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IRA Property Leased without Consideration would Trigger a IRA Prohibited Transaction

In e-mailed advice, the IRS has advised that if an IRA allows its property to be leased without receiving adequate consideration, it won’t qualify for exemption under section 4975(d)(20) and the transaction will be deemed an IRA prohibited transaction under section 4975(c)(1)(D) and (E).

In this particular circumstance it appears that the individual was trying to establish that an entity’s use of IRA assets was not a prohibited transaction pursuant to Internal Revenue Code Section 4975(d)(2).

Section 4975(d)(20) provides that an IRA may engage in sales of property, loans and transfers or use of IRA assets with a party in interest (or a disqualified person) who is a party in interest only because the person provides services (or has certain relationships with a service provider), as long as the IRA receives no less, nor pays no more, than adequate consideration in connection with the transaction. Note – the exemption does not apply to a fiduciary (or an affiliate) who has or exercises any discretionary authority or control with respect to the investment of the assets involved in the transaction or provides investment advice with respect to the assets.

The significance of this email advice is that in the Self Directed IRA context, the exemption under IRC Section 4975 would not apply to the IRA holder. In addition, the ruling is clear that adequate consideration must be paid for the property or loan.

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Posted in Self-Directed IRA

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