CCA 201105035: Free use of IRA property by related S corporation may be prohibited transaction

Plain-English summary

Chief Counsel advice considered whether an IRA's property could be used without rent by an S corporation wholly owned by a redacted person related to the IRA's holder. The advice explained that § 4975(d)(20) can exempt certain transactions when the IRA receives adequate consideration, but that exception did not appear to apply because the corporation paid nothing for use of the building. On the described facts, the free use of the property appeared to be a prohibited transaction under § 4975(c)(1)(D) and (E). The advice referred to Department of Labor Advisory Opinion 93-33A and a Tax Court memorandum decision.

Ruling snapshot

• Question: Does an IRA's free lease of property to a related, wholly owned S corporation qualify for the § 4975(d)(20) exemption?
• Outcome: Advice given.
• Key authorities: IRC §§ 4975(c)(1)(D), 4975(c)(1)(E), and 4975(d)(20); DOL Advisory Opinion 93-33A (December 16, 1993); Rollins v. Commissioner, T.C. Memo. 2004-260.

Full text (IRS public release)

ID: CCA_2011010613104050 Number: 201105035
Release Date: 2/4/2011
Office: -------------------------
UILC: 4975.03-00

From: --------------------
Sent: Thursday, January 06, 2011 1:11:09 PM
To: --------------
Cc: ----------------------------------
Subject: RE: Question about a transaction - Potential PTs?

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. 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.

Based on the facts below TPH's ------- solely owns an S-Corp ------- that uses the property's building as a ------ and pays nothing for the lease, so therefore the transaction does not appear to qualify for the exemption under section 4975(d)(20) because there was no adequate consideration paid for the use of the property (See the language in bold above.). I think that the use of the property by TPH's ------- solely owned S-Corp and the payment of nothing for the lease is a prohibited transaction under section 4975(c)(1)(D) and (E) of the Code. See the analysis in the attached DOL Advisory Opinion 93-33A (December 16, 1993) and Rollins v. Commissioner, T.C. Memo. 2004- 260.

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