, you will receive a checkbook and the control of your retirement funds for specific investment purposes. Once it is set up, you will no longer be required to receive approval from your custodian for each investment.  The decisions of investment are yours, and you can act immediately when opportunities arise, or when you need fast access to cash for repairs and maintenance.

Your Job as Manager

As the manager, and without a custodian in control, it is your responsibility to recognize qualified investment opportunities. While the advantages are numerous with an checkbook control IRA LLC, due diligence is recommended. For example, being aware of potential costs you may be responsible for, member limitations and other factors that can affect your LLC.  Furthermore, you must decide how much to invest, and when to divest. It is also your responsibility to closely monitor the portfolio, ensuring the capitol is preserved and recognizing additional opportunities that can increase your retirement funds even further.

As Manager, it is also your responsibility to ensure compliance with all state laws that will apply to your LLC, and the IRS rules involved. Your LLC is a business entity, subject to all the rules of any other business, and the failure to comply with the rules and laws can result in fines and penalties against your LLC.

Checkbook Control IRA LLC:

  • Can reduce the amount of administrator’s fees you will have to pay for investments.

  • Can eliminate the delay required with a IRA when you need to act fast on an opportunity. A checkbook control IRA LLC provides you with more control of your assets.  

  • Permits the required accounting to be provided by the LLC Manager or advisors.

  • Allows you to make the decisions of when and where to invest your retirement funds.

Beneficiaries of the Checkbook Control IRA LLC

Long-term considerations for your checkbook control IRA LLC include your post retirement plans for the LLC. In addition, you will need to decide who the beneficiaries will be of the LLC. Once you have made this decision, you will need to complete a specific form when setting up your account. You cannot simply specify the beneficiaries through a will. If you change your mind later and want to add or change one or more beneficiaries, you can do so by filing an updated form.

Speaking with a qualified expert prior to setting up your checkbook control IRA LLC is highly recommended. Select an expert with expertise in a checkbook control IRA LLC, and its regulatory aspect. In addition,  it is beneficial to choose an expert who possesses the expertise to provide guidance regarding the best strategy to build wealth respective to your post-retirement plans. A qualified professional with experience can assist you to achieve a strategy and to recognize investments that will earn the maximum funds.  

Most importantly, when considering a checkbook control IRA LLC, remember that it not only offers maximum earning potential,  but also that there is the risk of losing your retirement funds. With careful consideration before setting up the checkbook control  IRA LLC, your chances of success will be higher, and your retirement better secured.  John Worley Attorney at law can assist you in establishing a solid platform for your investment, and the guidance you require.

If you would like to obtain greater control over your IRA funds,  contact us today for a no-obligation consultation. The firm of John Worley Attorney at Law offers extensive experience, flexibility and a seamless integration for increasing your retirement funds with a checkbook control IRA LLC.

Using Self-Directed IRA LLCs to Invest in Real Estate

John Worley - Friday, July 07, 2017

Surprisingly, few investors realize that the IRS has since the 1970s permitted real estate to be held within IRA retirement accounts. You, as an investor, don’t have to invest in bank CDs, mutual funds, or the stock market.

With a Self-Directed IRA LLC, real estate investments have been permissible under the Employee Retirement Income Security Act of 1974 — ERISA for short.

Additionally, IRS rules permit investors to engage in most real estate investment types as long as they do not involve a disqualified person (see below).

This post examines:

  • The advantages of using a Self-Directed IRA LLC to purchase real estate
  • Tax advantages of buying real estate with Self-Directed IRA LLCs
  • The types of real estate investments permitted
  • A few strategies, rules and regulations when using Self-Directed IRAs for real estate purchases
  • And the process to invest in real estate with a Self-Directed IRA LLC

If you are unsure of using a Self-Directed IRA LLC for real estate investments, or you’re unfamiliar with the term “checkbook control,” the best thing to do is consult with an attorney experienced in such matters. It can get confusing.


Income produced by an IRA generates tax-differed/tax-free profits. When using a Self-Directed IRA LLC to purchase real estate, the IRA earns tax-free income/gains and you pay taxes at a future date, not in the year the investment produces income.

