Prohibited Transaction involving an IRA

[J Simmons]

I have a client that wants to cause his IRA to purchase property from a 501©(3) non-profit organization.

The non-profit was organized several years ago by the IRA owner as a corporation without stock.

The IRA owner does not serve on the board of directors, but serves at the board's pleasure as the executive director.

Because there is no stock, it seems 4975 technically does not apply to cause the transaction to be prohibited and disqualiy the IRA under 408.

I must be looking in the wrong places as I cannot find any thing on point.

If anyone knows the cites to any rulings that address this, such would be greatly appreciated. Thank you.

[QDROphile]

I don't see the word "stock" anywhere in section 4975©(1), so I don't see how you can conclude that if stock is not involved, there can be no prohibited transaction.

You have to go through the exercise. Start with whether or not the nonprofit is a disqualified person. If not, the more interesting questions probably come from 4975 ©(1)(E) and (F). Those provisions depend very heavily on the specific circumstances. You can't get any help unless you provide a lot more information. The only thing that we can know for sure is the the IRA owner is a fiduciary for purposes of the statute.

The nonprofit has its own restrictions on transactions with related parties.

[J Simmons]

Thanks, QDROphile.

The property of the 501©(3) org being sold to the IRA is real estate, not stock or ownership in the 501©(3) org.

I know the owner of the IRA is a 'disqualified person' by reason of being a fiduciary, by reason of control over the self-directed IRA.

My question is whether the non-profit org is also a 'disqualfied person' with respect to the IRA by reason of the IRA owner's involvement with the non-profit org (its executive director). The relevance about stock is due to 4975(e)(2)(G). That defines a level of stock ownership by a fiduciary that renders the corporation to itself be a disqualified person along with the fiduciary, because that fiduciary controls the corporation through stock ownership. If the non-profit corp is a disqualified person by reason of the IRA owner having a degree of control (even though there's no stock to own), then the sale would be a prohibited transaction.

Turning to the issue of the propriety of the 501©(3) engaging in the transaction, I've looked at sec 503. The 501©(3) corp is not a church or governmental plan, a supplemental unemployment compensation benefits trust, nor a pre-June 25, 1959 pension trust funded only by employee contributions. So it would appear 503 doesn't apply.

The sales price is per independent third-party valuation, neither unreasonably high or low, and the terms are cash on closing. So I don't think it would violate the 501©(3) standards.