Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, January 8, 2014

Ruling Clarifies IRA Transactions


In a recent ruling in favor of the IRS, the U.S. Tax Court decision serves as a reminder about the costly consequences of making inappropriate transactions within a client’s IRA.

The court ruled that the IRAs of two business partners were disqualified under the prohibited transaction rules because they guaranteed loans to a company owned by their IRAs.  As a result of this action, they owed taxes on the capital gains when the stock of the company was later sold inside their disqualified Roth IRAs.  As a result of the disqualification, the court found that the taxpayers were negligent for failing to report the sale of the stock they personally owned.

This case is a reminder that advisors should discuss with their clients the potential tax nightmares that can arise if they get too creative with their IRA investments.

See Ed Slott, Tax Court Ruling Clarifies IRA Transactions, Accounting Today, Jan. 2, 2014. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


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