(If it’s a Roth IRA the income/gains are always tax-free. See why it’s worth consulting with an attorney experienced with Self-Directed IRA LLCs and “checkbook controlled”? So many nuances.)

In addition to gains being tax free:

  • There is no time limit for holding property
  • Positive cash flow is tax free
  • There’s potential to earn a larger rate of return on invested capital
  • The IRA can borrow money

Tax Advantages

Instead of paying tax on returns the year gains are generated, tax is paid at a later date — leaving the investment to grow unencumbered.

Note that Self-Directed IRA real estate investments are usually made when an investor is earning higher income and is taxed at a higher rate. Withdrawals are made from an account when a person is earning little or no income and is taxed at a lower rate.

Types of Real Estate Investments

Below is a partial list of real estate investments that can be made with a Self-Directed IRA LLC. If you have questions about a particular type of real estate investment, consult an experienced attorney. Questions always pop up — like air space and water rights.

  • Residential homes
  • Apartments
  • Duplexes
  • Condos and town homes
  • Mobile homes
  • Vacation rentals
  • Offshore properties
  • Commercial property
  • Real estate notes and purchase options
  • Tax liens certificates
  • Tax deeds


There are several real estate strategies available with a Self-Directed IRA, including but not limited to:

  • Partnering: If an investor doesn’t quite have the funds, he or she can partner their Self-Directed IRA with other people, or other IRAs.
  • Leverage: An investor can obtain a non-recourse loan from a bank or lending institution.
  • Options: An investor can buy and sell real estate options.

Rules & Regulations

  • Prohibited Transactions: There are rules regarding who an investor can and cannot buy from and sell to with a Self-Directed IRA. Those people are called “disqualified persons.”
  • Disqualified Persons: You and your spouse; your lineal ascendants/descendants and their spouses; investment advisors and managers; anyone providing services to the IRA; any corporation, partnership, or other entity in which you own a 50 percent or greater interest.


How does an investor set up a real estate IRA transaction?

Meet Laura

Laura is in her mid 30s and has decided she needs to take retirement savings more seriously.

Laura loves real estate and is always pulling out her phone to check on available properties and prices no matter what city she’s in. She figures a retirement strategy that includes real estate is good for her because she’s already interested in and will stay engaged.


This itself can be a separate post, but for now let’s just say Laura needs to do some research — understanding the pros and cons of using an Self-Directed IRA to fund a real estate investment and finding an attorney or administrator she likes and can work with are important early steps.

Laura can find the right attorney or administrator, but she can’t do any investing until she funds the Self-Directed IRA LLC account.

Funding the Account

Laura can use her Self-Directed IRA LLC funds to make 100 percent of the investment — if she has enough funds.

As noted earlier, Laura can partner with family, friends, and colleagues as long as the partner is not considered a non-disqualified person. Her Self-Directed IRA LLC could purchase a 50 percent interest and a partner could purchase the remaining 50 percent. All income gained from the property could be allocated to the parties in relation to their percentage of ownership.

Laura may obtain financing through a loan or mortgage to finance a real estate purchase using a Self-Directed IRA LLC. However, two important points must be considered: The loan must be non-recourse and tax is due on profits from leveraged real estate.

Laura can also fund her account with a cash transaction or by rolling over the funds from an existing retirement account. Laura is not unlike other investors who are in their mid-30s and later. Chances are she may have an abandoned 401(k) (or two) with previous employers that she can roll into a real estate IRA.

Investment Opportunities

As noted above there are many types of real estate opportunities that can be funded via a Self-Directed IRA LLC. All of this requires more research, due diligence, and patience — which Laura figures will not be a big deal because of her interest in real estate to begin with.

Partial to homes, Laura decides her first investment will be a single-family rental home.

Buying the Property

Laura fills out a form directing her administrator to purchase the single-family rental home with cash from her Self-Directed IRA LLC. When the transaction is complete, the IRA owns the property. She can collect rent and the funds will go directly into the retirement account.

