Common prohibited transactions, part 3: IRC 4975(c)(1)(C)

Estimated reading time: 1 minutes, 56 seconds

In the first two parts of this series, we discussed IRC 4975(c)(1)(A) and IRC 4975(c)(1)(B). These involve prohibited transactions involving the direct or indirect “sale or exchange, or leasing, of any property between a plan and a disqualified person” or “lending of money or other extension of credit between an IRA and a ‘disqualified person.’ ” When using retirement funds, it’s important to ensure you aren’t engaging in a transaction in a manner that IRC 4975(c)(1) deems a “prohibited transaction.” Our Common Prohibited Transactions series is intended to introduce you to the concept of a prohibited transaction in each of the ways as described in the code.

In this third part of the series, we focus on 4975(c)(1)(C) and provide hypothetical examples of the direct or indirect “furnishing of goods, services, or facilities between a plan and a disqualified person.”

On its Prohibited Transactions page, the IRS deems “any improper use of an IRA account or annuity by the IRA owner, his or her beneficiary or any disqualified person” as a prohibited transaction. With that in mind, the below hypothetical examples correspond to 4975(c)(1)(C):

  • Prohibited transactionsSarah personally makes repairs on a rental property owned by her Self-Directed IRA
  • Brian is paid by his IRA for investment advice
  • Marjorie’s husband provides brokerage services to her IRA for the purchase of metals
  • Beth purchases a home with Self-Directed IRA funds and has her son replace the water heater
  • Reggie’s wife provides pro bono legal assistance related to a promissory note held in his Self-Directed IRA
  • Naomi acts as a real estate agent for properties purchased by her IRA

It’s important to consult the IRS websiteIRS Publication 590-A and section (e) of 26 U.S. Code §4975 for clarity on disqualified persons. You can also read our complimentary report on prohibited transactions and disqualified persons, as well as our previous posts in this series:

  • Part 1: IRC 4975(c)(1)(A) – the direct or indirect “sale or exchange, or leasing, of any property between a plan and a disqualified person.”
  • Part 2: IRC 4975(c)(1)(B) – the direct or indirect “lending of money or other extension of credit between an IRA and a ‘disqualified person.’ ”

Please keep in mind that the information provided here about common prohibited transactions is for general information purposes only. You should review the IRS resources listed above and consult with your team of professionals before proceeding with any investment transaction.

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