Prohibited Transaction Question

[Christine Roberts]

An officer (and less than 10% owner) of a professional partnership also provides professional services to a company that forms a real estate limited partnership (RELP).

The officer wants to invest his self-directed 401(k) account in part, in the RELP. The professional partnership's 401(k) plan has a corporate trustee, so the officer is not a fiduciary by virtue of being plan trustee.

Is it a PT if the officer invests only for his own account? Is there an unrelated business taxable income issue?

Disclosure: this is also posted on the Investments Board.

[QDROphile]

If he directs the investment of his account he is a fiduciary under section 4975 of the Internal Revenue Code. Read the Flaherty's Arden Bowl case.

I think it could be a prohibited transaction under 4975 because the investment enhances his position with the company that he serves, which is good for him in a personal capacity. He could be using plan funds indirectly for his personal interests. All of the facts and circumstances are important. It may not be a prohibited transaction, but it is not beyond question by any means.