(Of course, Laura is obligated to manage the property, and this is where talking with an attorney familiar with Self-Directed IRA LLCs and real estate purchases comes in handy. What can she do and not do with the IRA?)


Assuming all goes well, Laura over the years watches her rental property and Self-Directed IRA grow with taxes on the earnings deferred.

Perhaps at some point, there is enough profit from the first investment that Laura can purchase a second property.

Common Mistakes Made by Self-directed IRA Investors

John Worley - Thursday, June 22, 2017

Understanding the world of self-directed IRAs isn’t easy for any investor. There rules and regulations, of course, but there are many nuances and subtleties, which make it easy to fall into a trap.

This post examines common mistakes self-directed IRA investors make because it’s easy to think you’re doing the right thing when, in fact, maybe it’s not the best course of action.

Here are some examples.

About that Credit Card in the Name of an LLC . . .

Scenario: You go into a bank to set up an LLC checking account and the teller asks if you’d like a credit card for the account. Or, because credit card companies are always looking for new customers from newly-formed businesses, you get an application in the mail. In either case, you think there’s no harm and go ahead and do it.

Response: Say no thank you to the teller. Throw the mailed application in the trash.

Why: In signing for a credit card in the name of an LLC, you will be issuing a personal guarantee on behalf of the LLC, which is a Prohibited Transaction. You’ve just personally guaranteed the LLC’s debt and repayment. The execution of that personal guarantee constitutes an “extension of credit” and is automatically prohibited, even if it is never exercised.

Additionally: For the same reasoning, never apply for overdraft protection or a line of credit for the account.

Best Advice: If you are unsure of what to do or better yet not to do, consult an attorney experienced in self-directed checkbook IRA LLCs.

If You Intend to a Purchase with IRA Funds . . .

Scenario: You’re not unlike many investors. You find a great rental property you want to buy as an IRA investment. Problem is you have not established a self-directed IRA account or have engaged the services of an IRA custodian.

Why is this a problem? You may lose out on the deal because you don’t have immediate access to your IRA funds and you cannot personally deposit your own earnest money or enter into a purchase agreement.

Remember: It takes at least 30 days to establish a self-directed IRA. The IRA needs to buy the property, not you. Every investment made must be for the exclusive benefit of the self-directed IRA and not for a non-IRA benefit or another person.

Best Advice: Be diligent to avoid any direct or indirect “Prohibited Transactions.” And if you are unsure of what these are, consult an attorney experienced in self-directed checkbook IRA LLCs.

Making a Contribution to an IRA . . .

Scenario: You want to make an annual contribution to an IRA by depositing it directly into the IRA/LLC checking account.

Best Advice: Don’t do that! If you make an annual contribution directly rather than through an IRA custodian you are personally interacting with your IRA/LLC and that’s a no-no and considered a prohibited transaction. If confused, consult with an attorney experienced in self-directed checkbook IRA LLCs.

About those UBTIs . . .

Scenario: An IRA owner wants to passively invest in a business but the business activity itself is not passive. Should that investment be made in a pass-through entity such as an LLC, the IRA could generate unrelated business taxable income (UBTIs) on any profit derived by the businesses’ activity.

Best Advice: You’ve heard this enough now, but it still holds true: Consult with an attorney experienced in self-directed checkbook IRA LLCs if you have questions about unrelated business taxable income.

Using Personally-Owned Assets to Benefit IRA . . .

Scenario: You want to develop IRA-owned property, you have the heavy equipment to do so, and you don’t mind doing the work.

What’s the Problem? It’s considered another prohibited transaction. For one: You’re using personally-owned assets. Another thing: You’re contributing “sweat activity.” Both constitute a de facto contribution that would break the contribution limits.

Best Advice: You got it. Consult with an attorney experienced in self-directed checkbook IRA LLCs and familiar with prohibited transactions.

About Transactions with a Non-Disqualified Party . . .

Scenario: Many investors believe that transactions with a non-disqualified party cannot be prohibited transactions.

Reality: This is simply not true. As an IRA holder, you have a fiduciary responsibility to do what is in the benefit of your IRA.

