What are the prohibited transaction considerations with private placements?
When IRA funds are invested in an enterprise in which the IRA owner has, or will have, some other relationship – current owner, co-investor, employee, creditor, director or officer – there is often an issue of whether the investment will constitute a “prohibited transaction” under the tax laws. A prohibited transaction between the IRA and IRA owner will result in immediate taxation to the owner of the IRA’s entire value. Prohibited transaction issues may also arise after the IRA investment is made, usually in connection with a transaction or service between the IRA and the enterprise or the IRA owner (or related person) and the enterprise. The government and the courts have provided only limited guidance regarding when an IRA investment in a closely-held enterprise may give rise to a prohibited transaction. Nevertheless, some general observations can be made: In an advisory opinion, the Department of Labor (which interprets the prohibited transaction rules) concluded that investment by
