Prohibited Transaction question

[k man]

Small plan (the only participant currently is the owner). the owner would like to invest plan assets in a closely held bank and he will be a director of that bank. is this a PT? i think it is a transaction with a party in interest. however, an investment is not a sale or exchange so i have some doubt.

[k man]

anyone have anything?

[rcline46]

Is he becoming a director because of his investment? Then that rises to self-dealing, or benefitting from the assets and smells like a PT. Why doesn't he pay for a legal opinion? Or are you an attorney.

If not an attorney tell him you can't give a legal opinion, but it smells bad and he had better get a legal opinion.

[GBurns]

It smells and as suggested needs competent legal advice.

The bank is closely held.. is he a shareholder? Is he related? Does he have some other relationship with either the bank or its shareholders?

You posted that "he will be a director of that bank", which I read as being that he is not currently but will become. After the investment? Why? Because of the investment?

Is this closely held bank something that a prudent fiduciary would invest in? Very questionable since being a closely held bank, it might have severe restrictions on the sale or disposition of shares, thereby limiting liquidity etc.

[mbozek]

I think you have do a review of whether the owner's position as a director makes him a disqualified person within the meaning of IRC 4975(e)(2)(H) - will he own at least 50% of the stock of the bank?

[k man]

mbozek, i have interpreted this matter similarly to you. the key issue seems to be whether he will hold greater than 50% interest in the bank. with regard to one of the other comments, after the investment he will own stock. the fact that the bank is closely held is immaterial.