Loan to a Limited Partnership

[Guest Judy S]

I have a client that sponsors a DB plan and a profit sharing/401(k) plan. The only participants are highly compensated employees-2 ER doctors and the spouse of one of the doctors.

This client is asking if the DB plan could issue a mortgage loan to a limited partnership that is more than 50% owned by his wife, the spouse that is a plan participant, as long as he owns less than 1% of the partnership, and the loan is made at currently reasonable rates.

Also, would it make any difference if the 401(k) plan made the loan?

I find the prohibited transaction rules to be fairly confusing and would appreciate the opinions of those of you who deal with them more frequently.

[Guest Judy S]

Am I in the wrong forum or is the question too vague or. . .

[Guest mjb]

Under IRC 4975(e)(6) a spouse is a family member subject to the PT rules if the plan loan is made by her husband who is a fiduciary of the plan. See Flahertys Arden Bowl inc. v. IRS, 115 TC 269 (2000).