An example: As an IRA holder you could purchase rental real estate and allow a brother and his family to live on the property. It would not necessarily be a prohibited transaction, BUT it does set up the potential to violate the exclusive benefit rule if the rent was not set at fair market value or the terms of the property agreement were not enforced.

In the End: Not acting in the best interest of the IRA could result in a prohibited transaction.

Best Advice: You got this by now.

About Disguising Active Investments . . .

Scenario: Self-directed IRA holders attempt to “disguise” active investments that generate UBTIs by placing a newspaper ad to show their intent to rent an IRA investment property. Problem is they can’t find the right tenants so they use this as an excuse to sell.

What’s Going On? The IRA holder thinks this plan will avoid UBTI because the intention was to rent the property as a passive investment. Yeah, it’s a bit shady. Even if true, case law says that the most dominant factor is the purpose at the time of sale, not at the time of initial purchase. It may be a perfectly passive non-business purpose going in, but if that purpose is changed at the time of sale it’s a business-type transaction and subject to UBTI.

Best Advice: You know what to do.

A Few Other Mistakes . . .

  • If you’re an IRA owner AND a real estate agent, you cannot receive a commission on the buying or selling of IRA property. You cannot take personal compensation for any self-directed IRA investment.
  • A self-directed IRA enters into a de facto partnership by loaning money to a developer, but instead of creating an interest and payment schedule the IRA holder accepts a share of profits. This wouldn’t be a problem if the IRA lent the money for a what-the-market-bears interest rate and payment schedule, but in the profit-sharing scenario it’s simply disguised equity that’s made to look like a loan.

A Look Inside Private Placement Memorandums in Dallas, TX

John Worley - Monday, May 22, 2017

The definition of a private placement memorandum (PPM) is simple enough: It’s an important legal document that discloses the objectives, risks, and terms of a proposed investment in your company.

Not to confuse matters, a PPM is also known as an “offering memorandum” or an “offering document.” No matter what term is used, these are vitally important legal documents that will be distributed to potential investors whenever your company sells stock or another type of security in a private placement.

But what does a private placement memorandum actually contain? What information is collected for investors? After all, there’s a lot riding on a PPM.

Quick Overview

A PPM provides important facts and figures about your company and its business to potential investors, including:

  • The company’s industry
  • Descriptions of products sold and/or services provided
  • Product projections
  • Industry and economic projections
  • The company’s financial statements
  • Management biographies
  • Terms of the offering
  • Planned uses for money raised
  • Associated risks

Who Prepares a PPM?

While you can prepare a PPM, it’s highly advisable that it’s created by your attorney or investment bankers or accountants on your behalf.

PPM Distribution

A PPM isn’t like a Prospectus, which is produced when stock or other securities are registered under federal securities laws and become available for purchase by anybody. A PPM is not typically available to the public. It is distributed to a limited number of pre-screened investors to solicit offers to purchase the stock or other securities described in the PPM.  The exception to this rule is under 506(c), which allows offerings through approved internet portals solely to Accredited Investors.

The PPM is usually distributed with the Subscription Agreement and Investor Questionnaire that investors will sign if they agree to the offering’s terms.

A Closer Look

An important advantage that an attorney or other professional provides in preparing a PPM is customization, tailoring the document to your specific company and offering. Even so, a PPM typically includes:


As you’d expect, the first pages of a PPM outline the basic terms of an offering including a brief statement about the company, its core business, and all the “legends” required by federal and state laws. An introduction sometimes may be called an “Executive Summary,” depending on the author.

Offering Summary

Information here usually relates to the capitalization of the company prior to and after the proposed investment is made.

Other capitalization-related information, such as liquidation preferences, conversion rights, anti-dilution provisions, voting rights, can also be included.

This section is usually in the form of a term sheet.

Risk Factors

The PPM includes risk factors envisioned by the issuer that may impact an investor’s investment. These include general risks common to similar investments and risks unique to the issue and its securities.

As an example, risk factors could include risks from competition, the dependence on a small number of personnel, or the need for a strategic partnership.

Company and Management Descriptions

Investors like knowing who they are dealing with, and this section provides the company’s history, its products and/or services, and its performance history.

