As 2026 gets underway, David and Tom Moore, known to many as the 1031 Exchange Brothers Equity Advantage, are seeing a familiar pattern repeat itself. Deals are not failing because investors lack money or opportunity. They are failing because paperwork mistakes quietly turn otherwise valid transactions into prohibited transactions.
In today’s environment, many investors believe that emails, automated platforms, or AI driven answers can replace direct conversations. David and Tom strongly disagree. From retirement account investments to Delaware Statutory Trusts and 1031 Exchange transactions, the smallest paperwork error can collapse an entire structure and trigger taxes, penalties, and lost deferral.
Their message is simple. Pick up the phone before the paperwork is signed, not after.
Why Paperwork Errors Are More Dangerous Than Market Risk
Market conditions change. Interest rates rise and fall. Regulations shift. Those risks are expected. What catches investors off guard is how unforgiving paperwork errors can be when retirement accounts or Exchanges are involved.
Tom explains that a short phone call often prevents these issues entirely. It allows professionals to confirm who the real investor is, how funds must move, and whether the structure even works for the investor’s goals.
David adds that many people try to shortcut this step by emailing questions or relying on online answers. Unfortunately, prohibited transactions do not come with warning labels. They often appear only after the deal closes, when it is too late to fix.
A Common Starting Point for Costly Mistakes
David shares a recent example that illustrates how these problems begin. A husband and wife who own a roofing company reached out asking about using old employer 401k funds. They specifically mentioned a Rollover as Business Startup, often called a ROBS.
On the surface, the question made sense. They needed capital to grow their business. But David and Tom immediately recognized that the structure might not fit their situation. Instead of answering by email, they scheduled a phone call.
That decision alone may have saved the couple from restructuring their entire business unnecessarily or creating a prohibited transaction.
Understanding the ROBS Structure and Its Paperwork Risks
Tom explains that a Rollover as Business Startup is highly structured. It requires a new C corporation and a newly created 401k plan. Retirement funds are rolled into the plan, and the plan purchases shares in the corporation. The company then uses the cash to operate the business.
The paperwork must reflect this exact sequence. If it does not, the transaction can fail. Existing businesses cannot simply receive funds from a ROBS without being restructured. If paperwork shows the wrong entity receiving funds or benefiting from them, the IRS may view it as an improper use of retirement money.
David emphasizes that ROBS can work well, but only when the facts and paperwork align. When they do not, the fix is often expensive and disruptive.
Why Checkbook IRAs Are Especially Vulnerable to Mistakes
A Checkbook IRA, often structured as an IRA LLC, gives investors the ability to act quickly. However, if the paperwork does not clearly reflect the correct ownership and roles, prohibited transactions can occur.
Tom explains how an IRA LLC is set up: first, a self directed custodial account is opened. Then an LLC is formed. The IRA owns the LLC, and the IRA owner serves as the manager. Once funded, the manager can write checks directly from the LLC bank account.
The danger lies in forgetting who owns what. The retirement account owns the LLC. The individual does not. When paperwork starts naming the IRA owner personally as the buyer or investor, a prohibited transaction may already be forming.
David recalls numerous cases where investors or their attorneys drafted operating agreements that custodians rejected. In one instance, a client spent $10,000 on an operating agreement that could not be used. The paperwork failed because it was not written by someone experienced in this narrow area.
Custodians, Operating Agreements, and Approval Delays
Custodians play a critical role in retirement account transactions. Tom explains that most custodians will not accept operating agreements unless they are drafted by someone who understands IRA rules thoroughly.
When an operating agreement is unfamiliar or improperly structured, approval slows or stops entirely. This delay can kill time sensitive deals and push investors into rushed decisions.
David stresses that paperwork prepared by experienced professionals moves quickly because custodians recognize it. Familiarity reduces friction and lowers the risk of fatal errors.
The DST Example That Nearly Triggered a Prohibited Transaction
One of the clearest illustrations of how paperwork mistakes kill deals comes from a recent DST investment.
David describes reviewing subscription documents for a client using a Checkbook IRA to invest in Delaware Statutory Trusts. The sponsor’s paperwork treated the IRA owner as the investor and requested a Social Security number.
That approach was completely wrong. The investor was the LLC, not the individual. The LLC had its own EIN. The IRA owner was only the manager.
Tom explains why this matters. If paperwork shows the individual entering into the transaction and then assigning it to the IRA or IRA LLC, that assignment itself can be a prohibited transaction. The IRA owner cannot benefit the IRA in that way.
If that DST transaction had closed as drafted, all funds in the retirement account could have been treated as distributed. That outcome would have destroyed the tax advantages the client was trying to preserve.
Why Speed Without Accuracy Is a Trap
DST sponsors often prefer immediacy. David notes that many sponsors resist qualified money because custodians can be slow. They want fast funding and clean execution.
Checkbook IRAs and Solo 401k plans can provide that speed, but only if paperwork reflects the correct investor from the beginning. Speed without accuracy increases the chance of prohibited transactions.
Tom reinforces that assignments and retroactive fixes rarely solve these problems. Once the paperwork shows the wrong party, the damage may already be done.
Annual Reviews Do Not Replace Upfront Guidance
Some custodians require annual reviews of IRA LLC activity. Tom explains that these reviews involve questionnaires designed to catch improper activity.
While helpful, David points out the limitation. Reviews address what has already happened. They do not prevent mistakes before funds are spent.
That is why both David and Tom repeatedly return to the same advice: “call before you write the check.” A five minute conversation can prevent years of consequences.
Remember Who the Retirement Account Is
David stresses one principle that underlies nearly every prohibited transaction. The retirement account is not you.
There is no personal benefit today. Cash flow from a retirement owned property stays in the retirement account unless distributed. Taking money out early triggers taxes and possibly penalties, especially if the investor is under 59 and a half.
Confusing personal benefit with retirement ownership is one of the most common paperwork mistakes they see.
Keeping Exchanges Simple Avoids Paperwork Pitfalls
The same mindset applies in a 1031 Exchange. David outlines the basics: it must be an Exchange. Like kind property must be received. Value and equity must be replaced for full deferral. Continuity of investment must be maintained.
Paperwork that breaks these rules can collapse the Exchange just as easily as a retirement account transaction.
David emphasizes understanding opportunity cost as well. Sometimes the Exchange is not worth it once holding periods, living expenses, and taxes are fully analyzed. But that decision should be made knowingly, not as the result of bad paperwork.
Before You Sign Anything, Stop and Check the Paperwork
David and Tom Moore see the same issue over and over. Deals do not fail because investors lack opportunity. They fail because paperwork does not match reality. Emails and AI tools cannot see the full picture. They cannot correct a misnamed investor or catch an assignment that creates a prohibited transaction. Only careful review and direct communication can do that.
Before you sign documents, move funds, or assume a structure works, stop and make the call. That single step can protect your retirement account, preserve your 1031 Exchange, and prevent a mistake that cannot be undone once the deal closes.
If you are navigating complex paperwork and want to avoid prohibited transactions, contact Equity Advantage today to speak directly with an Exchange expert before your deal moves forward.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
