Mortgage in 1 person plan

A self employed owner only 1 person plan has mortgages as investments within the plan.  The owner died and his wife continues to take RMD after his death.  The plan has not been terminated as the wife beneficiary wants to keep it open until all of the mortgage investments have been repaid.  The business still has activity at this time.  The wife beneficiary would like to purchase one of the mortgages from the plan personally.  Since this is a 1 person owner only plan, is it subject to the prohibited transaction rules?  (The mortgage is $150,000 and the RMD is roughly $40,000 each year.)

Yes, it is subject to IRC 4975 and yes it would be a PT for her to buy it from the plan. 

The mortgage could be distributed in-kind if the plan allows for in-kind (or is amended for such).  But the distribution would be at FMV.  Depending on the interest rate, loan-to-value, payment history, borrow creditworthiness, etc. the FMV might be different than the principal amount of the mortgage. 

If the business still has activity, is the wife running it?  Is it a corp or sole prop?  Is she covered by the plan as a participant?  Does she have compensation?  If so she could perhaps make a contribution to the plan in the year she takes the mortgage as a distribution to offset some of the taxable income arising from the distribution. 

The business has residual income and may wind down in the next year or so, the wife will not be taking a salary or running the business.  Sole Prop, the wife is the beneficiary of the participant and is not a participant.  There will be no contributions to the plan.  The plan allows for in-kind distributions but she does not want to be subject to income tax on the distribution.  It sounds to me like she would be subject to the prohibited transaction penalty if she should decide to pay the plan for the outstanding mortgage at FMV.

I don't understand the underlying economics of such a move.

But, could file under

29 CFR 2570 Prohibited Transaction Exemption Procedures Employee Benefit Plans

Don't understand economics either - she can afford to buy the mortgage from the Plan with funds that will ultimately be taxed to her but not pay the tax on a DIK? That being said, there are a number of institutions which will custodian alternative assets, like real estate mortgages, in their self-directed IRA. WealthAdvisor puts out an annual "{Year} America's Best IRA Custodian." There is a cost for this, but offset will be eliminating the need for an annual 5500 if she does a total transfer. If RMD is $40K I wouldn't imagine account value is under the filing requirement.