I have a client (S corp owned 51%/49% by two individuals) with a SEP-IRA that is contemplating the following transaction – the S corp’s SEP-IRA plan wants to invest funds in an LLC that owns real estate. The problem, I believe, is the the LLC is currently owned equally by 3 individuals, 2 of which are my S corp owners. Some further background into the transaction is that the LLC owes the S corp money. My client’s thought is that the LLC can pay back the S corp the money owed. The S corp would then use that cash to fund the 2007 contribution into the SEP-IRA. The SEP plan would then invest for an ownership interest in the LLC (basically, getting the cash back into the LLC).
My gut tells me that this probably falls under a prohibited transaction due to the common ownership between the entities exceeding 50%. Any thoughts or feedback would be appreciated.