Randy Watson Posted April 22, 2008 Posted April 22, 2008 Is there any justification for participating in a prohibited transaction when it is necessary to protect a plan asset? I know this is an overly broad question, but I'd rather not get into the details if I don't have to. Thanks.
jpod Posted April 22, 2008 Posted April 22, 2008 Randy, I will assume from your post that there is no applicable statutory or class exemption. Without knowing the details (although more likely than not the details are irrelevant), I would have to say the answer is "no." However, your scenario is exactly what the individual exemption procedure is designed to address. If there is time to apply for an exemption before entering into the transaction, consider whether EXPRO might be available. Otherwise, call the DOL's exemptions group in DC and discuss the possibility of securing a retroactive exemption.
Randy Watson Posted April 22, 2008 Author Posted April 22, 2008 Randy, I will assume from your post that there is no applicable statutory or class exemption. Without knowing the details (although more likely than not the details are irrelevant), I would have to say the answer is "no." However, your scenario is exactly what the individual exemption procedure is designed to address. If there is time to apply for an exemption before entering into the transaction, consider whether EXPRO might be available. Otherwise, call the DOL's exemptions group in DC and discuss the possibility of securing a retroactive exemption. No statutory or class exemption available. The transaction already took place. It's a fairly minor transaction, so it would be much easier and more cost efficient to make the necessary corrections and pay whatever tax is necessary. Thanks.
jpod Posted April 22, 2008 Posted April 22, 2008 You're welcome. It's interesting that the transaction was necessary to save plan assets, yet the transaction can be corrected. Oh well, it might be a good war story over a beer someday.
Randy Watson Posted April 22, 2008 Author Posted April 22, 2008 You're welcome. It's interesting that the transaction was necessary to save plan assets, yet the transaction can be corrected. Oh well, it might be a good war story over a beer someday. Good point. The only correction is that the assets need to be placed back in the name of the trustee. Long story. Thanks again.
Randy Watson Posted May 12, 2008 Author Posted May 12, 2008 You're welcome. It's interesting that the transaction was necessary to save plan assets, yet the transaction can be corrected. Oh well, it might be a good war story over a beer someday. By the way, does this mean that these assets are fully taxable to the invididual?
J Simmons Posted May 13, 2008 Posted May 13, 2008 Is it an IRA? John Simmons johnsimmonslaw@gmail.com Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.
jpod Posted May 13, 2008 Posted May 13, 2008 I wasn't thinking about IRAs when you first posted in April. Are you sure there is a pt here? It may only be a distribution, which would be impossible to correct (unless you're within the 60-day rollover period). Need more facts to evaluate.
Randy Watson Posted May 13, 2008 Author Posted May 13, 2008 I wasn't thinking about IRAs when you first posted in April. Are you sure there is a pt here? It may only be a distribution, which would be impossible to correct (unless you're within the 60-day rollover period). Need more facts to evaluate. Property held in the IRA was transferred to the name of the individual's business. It was held in the name of the business for about a year, and when it was "discovered" that this was not permissible it was transferred back to the name of the IRA. I really don't want to give more detail than that.
jpod Posted May 13, 2008 Posted May 13, 2008 If the IRA owner directed the transaction, it was either (a) a constructive distribution, so the property would be taxable to the owner (assuming there was no after-tax money in the IRS), or (b) a pt. However, the effect of it being a pt is that the entire IRA blows up: it is treated as if the entire value of the IRA (not just the property in question) was distributed to the owner (and you can't put it back).
Randy Watson Posted May 13, 2008 Author Posted May 13, 2008 If the IRA owner directed the transaction, it was either (a) a constructive distribution, so the property would be taxable to the owner (assuming there was no after-tax money in the IRS), or (b) a pt. However, the effect of it being a pt is that the entire IRA blows up: it is treated as if the entire value of the IRA (not just the property in question) was distributed to the owner (and you can't put it back). What factor(s) would make it a PT rather than a constructive distribution of that asset alone?
Belgarath Posted May 13, 2008 Posted May 13, 2008 Does it matter? If there was a PT on an IRA, and it ceases to be an IRA by operation of 408(e)(2)(A), isn't the PT penalty under 4975© waived so it is just taxed as ordinary income (and maybe premature distribution if applicable) anyway? Worth checking - I'm not a PT expert, so you'd surely want the opinion of someone more versed in these situations.
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