In Peek v. Commissioner (May 9, 2013), the U.S. Tax Court ruled that two taxpayers had engaged in an indirect “prohibited transaction” with their individual retirement accounts (IRAs) when they provided personal guarantees for promissory notes issued by a company owned by the IRAs. The Court found that the taxpayers had provided an indirect extension of credit to the IRAs, a prohibited transaction under Internal Revenue Code §4975 that disqualified the IRAs.
Prohibited Transactions with IRAs -
Section 4975(c) prohibits specified transactions between (i) various plans including IRAs and (ii) “disqualified persons” (or “parties in interest” under the ERISA version of these rules), which in the case of an IRA includes the IRA owner. Subject to certain exemptions, a disqualified person cannot engage in transactions with the plan that, among other things, constitute direct or indirect:
- Sales, exchanges, or leasing of property;
- Lending of money or other extension of credit;
- Furnishing of goods, services, or facilities; or
- Transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan.
Please see full alert below for more information.
Firefox recommends the PDF Plugin for Mac OS X for viewing PDF documents in your browser.
We can also show you Legal Updates using the Google Viewer; however, you will need to be logged into Google Docs to view them.
Please choose one of the above to proceed!
LOADING PDF: If there are any problems, click here to download the file.