Prohibited Transaction

Husband & wife own 100% of business that sponsors a DB plan. They are the only employees, the only participants, and the plan's trustees. Husband wants to buy an investment property (a building housing a fast food restaurant, but I don't think that's relevant) 50/50 with the plan as tenants in common. I believe this is a PT. Does anyone disagree? 

I will treat this as a hypothetical question, since there are very few facts here.]

If they never change the percentages, some would say this is doable, because there is no transaction between the plan and the Husband, just a joint investment. There is a DOL Adv. Op. that generally says that coinvestment is not necessarily a PT. (The co-investors wanted to invest in Bernie Madoff 10 years before that was busted. Go figure.) Of course, if the investment makes more sense for the Husband than for the plan, e.g. for tax reasons, and the reason that the Husband wants to do it this way is that he does not have enough personal funds to do the deal, then that would appear to be a conflict of interest PT. Also, once they coinvest, even if it may be OK, their options are limited to some extent down the line, so it can lead to problems even if not immediately a PT.

13 hours ago, Luke Bailey said:

Also, once they coinvest, even if it may be OK, their options are limited to some extent down the line, so it can lead to problems even if not immediately a PT.

In my opinion, this will become the biggest issue (assuming as Luke notes that there is no underlying PT based on the husband not having enough personal funds, etc.). If my experience is any indication, at some point the husband will want to engage in some form of transaction with the plan's interest, whatever that may look like. 

I dealt with a very similar situation recently where an individual co-invested alongside his plan several years ago, then the plan could no longer support its obligations in the underlying investment. We had to tell the individual he could not fulfill the plan's obligations or buy out the plan's share of the investment personally. In a fact pattern like this, it leaves few good options.   

Thanks for the replies. Quite helpful.