Prohibited Transaction Question

Question:

I have a house I directly own outside of an IRA, and I want to sell it to my self directed IRA. I understand that I am a prohibited party and can’t do this directly. HOWEVER, what if I sell it to my mother in law for, say, 30 days, and then she turns around and sells it to my IRA? Is this permissible as somewhat akin to a wash sale, in which I have technically removed myself from the transaction and I’m not running afoul of any IRS rules? Or is the IRS going to view this as a sham/straw transaction and get me in hot water?”

Quincy’s Answer:

Mr. Lambeth, thank you for your inquiry below.  You are correct when you state that you are a prohibited party (disqualified person) as to your IRA and therefore cannot sell property to it which you now own.  Unfortunately, the prohibited transaction rules include both direct and indirect actions, which in this case would mean that to sell it to a non-disqualified third party for 30 days who would agree to sell it back to your IRA would almost certainly be viewed as a prohibited transaction and would definitely, as you say, get you in hot water with the IRS if they discovered it. 

 Also, I would caution you about involving your mother-in-law in transactions with your IRA.  Although she is not a disqualified person as to your IRA (although you ARE a disqualified person as to her IRA since you are married to her daughter), she is a person in whom you have an interest which may affect your best judgment as a fiduciary for your IRA.  Therefore, directing your IRA to enter into a transaction with her could, under certain circumstances, be deemed to be an indirect personal benefit to you and therefore a prohibited transaction. 

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