Who is a disqualified person under 4975?

In addition, § 4975 (c) (E) defines a prohibited transaction as any act of a disqualified person who is a fiduciary whereby the trustee manages the income or assets of a plan in his own interest or on his own account. While the most “common” disqualified person associated with an IRA is the owner of an IRA himself, it's important to note that family members are also disqualified people. Despite the fact that the IRA owned less than 50% of the LLC and was therefore not a disqualified person, the DOL stated that, since the intention of the LLC at the time of its creation was to lease property to a majority company controlled by the owner of the IRA, the investment would constitute a prohibited transaction in and of itself and a prohibited self-trading transaction, since it would benefit a company that is majority owned by the owner of the IRA. In fact, the GAO expresses concern that some types of alternative investments, such as Gold IRA accounts, are sold in self-directed IRA accounts in a way that enriches the seller or promoter if the deal closes, but denies any liability if the investment turns out to be a prohibited transaction, since in situations where the self-directed IRA provider offers “checkbook control”, it ultimately remains the owner of the IRA to determine that each and every one of checks comply with prohibited transaction rules. The Court ruled that this tax language did not constitute a prohibited transaction, since the owner of the IRA had no other personal obligations to the bank and, consequently, the language did not constitute a burden on the IRA nor did it imply an actual extension of the IRA's credit to the owner of the IRA.

Specifically, section 4975 of the IRC stipulates that the owner of an IRA (and any other person responsible for the IRA account) is prohibited from combining the financial interests of the IRA itself with those of its owner or any other related party, since all of these people are considered “disqualified persons”. IRC § 4975 (a), IRC § 4975 (b) PT: consequences when a disqualified person other than the owner of the IRA disables the account in the PT. The DOL stated that the existence of an outstanding promissory note between the IRA and the owner of the IRA personally would be a prohibited self-negotiation transaction. The owner of the IRA proposed to invest his IRA in the company to buy one hundred shares, which would result in the owner of the IRA continuing to own less than 1% between himself personally and his IRA.

In addition, it is essential to recognize that, for a transaction to be considered a prohibited transaction, only one of the above-mentioned exchanges need to take place between the owner of the IRA (or another disqualified person) and the IRA. Prohibited transactions themselves may include buying or selling property between the IRA and a disqualified person, making IRA assets available to a disqualified person, or using IRA funds to compensate a disqualified person. And it is the entire retirement account that loses its tax status (and not just the part of the account included in the prohibited transaction, as is the case with the penalty tax applied to a disqualified person). And, of course, it would be forbidden to attempt to transfer existing real estate from the owner of an IRA to the IRA (since even the sale of real estate at a fair market price by the owner of the IRA to the IRA is still a prohibited transaction, since the owner of the IRA is still a disqualified person).