mariemonroe Posted January 24, 2020 Share Posted January 24, 2020 Is there ANY correction for this or does the IRA simply cease to be tax-exempt? Link to comment Share on other sites More sharing options...
Larry Starr Posted January 24, 2020 Share Posted January 24, 2020 2 hours ago, mariemonroe said: Is there ANY correction for this or does the IRA simply cease to be tax-exempt? Well, the results are as follows: If there is a prohibited transaction in connection with an IRA account at any time during the year, the account stops being an IRA as of the first day of that year. The IRA is treated as distributing all its assets to the IRA owner at their fair market values on the first day of the year. If the total of those values is more than the basis in the IRA, the IRA owner will have a taxable gain that is included in his or her income. I believe that gives you what you are looking for, which is not what you were HOPING for! Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
JOH Posted January 24, 2020 Share Posted January 24, 2020 Larry is right that the IRA ceases. However, in my experience I have seen some clients submit a PTE 96-62 (after the PT) and beg the DOL's forgiveness and hope that they can keep the IRA as an IRA. But that is a last ditch effort I've seen to save the IRA. Link to comment Share on other sites More sharing options...
Larry Starr Posted January 24, 2020 Share Posted January 24, 2020 6 minutes ago, JOH said: Larry is right that the IRA ceases. However, in my experience I have seen some clients submit a PTE 96-62 (after the PT) and beg the DOL's forgiveness and hope that they can keep the IRA as an IRA. But that is a last ditch effort I've seen to save the IRA. Might work if the specific PT falls within the guidelines. It's a relatively complicated process but if it fits it might be worth a try. Here's a link to the PTE: https://www.govinfo.gov/content/pkg/FR-1996-07-31/pdf/96-19483.pdf Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
Luke Bailey Posted January 24, 2020 Share Posted January 24, 2020 2 hours ago, Larry Starr said: If there is a prohibited transaction in connection with an IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Usually the PT is with the IRA owner, and then yes, that is the result. Ditto if the transaction is with the owner's "beneficiary," whoever that is. See 408(d)(2). But in the small number of instances where the PT is with a third party, you just have the 4975 excise tax. 14 minutes ago, JOH said: Larry is right that the IRA ceases. However, in my experience I have seen some clients submit a PTE 96-62 (after the PT) and beg the DOL's forgiveness and hope that they can keep the IRA as an IRA. But that is a last ditch effort I've seen to save the IRA. We are typically going to be talking about a retroactive exemption, which has a pretty high bar. Do you have an estimate of the success rate those clients have had, JOH? Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
JOH Posted January 24, 2020 Share Posted January 24, 2020 23 minutes ago, Luke Bailey said: Usually the PT is with the IRA owner, and then yes, that is the result. Ditto if the transaction is with the owner's "beneficiary," whoever that is. See 408(d)(2). But in the small number of instances where the PT is with a third party, you just have the 4975 excise tax. We are typically going to be talking about a retroactive exemption, which has a pretty high bar. Do you have an estimate of the success rate those clients have had, JOH? Luke- the success rate is extremely low. I think I've seen 2 approved after the PT. But those clients had attorneys working on it. Luke Bailey 1 Link to comment Share on other sites More sharing options...
Luke Bailey Posted January 24, 2020 Share Posted January 24, 2020 Thanks, JOH. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
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