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Say an individual's self-directed IRA owns a business, and the individual is curious which (if any) services he can provide to the business (ex. offer consulting services).  Question is, does this run afoul of the prohibited transaction rules?  I'm thinking yes, with respect to Code Sec. 4975(c)(1)(C) - because it would involve a disqualified person furnishing services to a plan asset (akin to the individual being prohibited from providing free labor/repairs to an investment property owned by the self directed IRS).  

Curious if others agree, or have other thoughts.

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2 hours ago, JOH said:

Depends. How much does the IRA own and is someone else the manager?

Of the company - 100% (recent acquisition); but if the question is how much value does the IRA own, well into the 9 figures. 

Not sure about owner/manager currently - can follow up, but is there a distinction made there?  I was under the impression, as owner, he's a disqualified person so can't furnish services.  Additionally, if he's deemed to contribute value, it could be a contributions issue under 408 (in addition to prohibited transaction issue).

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Just to be clear (i) this individual bought 100% of an operating business with his IRA, (ii) he is not involved at all in managing the business, (iii) the IRA's value is "well" over $100 million, (iv) the relevant facts are unknown, and (v) advice on a PT that could disqualify the entire IRA is being solicited on an anonymous message board? 

I would strongly suggest a different approach.

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14 hours ago, EBECatty said:

Just to be clear (i) this individual bought 100% of an operating business with his IRA, (ii) he is not involved at all in managing the business, (iii) the IRA's value is "well" over $100 million, (iv) the relevant facts are unknown, and (v) advice on a PT that could disqualify the entire IRA is being solicited on an anonymous message board? 

I would strongly suggest a different approach.

Thanks, I'm helping his main team with some research - I'm not leading the project, just asking for others' thoughts regarding the one point I'm looking into.

In case helpful, it's a self-directed IRA that set up a foreign blocker and it's the foreign blocker that bought 100% of the operating business.  His primary tax team advised in connection with this process.  He is not involved in operating or managing the business - was just curious if he could extend advice to it, and it seems the prudent response is no due to the PT/contributions considerations noted above.  If others disagreed, I'd be curious as to why - but we are not advising he undertake a PT, and otherwise erring on the side of caution.

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if the IRA owns 100% than yes, I would suggest he does not provide any services. However, if the IRA owns less than 50% and there is a manager (that is not a disqualified person to the IRA owner) that oversees the entity, then realistically, the IRA owner could provide his or her expertise as long as the board/manager approves it, the IRA owner charges a fair wage, and it benefits the business. it's been a couple of years since I've had to look at this but i think there is a tax court case that allowed this. unfortunately, all my notes on this stuff is in my office and I haven't been in my office for a couple of months. 

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On 2/18/2022 at 2:55 PM, JOH said:

if the IRA owns 100% than yes, I would suggest he does not provide any services. However, if the IRA owns less than 50% and there is a manager (that is not a disqualified person to the IRA owner) that oversees the entity, then realistically, the IRA owner could provide his or her expertise as long as the board/manager approves it, the IRA owner charges a fair wage, and it benefits the business. it's been a couple of years since I've had to look at this but i think there is a tax court case that allowed this. unfortunately, all my notes on this stuff is in my office and I haven't been in my office for a couple of months. 

Thanks, JOH.  Super helpful confirmation.  The research I came across also indicated this, although there was no unequivocal statement (99% involve real estate situations), so really appreciate the sanity check. 

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