Also included, in no particular order, are:

  • Company goals
  • Intellectual property
  • Marketing strategy
  • Advertising campaigns and strategies
  • Customer descriptions and profiles
  • Suppliers
  • Industry and industry economics/analysis
  • Competition or competitive analysis
  • Management information includes the usual:
  • Business biographical information for all executives and management members
  • Personal biographical information
  • Fiduciary duties
  • Special skills that are important to the company’s success

Use of Proceeds

Investors also like knowing how their investment will be used.

  • A company must describe how it will use the net proceeds raised from the offering and the approximate amount to be used for each purpose.
  • In some instances, companies provide an item-by-item list with descriptions of how it intends to distribute and use the moneys received through the private placement. 
  • A detailed description of any and all compensation to be taken by the founders or any other related parties from the private placement proceeds is also included. Forms of compensation include salaries, consultant fees, asset sales and purchases, and any other forms of direct or indirect compensation. Compensation information must also be disclosed in the SEC Form D filing, which is accessible to the public at large.

A summary of terms should be prepared by your attorney at the end of the PPM to allow for inclusion of all cited terms. This can include rights, restrictions, price, minimum subscription amounts, applicable management fees, withdrawals, investor qualification standards, and others. This summary should be prepared by your attorney at the end of the PPM process to allow for inclusion of all cited terms.

Description of Securities

This section is straight forward. It describes the rights, restrictions, and class of securities being offered.
It should also describe the ability of the company to change its capitalization such as different classes of shares and distribution of dividends.


Exhibits allow a company to provide supplemental information and documents that may be material to an investor's investment decision. Exhibits may include copies of investment contracts, financial statements, organizational documents, key contracts, licenses, among others.

Reasons to Use a Private Placement Memorandum

  • A well-prepared PPM will mitigate risks from potential liability and litigation if your investors lose money on their investments.
  • A PPM can protect your company from liability for possible violations of the federal and state securities laws.
  • Some of your potential investors are not accredited investors.

Reasons to not use a Private Placement Memorandum

Not all offerings require the use of a PPM. Examples of when a PPM is not necessary:

  • When the cost of paying professional fees to lawyers, investment bankers and accountants to ensure legal compliance is prohibitive. 
  • When a company is in its very early stages and potential investors are limited to friends and family or angel investors who are sophisticated enough to conduct their own due diligence and negotiate their own investment deal.

Common Mistakes

  • Executives considering a private placement sometimes believe that they can avoid paying lawyers and investment bankers by drafting the PPM themselves using forms found on the Internet. Such a do-it-yourself approach may expose a company to a much higher risk of legal liability and litigation. A PPM prepared by an expert is much more likely to protect a company if something goes wrong.
  • Issuers include generic investment risk information rather than detailing specific risks associated with a company’s industry (trends, competitive pressures, regulatory issues). A well-prepared, detailed, and accurate risk analysis is crucial to protect your company from potential liability.


Is a PPM the same as a business plan?
No. A PPM contains similar information to a business plan, but it is intended PPM to provide an objective view of your company. Business plans are usually more oriented towards marketing the company and is less objective.

Is the PPM the Only Document Investors Use to Make an Investment Decision?
Not at all. Sophisticated investors will want to meet with your management, ask questions and conduct other due diligence on their own regarding your business.

Contact John Worley Attorney at Law for any of your Regulation D, Rule 506, and private placement memorandum needs and questions.

Why You Need a Lawyer for Regulation D and Private Placement Memorandums in Dallas, TX

John Worley - Friday, April 14, 2017

With the handy dandy Internet these days, why do people even need lawyers when they can get needed forms, how-to instruction, and video tutorials just by Googling “private placement memorandum?”

In another sense, why mess with going to the doctor when WebMD says one’s symptoms are either osteoarthritis or spinal stenosis?
Isn’t that enough?

Oh, no, no, no. As many people find out the hard way, the Internet is a fantastic, wonderful, convenient tool that delivers information with a few keystrokes. But it can drown you with articles, blog posts, YouTube videos, and PDFs of private placement memorandums and bad backs. Good luck taking it all in, understanding what you’ve read, and using it correctly, which is important when considering a future business or one’s general health.

