I’m newish to this forum but have been interested in the Portugal GV for a while. I attended a webinar with Henley yesterday that focused on tax implications relating to the Portugal GV. During the presentation, the guest tax attorney strongly cautioned against using an SDIRA (self-directed IRA) to fund a GV investment. Her position was that doing so could result in the investor violating IRC 4975 by acquiring a non-monetary benefit from their IRA account in the form of Portuguese residency. She noted that there has not yet been a case in which an SDIRA GV investor was fined, but that this is a new trend and cautioned that we would not want to be that test case. Has anyone here used an SDIRA to fund a GV investment? And has anyone else encountered a tax advisor / attorney who made a similar argument against using an SDIRA to fund a GV? Thanks in advance for any input / experience you can share!
Has anyone gotten similar US-based legal advice relating to using an SDIRA to fund a GV? Or advice to the contrary? This firm is the only one I could find via a google search that highlights this tax law issue. Thanks : )
It’s unfortunately a more gray area than one would want. I also went this direction. I have a legal letter of opinion from my SDIRA provider that I hope would help in case. I think the argument came down to that we are not personally benefiting from a monetary perspective.
Thanks for sharing this. From my googling, it did seem like the examples of IRC 4975 violations generally involved transactions that resulted in a benefit that could be assigned a cash value (like a stay in a property, or a golf club membership). I’m not sure how one could go about assigning a cash value to permanent residency, but I would definitely feel better if a tax attorney could give us a written legal opinion to that effect. If you are comfortable sharing the SDIRA provider you worked with, I would much appreciate that info.
Yes, I was interested in using the SDIRA but got similar advice. We ended up NOT using the IRA for this reason, as the risk (from my understanding) is that if there is a prohibited transaction, the entire SDIRA is considered terminated (with associated taxes/penalties for early withdrawal, etc.) as of the date of the suspect transaction. Too high a risk for our situation.
Yes, this is a huge concern. Did you receive this advice from a tax attorney? Asking because so far I can find only the one tax firm that specifically calls this out on their website.
“…An overarching theme in SDIRA regulation is that self-dealing, where the IRA owner or other designated individuals use the account for personal benefit or in a way that circumvents the intent of the tax law, is prohibited.” Self-Directed IRA: Rules and Regulations
Funding a “Golden Visa” certainly seems of “personal benefit” beyond simply investing in alternatives to increase IRA capital gains as a retirement funding strategy.
Concur with the high risk of nullifying the entire SDIRA. Although the IRS is under funded and under resourced…so reporting and getting caught is the wild card.
That is good context. But by some of these arguments, you’re almost suggesting that a loss on an investment you made from a taxable account shouldn’t be deductible (that instead it was purchase)?!
Not a lawyer and not giving legal advice… I’m wondering if sometimes there is a blurring of language in the questions one asks or how some visa focused investment providers market themselves?
Is one frame to recognize that the investment does not, in any way, provide a quid pro quo - ie that it does not in any way convey residency or citizenship?
To wit, to become a resident or citizen, an application to the government must be made, fees paid and numerous conditions precedent must be met for this or any other type of visa, I think? There are all sorts of tests? Just because getting a visa is valuable and is something one becomes eligible for as the benefit of a legitimate marriage, that doesn’t make someone marrying you a form of income? Likewise getting a PhD allows some types of visa eligibility but receiving a PhD is not a taxable event?
So, just riffing, but perhaps the counter to some of the comments above is to consider whether the investment has independent merit -ie that it is a reasonable market investment made with a manager who is pursuing a return and that is expected to produce a fair, risk adjusted return?
Whether or not that is the crux of a legal argument is outside my ken, but being truly comfortable with an investment itself and on its own merits that is made from your retirement investment seems like an important gut check I assume you and others did do? Same for any of you making taxable investments you would write down if they have a loss?
This is surely for a discussion with counsel or accountant, but if there has not been a ruling /adjudication, then they probably will want to caveat? You might feel Like you’re just pulling a string if you push them? Or perhaps it is fact specific? Can you show that you have a reasonable expectation this investment will perform? Euro denominated investments look like good diversification too at the moment???!
I think the argument that the investment itself does not directly trigger the PR or citizenship is a good one. It’s frustrating that there are no parallel examples of a situation in which an IRA investment contributes to the attainment of a benefit that really cannot be assigned a cash value (or at least none that I can find). If there were case law with a similar scenario, I think the outcome would be clearer here. I have found many examples of prohibited transactions, but nothing that resulted in a benefit that really could not be monetized. I think such an example would make the situation far clearer.
Our advice to clients on this has been consistently that it is not a grey area. There is nothing in the law saying that self benefit needs to be monetary. The argument that the investment itself does not trigger residency is very weak. The investment provides the option to apply for residency and an option to do something is still a benefit.
Think about it this way - WHY are you making a GV investment? to get residency. Would you make it if you didn’t get residency? Of course not.
It’s clearly a benefit. Clearly personal. Not grey. Completely black.
