CCA 1030028: Redacted IRA ownership facts did not clearly show a prohibited transaction

Plain-English summary

Chief Counsel Advice evaluates whether redacted ownership and leasing arrangements involving Roth IRAs created a prohibited transaction. Based on the stated facts, the advice says it would be difficult to argue that a prohibited transaction occurred because each relevant owner appeared to hold only a 20 percent interest, which was not enough to satisfy the ownership test for a disqualified person under section 4975(e)(1)(G). It also states that a tax benefit alone did not necessarily establish a prohibited transaction, and that the advice did not identify a personal benefit to the Roth IRA owners as required for an argument under section 4975(c)(1)(D) or (E). The leasing arrangement appeared to benefit the Roth IRA corporation, which received dividends, rather than the individual Roth IRA owners.

Ruling snapshot

• Question: Did the stated Roth IRA ownership and leasing arrangements constitute a prohibited transaction?
• Outcome: Advice given
• Key authorities: IRC §§ 4975(c)(1)(D), 4975(c)(1)(E), and 4975(e)(1)(G)

Full text (IRS public release)

ID: CCA_2010032209083550 Number: 201030028
Release Date: 7/30/2010
Office: -------------------------
UILC: 4975.03-00

From: --------------------
Sent: Monday, March 22, 2010 9:10:03 AM
To: -------------------------------------
Cc: ----------------------------------------------------------------------
Subject: RE: Notice 2004-8 - Prohibited Transaction Issue

These are my thoughts: Based on the facts that have been set forth, I think that we would have a
difficult time arguing that there is a prohibited transaction. To have a prohibited transaction you have to
have a transaction between a disqualified person and a qualified plan (In this case the Roth IRAs.). I am
assuming that the --------------- owned equal shares of the ----------------------, so therefore there would be
only a 20% interest in the -----------------------that each ------------- would own. Not sufficient to meet the
ownership test for the -----------------------to be a disqualified person under section 4975(e)(1)(G) of the
Code. This same ownership analysis would also apply to the Roth IRA Corporation. This looks more like
a Swanson case, just with more IRA owners involved. Keep in mind just because there is a tax benefit
that the IRA owner derives from setting up the investment, does not necessarily mean there is a
prohibited transaction. We would have to prove that the Roth IRA owners derived a personal benefit to
argue that a prohibited transaction occurred under section 4975(c)(1)(D) or (E) of the Code. I am not
seeing a personal benefit that the Roth IRAs owners are deriving, e.g. compensation paid to the Roth IRA
owners. Regarding the leasing of -----------, there is no transaction between the Roth IRAs and a
disqualified person, the Roth IRA Corporation is deriving a benefit from the leasing arrangement and and
service agreement and getting paid dividends not the Roth IRA owners.

Please, let me know if I am missing something.