Why Was My Investment Denied? – Common Reasons for Compliance Issues

Why Was My Investment Denied? 

At American Estate & Trust (AET), our primary goal is to ensure that all investments made through your Self-Directed IRA (SDIRA) comply with IRS regulations and our internal guidelines. While we understand that having an investment denied can be frustrating, it is important to know that we review all investments thoroughly to maintain the integrity of your IRA and avoid potential tax penalties. Below are some common reasons why your investment may have been denied:

1. Failure to Submit Required Documentation

One of the most common reasons for investment denial is the failure to submit complete and accurate supporting documentation. For every investment, you are required to provide the necessary documents, such as purchase agreements, investment memos, or valuation reports. Without this supporting documentation, the investment cannot be reviewed for compliance, and your DOI will be denied.

2. Non-Compliance with IRS Rules

Your SDIRA must comply with all applicable IRS rules and regulations. Investments that violate these regulations are not permitted. Some examples of prohibited investments include:

• Collectibles such as artwork or antiques
• Securities or investments in disqualified persons or related parties (e.g., investments in businesses owned by you or your family members)
• Life insurance policies
• Cryptocurrency held in personal accounts (it must be liquidated if within an SDIRA)

If an investment proposal violates any of these IRS restrictions, it will be denied during the compliance review process.

3. Investment Type Not Allowed

Not all types of investments are eligible for a Self-Directed IRA. For example, while you can invest in real estate, cryptocurrency, and precious metals, some types of assets or investment vehicles may not be allowed. If your investment falls into a category that AET does not support, it will be denied.

4. Incomplete or Incorrect DOI Submission

If there are errors or missing information in your Direction of Investment (DOI) submission, it could result in a denial. AET requires the correct details to process your investment request, including a clear asset listing and all necessary signatures. Incomplete forms or incorrect submissions will result in a denial until the issue is resolved.

5. Valuation Discrepancies

If the asset valuation submitted does not align with accepted market standards or AET's internal compliance rules, your investment could be denied. For example, valuations for private placements, real estate, or other non-publicly traded assets need to be supported by documentation from a reliable source. If the valuation appears unreasonable or unverifiable, it will be flagged and denied.

6. Conflict of Interest or Self-Dealing

Your SDIRA must remain at arm’s length from you and your family members. If the investment would result in prohibited transactions, such as self-dealing or using the IRA to benefit yourself or your relatives directly, your DOI will be denied. For example, purchasing property in which you or your family have an ownership stake is a violation of IRS rules.

DOI Statuses and Their Meanings

When you submit a Direction of Investment (DOI), it will go through various stages of review. Below are the different DOI statuses used by AET, along with an explanation of each status:

1. Draft

• Meaning: The investment is in the initial stage and has not yet been submitted for processing. No action has been taken on the investment yet.
• Next Steps: Review and complete your DOI submission, and once finalized, submit it for processing.

2. In Process

• Meaning: The investment is currently being processed by AET. The necessary steps are being taken to review and move forward with your investment request.
• Next Steps: Wait for further updates on the progress of your investment.

3. Compliance Review

• Meaning: The investment is under review to ensure it complies with IRS guidelines and AET’s internal policies. During this stage, the investment is being carefully examined for any potential compliance issues.
• Next Steps: Wait for the outcome of the compliance review. If further documentation is needed, AET will contact you.

4. Rejected for Compliance

• Meaning: The investment does not meet compliance standards. A notification will be sent with detailed notes outlining the issues that must be addressed before resubmitting.
• Next Steps: Review the rejection notes carefully and make the necessary corrections. You may need to provide additional documentation or adjust the investment to comply with regulations.

5. On Hold for Correction

• Meaning: The investment requires corrective action. The Operations department has entered corrective notes in the investment's notes section, which you can view in the Online Portal. You can make corrections accordingly or contact AET Support for clarification.
• Next Steps: Address the issues identified by the Operations department and resubmit the corrected information.

6. On Hold for Funds

• Meaning: The investment cannot proceed until the required funds are available in the account. This can happen if the available balance in your account is insufficient to cover the investment.
• Next Steps: Deposit the necessary funds into your account to move forward with the investment.

7. On Hold for Account Issues

• Meaning: The investment is on hold due to account-related issues, such as missing documentation or outstanding compliance requirements.
• Next Steps: Resolve the account-related issues by submitting the necessary documents or addressing any outstanding requirements.

8. Cancelled

• Meaning: The investment was canceled by either the client or AET. No further action will be taken on the investment.
• Next Steps: If the cancellation was due to a mistake or misunderstanding, you may submit a new DOI for processing. If the cancellation was intentional, no further steps are needed.

9. Completed

• Meaning: The investment has been successfully processed and finalized. No further steps are needed.
• Next Steps: No action required. Your investment is complete, and no further steps are necessary.

Conclusion

While having an investment denied can be disappointing, it is important to ensure that your submissions are complete, accurate, and compliant with IRS regulations. By understanding the common reasons for investment denial and familiarizing yourself with the DOI statuses, you can help streamline the process and avoid delays.

If you have questions or need further assistance, our support team is here to help. Don’t hesitate to reach out for guidance on submitting your investments correctly.