Disqualified Person and PT
I’d like clarification on what makes someone a “disqualified person” with respect to an IRA. Would an IRA owner who is President of a company who owns more than 10% of the stock of the company, but not 50% or more, be considered a disqualified person for transactions involving that company? Would it matter if it was a SEP or a SIMPLE vs. a traditional or Roth IRA?
Thanks!
Permalink Submitted by Alan Spross on Mon, 2011-11-14 22:24
It’s the same for all types of IRA accounts. Under 50% ownership is OK, but watch for family member ownership as well. Here is a copy of the definition from Sec 4975(e)(2):
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(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).
>>>>>>>>>>>>>>>>>>>>
Permalink Submitted by Bruce Steiner on Mon, 2011-11-14 23:08
You also have to look at subparagraphs (D), (E) and (F) of Section 4975(c)(1) to see whether there is some other benefit to the IRA owner.
Permalink Submitted by maraba saner on Tue, 2011-11-15 05:20
[quote=”[email protected]“]Would it matter if it was a SEP or a SIMPLE vs. a traditional or [url=http://www.rothiraexpert.org]Roth IRA[/url]?
Thanks![/quote]
@alan-oniras,
I think 50% could make someone disqualified. Look at G
(G) a corporation, partnership, or trust or estate of which
(or in which) [b]50 percent or more of[/b] –
Permalink Submitted by Alan Spross on Tue, 2011-11-15 18:33
Agree – that’s why I indicated UNDER 50% would be OK. As Bruce indicated, there are other considerations to consider as well, even if taxpayer did fall under the 50%.
Permalink Submitted by mk foss on Tue, 2011-11-15 20:45
There was a case regarding a prohibited transaction where ownership was less than 50% – the taxpayer said he was not disqualified because he didin’t own 50%. See Rollins v. Comm. TC Memo 2004-260