Would anyone know if you can make a unscured promissary note to a "S" corporation from a traditional IRA?
I've tried reading some IRS publications and it says you can't invest in a "S" corporation but is this an investment or just a loan to a company?
Thanks from a confused individual.
Have a great Holiday!!
You cannot loan money from an IRA.
On 9/6/10 11:30 AM, snipped-for-privacy@hotmail.com wrote:
Yes, but..... If the S corp is owned 50% or more by you or a "disqualified person", this would be a "prohibited transaction." The penalty for such a transaction is that the IRA will be considered to have been fully distributed and all taxes and applicable penalties will be assessed.
Here's the definition of a disqualified person from the Internal Revenue Code Section 4975:
(2) Disqualified person For purposes of this section, the term ?disqualified person? means a person who is? (A) a fiduciary; (B) a person providing services to the plan; (C) an employer any of whose employees are covered by the plan; (D) an employee organization any of whose members are covered by the plan; (E) an owner, direct or indirect, of 50 percent or more of? (i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation, (ii) the capital interest or the profits interest of a partnership, or (iii) the beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described in subparagraph (C) or (D); (F) a member of the family (as defined in paragraph (6)) of any individual described in subparagraph (A), (B), (C), or (E); (G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of? (i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation, (ii) the capital interest or profits interest of such partnership, or (iii) the beneficial interest of such trust or estate, is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E); (H) an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning
10 percent or more of the yearly wages of an employer) of a person described in subparagraph (C), (D), (E), or (G); or (I) a 10 percent or more (in capital or profits) partner or joint venturer of a person described in subparagraph (C), (D), (E), or (G).and here is the definition of a member of the family:
(6) Member of family For purposes of paragraph (2)(F), the family of any individual shall include his spouse, ancestor, lineal descendant, and any spouse of a lineal descendant.
You can't own shares in an S Corp.
Not correct. See my original reply to the OP. You can't loan money to yourself but private loans are allowed under the right circumstances. No where in the OP did it say who owned the S Corp.
Buying a bond or a CD is a form of lending money, so the restriction cannot be quite that broad.
What are you thoughts on an IRA buying a rental property from the owner of the IRA?
I have a client who has "read" that he can set up a self directed IRA and use it to buy a rental property - so far I have no problem with this IN THEORY, with the usual caveats about loans and such. The IRA has well over $1M in it.
But there's a twist - he wants to buy the rental from himself for cash. He's had the rental for years now, it is now fully depreciated and paid for. So now the rental is throwing off a profit. He figures he can buy the rental from himself and put it in a self directed IRA. That way he won't have to pay tax on the income it generates and he'll have a fully paid for appreciating asset in his IRA.
The big hitch that I'm worried about is twofold -
A - buying the rental from himself;
B - managing the rental property himself.
Does anyone see traps here?
Gene E. Utterback, EA, RFC, ABA
Selling stuff to your own IRA is covered on
It's a no-no.
UBIT, since renting is a business the IRA will be engaging in (and probably lots more prohibited transactions if he manages it himself rather than hiring a manager).
Not allowed.
Probably not allowed, UBIT at best.
A hole in the ground that large, surrounded by large glowing signs saying "beware of the leopard" is hardly a _trap_.
Seth
Problems:
1) "Self-dealing" (isn't that in 4973, a companion section?)* 2) [Non-rollover] Contributions may only be in cash.
OM snipped.
Summary - OP (that'd be me!) asked about selling a rental property owned by a taxpayer to the same taxpayer's IRA.
As I suspected, and as confirmed by the regulars in this NG, he can't do it and still maintain the integrity of the IRA. I appreciate the responses, especially the ones with citation references, they are most helpful.
Fortunately, my client has NOT YET done this, and I'm trying now to convince him that if he does do it, it will hurt.
Thanks, Gene E. Utterback, EA, ABA
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.