In the case of private placements — or better yet, Regulation D, Rule 506, and private placement memorandums — there’s so much info out there, so much noise, that it’s complex, overwhelming, and confusing.

A Matter of Trust

Who do you trust?

What do you trust? Flat-fee services? Using a DIY template? Or face-to-face consultations and custom services?
When it comes to Regulation D, Rule 506, and private placement memorandums it’s recommended to start with an attorney experienced in such matters, not cousin Vinny.

An attorney — one who is easy to work with and speaks in a language you understand — can help you wade through a landscape fraught with legalese, laws, rules, exceptions, and forms. Without that legal sherpa, you’ll have to manage the process alone or hope that the template you choose or the all-in-one DIY solution is prepared correctly, mistake-free, and exactly what you need.

Otherwise . . . 


To begin with, what is a private placement?

Quickly and simply, a private placement is an offering of securities, typically to a small select number of potential investors that is not required to be registered under federal or state securities laws.

Private placements are exempt because they consist of high-dollar offerings made to accredited investors or investors who meet certain criterion.

The most frequently used exemptions from registration applicable to private placements are contained in Section 506, Regulation D of the Federal Securities Act of 1933 and rely on factors such as the private nature of the offering (not being advertised to the public, except in 506(c) offerings), restrictions on the resale of the offered securities, and that all or most of the investors qualify as accredited investors.
Additionally, some of the legal protections that apply to larger offerings made to public shareholders do not apply in the case of private placements.

Why is a Private Placement Memorandum Important?

Securities laws prohibit a company (“issuer”) from making false or misleading statements to investors when selling its securities, regardless of whether or not public registration of the offering is required.

Specifically, Rule 10b-5 of the Federal Securities Exchange Act of 1934 requires that any information provided to investors “must be true and may not omit any material facts necessary to prevent the statements made from being misleading.”

A properly-written private placement memorandum (PPM) ensures your company’s compliance with these anti-fraud laws by fully informing prospective investors about your company and the offered investment.

Potential investors receiving a PPM will learn about your business and management team, as well as your company’s prior performance, future prospects, the terms of the offered security, the planned use of the funds to be raised, and the risks of the investment.
A well written and detailed PPM protects your company and its management from liability.

While PPMs typically follow a standard format, sophisticated investors expect the document to be carefully drafted, contain accurate and current information, and provide a balanced, objective description of the potential benefits and risk of the investment.

Cue the Attorney

Attorneys provide many services, but the one that differentiates them from others is full transaction consulting, which includes strategy on structuring the offering, the offering documents, and how to deploy and administer the offering successfully.

Aside from consulting and strategy development, full offering documents include drafting and preparing all documents, not just the private placement memorandum. This can include operating agreements, subscription agreements, blue sky notice filings, and anything else required.

Subscription Agreement

While the private placement memorandum is a critical document, the subscription agreement shouldn’t be overlooked. It is the actual “sales contract” for the shares of stock being placed. This is the doc an investor will sign and send in with their investment capital.

Just as the private placement memorandum provides disclosure to the client regarding a company’s financial status, the subscription agreement provides full disclosure to the company regarding the investor’s financial status.

In the subscription agreement the investor provides assurances to the issuing company that an absolute loss of their investment capital will in no way impact their standard of living or jeopardize their financial picture as a whole. These qualified investors are typically referred to as “accredited investors.”

Other Documents and Attachments

Many companies will attach to the private placement memorandum a business plan, financial statements, articles of incorporation, and other documents as supporting documentation. This is an acceptable practice, and it’s recommended to work with an attorney to make sure the additional information provided corresponds with the info in the PPM and that the investor is made aware that the business plan alone does not constitute an offer to sell securities. Only the PPM can make that offer.

Custom Documentation

Another advantage of a good lawyer over cookie-cutter solutions is custom documentation, which applies to all offering documents because it properly captures the risks and features of that specific offering, not Scenario A or Scenario B in an all-in-one solution.
That’s customization of information, not how documents and presentation materials look visually. In the highly visual age of digital media, graphic design and how materials look are increasingly important to maximize impact and aid in successfully communicating your offering.

