Can a traditional IRA invest in real estate? If so, are there any penalties or special reporting requirements?

I've read the IRS publication and know about the prohibited transactions but I wasn't sure if the property could be purchased from a third party.

Thanks in advance for your responses.

RE is a permissible investment as long as the PT rules are adhered to-but there are many tax and financial reasons for not using an IRA to invest in RE, e.g. loss of capital gains. There have been several threads on RE investing- One problem is that there are very few IRA custodians who will accept investments in RE and they charge hefty fees because of the liability issues associated with RE ownership (environment and negligence claims) and the requirement that the property owner must provide an annual valuation to the custodian.