IRS Confirms Certain Prohibited Transaction Rules

July 8th, 2011

In a May 6, 2011 e-mailed advice, the IRS has advised that an individual’s brother-in-law and parents-in-law would not be considered family members under section 4975(e)(6) because section 4975(e)(6) only refers to the spouse of a lineal descendant.

For purposes of section 4975(e)(6) of the Code family members only includes the following:
The IRA owner’s (which in this case would be the fiduciary of the IRA under section 4975(e)(A) and section 4975(e)(3)) spouse Ancestors (Mom, Dad, Grandparents) Lineal Descendents (daughters, sons, grandchildren)
Spouses of Lineal Descendents (son or daughter-in-law)

Therefore, in this case the taxpayer’s brother in-law and parents in-law would not be considered family members under section 4975(e)(6) of the Code, because section 4975(e)(6) refers only to the spouse of a lineal descendent.

This email advice offers important guidance to investors using a Self Directed IRA or Solo 401K Plan.