I think Financial institutions every day give all sorts of benefits to people who maintain investment account balances - including IRA balances- with them? Ar these relevant, hypothetical examples: we can use an IRA to meet a prerequisite threshold, and then become elegible to, say buy a CD that bears a higher interest rate, or to apply for a loan that has a lower rate (that we would not recieve simply on the basis of crditworthiness, but because we are a customer of the institution and keep an investment balance of a certain size with them via our IRA)? Not to mention, if we meet a minimum overall balance, and then choose to have a checking account, we might get Atm fees rebated? We also might get a different level of services such as a free financial planner who advices on other investments beyond IRA investments, but whose services we might not receive but for meeting a prerequisite of having an made a cumulative investment of a certain minimum size that must be continuously maintained with and held in that institution - a prerequisite we can meet with an IRA?
If anything, these examples seem closer to quid pro quo - if the balance is maintained, you get the benefit - provided, nothing happens unless you are doing a second, independent action that requires your and the institution’s separate initiation and meeting of other conditions precedent/approvals (eg taking out a loan, investing additional funds in a CD etc)?
But doesn’t it seem like there are acceptable incentives or indirect benefits (meeting of prerequisites for other things) that come from keeping your IRA in a given institution, even if it might charge higher trading fees or push costly in house products or pay you less interest on cash than a competitor?
Dunno if this riff is relevant, but maybe at least an interesting thought exercise?
Maintaining a balance is not the save as making an investment.
You have to understand the “spirit of the legislation” or the point of this - retirement accounts are meant to save for retirement. They have one goal - grow the capital and balance return and safety so that people will be able to live well when they retire. Then people said they want to manage their own accounts so okay, now you can do that with an SDIRA but ONLY so long that the investments are purely and only made in assets that are meant to grow the capital. You can’t mess up with the money - not loans, no benefits of any kind because then rather then investing smart, you will be investing for benefit. This is EXACTLY what GV is - investing in an instrument that is inherently inefficient tax-wise, with high management fees and in a market you don’t understand. Why are you doing it? For personal benefit. ONLY for personal benefit. It’s a big no.
That is a second limb, is it not? Why would one choose an investment that was inefficient or a poor investment? There are many choices, and is this limb germane if the investment one makes has a high Sharpe ratio, low beta and is performing strongly?
And don’t people use sdiras to hold equity in risky start ups or with checkbook accounts to flip houses? Those houses could be in markets the account holder likely lives in /visits /believes in - not only in the fastest growing markets in the country?
In the hypothetical, are most people really optimizing the choosing of their financial institution for their primary IRA based on lowest fees and highest cash interest rates for the IRA account alone? (Some custodians do pay interest and some less so?)
And then the third limb from the original post: does making an investment guarantee one anything? Or does it serve as one of many possible and evolving ways people demonstrate they have met one of many eligibility criteria needed to file a successful application with a government agency? And that process is totally separate from and initiated independently of any investment activity - involving not only electing to file an application and pay hefty application fees,vbut also doing many other things- traveling, learning language, disclosing and passing background tests, etc? And there seems to be foreknowledge - this site is replete with examples and concerns - that there’s no guarantee an applicantion leads to anything being approved? Is anyone claiming that there is any automatic outcome that arises from making an investment?
Hello, I’m the US tax attorney. In our common law system the application of the law to a specific situation happens in court. The tax and penalties on a $600k prohibited transaction are between about $690k and $970k. Information exchange happens automatically between the Portuguese financial institutions and IRS on accounts owned by Americans, and foreign accounts as well as SDIRAs have heightened audit risk. Questions about self-dealing are routine with SDIRA audits. The IRS does not have to prove wrongdoing; the taxpayer has to prove there was no wrongdoing. When someone gets audited and decides to go into expensive litigation over nearly $1M in penalties, we will have a definitive answer on this specific fact pattern. Until then, the role of attorneys is to use our professional judgement about the risks and advise taxpayers when they are considering the investment strategy. The consensus among tax attorneys is that SDIRA investments for the account owner to get a GV is very risky from a prohibited transaction standpoint. Investors should be fully advised on the risks but then are free to take whatever investment risks they are comfortable with.
I’ll just add one thing - when our clients want to take a very aggressive position and we find it plausible (not in this case), we advise to at the very least get a legal opinion from a reputable firm in the relevant jurisdiction.
To date, I haven’t seen anyone saying they have one.
This “invest your SDIRA” play would have been a cool creative idea if it could work, but it is marketed irresponsibly.
it’s nice to see things articulated so clearly. This echoes a lot of the concerns I had when I was previously considering using a solo 401k or SDIRA for a GV investment and validates my decision to avoid that approach
I was worried that even with a normal taxable real estate investment the IRS might ask us to pay some taxable value for the residency/citizenship benefit, but I assume in that case the penalty would be much tinier!
Is there a way to get like a ruling or statement or something along those lines from the IRS? I was going the SDIRA route but have put it on pause because of the concerns about it maybe being against IRS rules.
So far, when I tell the folks involved with my process that I am putting it on pause, the responses have been “OK, let us know” type comments. A couple of them referred me to Portuguese lawyers which to me doesn’t help. Optimize didn’t even try to put up a fight. I still haven’t found a single person that has used an SDIRA and achieved the end goal of residency.
