Rulings

[RK Summary:  The Department of Labor ruled that an IRA owner could not cause the IRA to invest in promissory notes issued by an entity that was controlled by the IRA owner’s son in law because it would be a prohibited transaction under Internal Revenue Code Section 4975.]

The text of  Department of Labor Advisory Opinion 2006-09A is below.

December 19, 2006
Edward A. Appelt
24 Winslow Drive
Pittsburg, PA 15229

Department of Labor Advisory Opinion 2006-09A
IRC Section 4975 (c)(1)(A) & (B)

Dear Mr. Appelt:

This is in response to your request for an advisory opinion under section 4975 of the Internal Revenue Code (Code). Specifically, you ask whether allowing the owner of an individual retirement account (IRA) to direct the IRA to invest in notes being offered by a corporation, in which a relative of the IRA owner is the majority owner and stockholder, would give rise to a prohibited transaction under Code section 4975.⁽¹⁾

You represent that as the owner of an IRA for which you have retained investment discretion, you would like to direct the investment of these IRA funds into notes (Notes) that are […]

RK Summary:  The Department of Labor ruled that an IRA owner could not cause the IRA to invest in a new limited liability company that would purchase real estate and lease it to an entity 68%  of which is owned by the IRA owner because it would be a prohibited transaction under Internal Revenue Code Section 4975.  The opinion contains a statement that IRA owners should always keep in mind before an IRA LLC makes an investment”  “the Department considers “a fiduciary who makes or retains an investment in a corporation or partnership for the purpose of avoiding the application of the fiduciary responsibility provisions of the Act to be in contravention of the provisions of section 404(a) of the Act.”

The text of Department of Labor Advisory Opinion 2006-01A is below.

January 6, 2006
Debra C. Buchanan, Esq.
Guidant Legal Group, PLLC
225 Commerce Street, Suite 450
Tacoma, WA 98402

Department of Labor Advisory Opinion 2006-01A
ERISA Sec. 29 CFR 2509.75-2

Dear Ms. Buchanan,

This is in response to your request for an advisory opinion as to whether the following proposed transaction would be prohibited under section 4975 of […]

[RK Summary:  The Department of Labor ruled that an IRA owner could not cause the IRA to purchase land at fair market value from a tax-exempt entity of which the IRA owner’s daughter and son-in-law were the officers and directors and then lease the land back to the entity at fair-market rent or below market rent, depending on the entity’s ability to pay because it would be a prohibited transaction with a disqualified person under Internal Revenue Code Section 4975.]

December 16, 1993

Mr. Roberto Faith
1101 S.W. 102 Court
Miami, Florida 33174

Department of Labor Advisory Opinion 2006-09A
IRC Section 4975 (c)(1)

Dear Mr. Faith:

Your letter to the Internal Revenue Service (the Service) has been forwarded to this Office for our consideration and response with respect to the first of the two rulings you requested. You request guidance concerning the application of the prohibited transaction provisions of the Internal Revenue Code (the Code) to a proposed purchase and lease-back of a tax-exempt school’s land and building by a self-directed Individual Retirement Account (the IRA). Specifically, you ask whether the purchase and lease-back of the school would result in a prohibited transaction under section 4975 of the […]