Reporting prohibited transactions in IRAs

[Guest lync]

While doing my due diligence on an IRA we aquired in a conversion I came across a partnership in an IRA. The partnership agreement names the individual as 50% owner rather than the IRA as owner. Regardless, the IRA holder is only one of 2 in the partnership and since the previous custodian was not consulted on the management of the partnership the IRA holder had 50% of the management control over the partnership. I am calling this a prohibited transaction either way you look at; however, the original investment was done in 1992. Do I need to find a 1992 1099R to report this prohibited transaction on? I thought I remembered hearing that we were to report in the year it was found but the IRA ceased to exist as of the year it was done.

[mbozek]

While doing my due diligence on an IRA we aquired in a conversion I came across a partnership in an IRA. The partnership agreement names the individual as 50% owner rather than the IRA as owner. Regardless, the IRA holder is only one of 2 in the partnership and since the previous custodian was not consulted on the management of the partnership the IRA holder had 50% of the management control over the partnership. I am calling this a prohibited transaction either way you look at; however, the original investment was done in 1992. Do I need to find a 1992 1099R to report this prohibited transaction on? I thought I remembered hearing that we were to report in the year it was found but the IRA ceased to exist as of the year it was done.

If the IRA was deemed to be distributed in 1992 what is the tax consequence since the s/l 6 is years. Does the failure to report the distribution in 1992 require filing a return that triggers income tax because it was not reported in 1992? Its not reported on the 5329 so there appears to be no separate filing requirement for this type of P.T. Its only reported on the 1040.

Or is the only consequence that the distribution is reported for 1992 but no tax is due b/c the s/l has expired. Or does the duty of consistency apply to require taxation in 2010?

[Guest Rajeev]

Lync --- There is no prohibition of having a partnership between an IRA and an IRA holder, provided that the partnership was simultaneous, and not an enabling transaction. Also there is no prohibition from the IRA holder being the manager of the partnership provided that the IRA holder does not get direct or indirect benefit for the share of the IRA (enabling transactions come into play for all compensation paid to the IRA holder as manager).

So prior to going for the 1099R, I would recommend combing through all the transactions and making sure that they are accurately audited for the simultaneous and non-enabling transactions.

Just my 2 cents.