Following IRS Rules Even When Disaster Strikes

By Elsie Dudukovich0 Comments

As communities work to recover from the extensive damage from Hurricanes Harvey, Irma and Maria and regain a sense of normalcy, it’s important for self-directed IRA owners who’ve invested in these areas to remember the IRS rules regarding prohibited transactions and disqualified individuals.

In addition to yourself and your IRA’s beneficiary, IRS Publication 590-A includes “…your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant)” as disqualified persons.  This information is useful for IRA holders to be aware of as to who is able to perform work or provide services for investments held in your self-directed IRA. 

Along with understanding who is disqualified from involvement with your IRA, it is important to know what actions are considered prohibited transactions. In IRS Publication 590-A, the IRS defines a prohibited transaction as, “…any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person.”

The Internal Revenue Code (IRC), which is the legislation governing federal tax law and administered by the IRS, details further what actions could be considered prohibited transactions under IRC 4975:

Prohibited transaction
(1)General rule For purposes of this section, the term “prohibited transaction” means any direct or indirect—

(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interests or for his own account; or
(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.”

From repairing hurricane damage to the payment of property taxes, it is important to make sure all expenses associated with maintaining an IRA asset are paid from the IRA according to the IRA’s percentage of ownership.
At Equity Trust, account owners utilize a Bill Pay Direction of Investment (DOI) to direct funds from their account to pay for their IRA asset’s expenses.  The Bill Pay DOI provides the necessary processing information regarding how much and in what manner to direct funds. Clients can log into myEQUITY and submit a Bill Pay DOI online directly to Equity Trust.