Or does the business have to be incorporated? I'm unsure of the IRS ruling on this, so need some help. Thanks!

There is nothing to own in a sole proprietorship, except any underlying assets I guess. Are you asking if an IRA can run a business? No. IRAs can own investments and that can include stock in companies that run businesses, but that is a pretty important distiction.

Think about it.

If the business is not incorporated, What will the IRA own, how will the business be run and by whom?

If the "business" is incorporated, the IRA can only own shares/stock. So what do you mean by "own a business"?

Think about the differences and then see if you have your answer or want to rephrase your question.

Let me comment on this conceptually since the details and wording are unclear.

There are many rulings governing this area. Some of them are to protect the taxpayer. Many are also aimed at preventing abuse.

Consider this hypothetical. I own a business and decide to sell 100% of the shares to my Roth IRA for $1000. One year later, the Roth sells the business to another person for $1 million. What a great scheme to pack more than $4k into a Roth.

Does anyone smell a tax fraud? Congress and the IRS have built in protections to prevent the "end run" around the Roth rules. A reputable tax professional, accountant or attorney will not sign off on these kinds of arrangements.

The only assets of an unincorporated business are the receivables or inventory which is the property of the owner. The IRA can purchase shares of a closely held business which is not controlled by the the IRA owner. An IRA can subscribe to purchase shares of an initial offering (IO) of the unincorporated business of the IRA owner when it is incorporated. The purchase of the shares in an IO is an exception to the PT rules that prohibit the sale or exchange of shares between the IRA owner and the IRA. The only reason for an IRA to purchase shares in an IO is if the business generates a large amount of cash which can be paid as a dividend and low operating expenses. Putting the shares in the plan converts capital assets to ordinary income.