In the next post, I will take a closer look at private placement memorandums.

Contact John Worley Attorney at Law for any of your Regulation D, Rule 506, and private placement memorandum needs and questions.

A Lawyer’s Guide on 506 Reg D Private Placement

John Worley - Tuesday, March 21, 2017

Private placement by definition is a funding of securities which are sold directly through a public offering; this is usually directed towards a limited number of investors.  The securities act of 1933 is considered to be a broad legislation as it has managed to encompass the entire doctrine of private placement.  Under this act, private placement is required to be registered by the Securities and Exchange Commission or adhere to certain prerequisites in order to negate this requirement. These qualifications or prerequisites are known as the 506 Reg D private placements, it basically contains the certain formalities that have to be met in order for any offering to be exempted from registration. The 506 Reg D private placement has been promulgated in order to reduce the barriers of entry that small companies will face when initiating an offering, making it possible for startup companies to qualify for an exemption from the securities and exchange commission registration.  It is basically considered to be a safe harbor for small companies that do not have a substantial amount of capital at their disposal, as registration costs can prove to be quite expensive. The 506 Reg D private placement is a provision specifically designed for this purpose, as the registration costs can discourage new companies from seeking capital.

Qualifications of the 506 Reg D Private Placement 

As mentioned before the 506 Reg D Private Placement contains certain qualifications that a company has to meet in order to obtain exemption from the Securities and Exchange Commission registration. These qualifications are mentioned below and have to be expressly adhered to in order to obtain the 506 (b) exemption. 

The relevant company cannot use advertising or any type of general solicitation in order to market their securities. 
The relevant company can sell its securities to an infinite number of accredited investors and only 35 non-accredited investors.  These non-accredited investors should have sound knowledge of the prospective investment and should be able to evaluate the monetary prospects of this project as well.
Companies have the power to provide their investors with tailor made information as long as it does not conflict with the anti fraud provisions of the federal securities regulations. However each company has to provide their investors and purchasers with disclosure documents, these are similar to the documents used in registration offerings. 
The company is required to answer any questions of their potential purchasers and investors
Purchasers of securities may only be offered restricted securities, this also means that these securities cannot be sold for a year without registration. 
Companies will have to file a Form D with Federal and State authorities with 15 days after they sell their securities. 

Exemption from the advertising provision 

The first provision in 506 (b) Reg D private placements clearly states that a company can not advertise or use any type of general solicitation in order to market their securities. However even this has certain qualifications which ensures that certain companies can actually market their securities. These qualifications mentioned in 506 (c) Reg D private placement are mentioned below,

All of the investors in the offering are accredited investors. 
The relevant company has done everything in their power to adduce if the potential investors are accredited investors. This includes analyzing documents such as brokerage statements, bank statements, tax returns and  W-2s 

Accredited Investor exemption 

Accredited investors by virtue are an entity or person that has the capacity of dealing with securities that are not registered with financial authorities. The accredited creditor has to satisfy certain requirements such as asset size, professional experience and net worth. This is the term coined by the Securities and Exchange Commission for investors that are considered to be sophisticated. 

The literal meaning of the word sophisticated will not be used but rather a broad perspective will be adopted in order to adduce if the investor meets the required formalities or not. Some of the requirements in order for an investor to obtain the status of accredited are mentioned below,

Net worth should exceed $1 Million 
Income in the previous 3 years should exceed minimum levels

Process of offering in the 506 Reg D private placement

Given below is the mechanics that every company has to adhere to in order to initiate their offering process, 

1. The offering documents must be carefully prepared and monitored 
2. The company must document all sales 
3. A Form D must be filed on a timely basis with Federal and State authorities 
4. All firm records must be accurately and regularly maintained

All of the above summarizes the broad doctrine of the 506 Reg D private placement, however in order to gain substantial insight in this regulation you should contact an attorney that specializes in this field, such as John Worley, who is experienced in 506 Private Placements.