Prohibited Transaction

[Guest Thornton]

Company A is owned by a brother and four sisters. Bill is married to one of the sisters, and one of trustees for Company A's 401(k) plan. He has no direct ownership in Company A, but is attributed his wife's 20% interest. He is also a trustee of Company B's plan. The companies currently do not constitute a controlled group.

Bill and the other three brothers-in-law have self-directed accounts in the plan. They now want to direct the purchase of shares of Company B, of which Company A owns 50% of. All the brothers-in-law are directors of both companies.

In my opinion, this is clearly a violation of 4975©. Does anyone dissagree?

[Dave Baker]

In which company's plan are Bill and the other three brothers-in-law?

Who will be selling the stock?

[Guest Thornton]

Bill and the other three brothers-in-law are in Company A' plan. The stock is being purchased from an unrelated party who owns the other 50% of Company B (Company A owns the 50% of b).

[Dave Baker]

Because the seller is unrelated to the buyer, I'm having a hard time seeing why this would be a prohibited transaction. What part of 4975© causes you to be concerned?

[Guest Thornton]

My concern is ©(1)(A), sale or exchange of property between a disqualified persion and a plan. Bill, through attribution, owns 20% of Company A. Company A owns 50% of Company B. Isn't Bill purchasing stock in a company he has an ownership interest in? The PT rules apply to participant directed accounts. Am I being overly cautious?