It cannot be done this way regardless of what he purchases, since the same assets rolled out of an IRA must be contributed back to complete a rollover. See Pub 590, p 25, “The same property must be rolled over.”

Now, if the IRA purchased the shares itself, then you have the prohibited transaction rule tests to be passed. The following pasted summary indicates some of the holdings that would be prohibited transactions:
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Private Placements

Overview
Procedures – Investing IRA Funds in Closely-Held Enterprises
Prohibited Transaction Considerations
Unrelated Business Taxable Income
Restricted Stock
Special Considerations for Roth IRAs
S Corporations
Plan Asset Regulations
Examples Of Ownership/Compensation Rules
In Summary

What does ‘private placement’ mean?

“Private placement” is the term used in the securities world to define a non-public offering of an investment vehicle. Securities regulations allow exemption for selected types of private placements. The primary classifications for these exemptions are Rules 501-506 D. Smaller private offerings can be done where there are less than 35 investors and when the public is not solicited (e.g., friends and family rounds of financing). The most common types of private placements are those involving closely-held private companies. It is estimated that 75% of new businesses formed in the United States are funded through such private placements.

Procedures: Investing IRA Funds In Closely-Held Enterprises

IRA owners are often presented with opportunities to invest IRA funds in an existing or new closely-held enterprise, such as an operating business, a real estate venture or an investment partnership. Significant tax consequences can occur if such an investment is a “prohibited transaction” or generates “unrelated business taxable income.” However, in appropriate circumstances, an IRA’s investment in a closely-held enterprise can be structured to eliminate or reduce the risk of adverse tax consequences.

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Prohibited Transaction Considerations

When IRA funds are invested in an enterprise in which the IRA owner has, or will have, some other relationship – current owner, co-investor, employee, creditor, director or officer – there is often an issue of whether the investment will constitute a “prohibited transaction” under the tax laws. A prohibited transaction between the IRA and IRA owner will result in immediate taxation to the owner of the IRA’s entire value. Prohibited transaction issues may also arise after the IRA investment is made, usually in connection with a transaction or service between the IRA and the enterprise or the IRA owner (or related person) and the enterprise.

The government and the courts have provided only limited guidance regarding when an IRA investment in a closely-held enterprise may give rise to a prohibited transaction. Nevertheless, some general observations can be made:

· In an advisory opinion, the Department of Labor (which interprets the prohibited transaction rules) concluded that investment by both an IRA and the IRA owner in a partnership was not a prohibited transaction where the IRA owner and his family owned less than 50% of the partnership, and the IRA owner derived no (or only an incidental) benefit from the IRA’s investment. Note: In all examples, the terms ‘family’ or ‘related persons’ does NOT include siblings (brothers and sisters) of the IRA owner.

Thus, co-investment by an IRA and IRA owner in the same enterprise should be permissible under some circumstances, as long as certain caveats noted in that opinion are heeded.

· An IRA’s investment in an enterprise of which the IRA owner and related persons already own 50% or more (in value or voting power) is a prohibited transaction. However, many believe that a simultaneous co-investment by an IRA and the IRA owner in the enterprise’s initial capitalization, resulting in their joint ownership of a majority interest in the enterprise, is not a prohibited transaction.

· An IRA investment should not be made to facilitate or protect the IRA owner’s investment or interest. For example, an IRA’s investment for the purpose of ensuring the IRA owner’s employment with the enterprise, or preserving the IRA owner’s investment in the enterprise, is likely to be viewed as a prohibited transaction.

· The IRS appears to take the postion that if a transaction between an IRA and a “disqualified person” would be a prohibited transaction, then a transaction between that person and an entity in which the IRA has an ownership interest would also be a prohibited transaction if the IRA, alone or together with certain other “disqualified persons,” can require the corporation to enter into the transaction.

· If an IRA owner wishes to invest only some IRA funds in the enterprise, it is advisable to first transfer the amount to be invested to a separate IRA. Such separation may ensure that, if a prohibited transaction does occur, any adverse tax consequences would impact only the separate IRA making the investment.

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