Entrust Learning Center > Keyword: disqualified person > Prohibited Transactions Exemption

Prohibited Transactions Exemption

The IRA receives the current fair market value for property, as established by an independent qualified appraiser; and the IRA pays no commissions or fees.

Sale of Property: Allows the sale of certain unimproved property by Taylor M. Cole's individual retirement account to Cole, a disqualified person, provided the sale is a one-time cash transaction; the IRA receives the current fair market value for property, as established by an independent qualified appraiser; and the IRA pays no commissions or fees. (PTE 2000-20), 65 FR 25953, 5/5/00 (27 BPR 832, 3/28/00)/

The sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply to the proposed sale of certain unimproved property (the Property) by the IRA to Taylor M. Cole, the IRA participant and a disqualified person with respect to the IRA; [FN4] provided that the following conditions are met:

FN4 Pursuant to CFR 2510.3-2(d), there is no jurisdiction with respect to the IRA under Title I of the Act. However, there is jurisdiction under Title II of the Act pursuant to section 4975 of the Code.

• The sale is a one-time cash transaction;
• The IRA receives the current fair market value for the Property, as established at the time of the sale by an independent qualified appraiser; and
• The IRA pays no commissions or other expenses associated with the sale.
  

For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the notice of proposed exemption published on March 22, 2000 at 65 FR 15368.

FOR FURTHER INFORMATION CONTACT:

Ekaterina A. Uzlyan of the Department *25954 (202) 219-8883. (This is not a toll-free number.)
General Information

The attention of interested persons is directed to the following:

1. The fact that a transaction is the subject of an exemption under section 408(a) of the Act and/or section 4975(c)(2) 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions to which the exemptions does not apply and the general fiduciary responsibility provisions of section 404 of the Act, which among other things require a fiduciary to discharge his duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor does it affect the requirement of section 401(a) 401(a) of the Code that the plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries;
2. These exemptions are supplemental to and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transactional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and
3. The availability of these exemptions is subject to the express condition that the material facts and representations contained in each application accurately describes all material terms of the transaction which is the subject of the exemption. Signed at Washington, D.C., this 1st day of May, 2000. Ivan Strasfeld, Director of Exemption Determination, Pension and Welfare Benefits Administration, U.S. Department of Labor.
   

DOL Prohibited Transaction Exemption 2000-20
Proposed_2000-20 Proposed_Taylor M. Cole IRA Rollover (the IRA) Located in Deerfield, VA_[Application No. D-10859]_Proposed Exemption

The Department is considering granting an exemption under the authority of section 4975(c)(2) 4975(c)(2) of the Code and in accordance with the procedures set forth in 29 C.F.R. Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990.) If the exemption is granted, the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply to the proposed sale of certain unimproved property (the Property) by the IRA to Taylor M. Cole, the IRA participant and a disqualified person with respect to the IRA; [FN6] provided that the following conditions are met:

FN6 Pursuant to CFR 2510.3-2(d), there is no jurisdiction with respect to the IRA under Title I of the Act. However, there is jurisdiction under Title II of the Act pursuant to section 4975 of the Code.
(a) the sale is a one-time cash transaction;
(b) the IRA receives the current fair market value for Property, as established at the time of the sale by an independent qualified appraiser; and (c) the IRA pays no commissions or other expenses associated with the sale.

1. The IRA is an individual retirement account, as described in section 408(a) 408(a) of the Code, which was established by Taylor M. Cole (Mr. Cole) on June 27, 1998. As of January, 2000, the IRA had approximately $261,165 in total assets. The Tredegar Trust Company, located in Richmond, Virginia, is the custodian of the IRA.
2. On July 27, 1998, the IRA purchased the Property from Richard and Ruth Mansfield, who were unrelated third parties, for $200,000 in cash. The Property represents over 80% of the IRA's total assets. The Property is adjacent to Mr. Cole's personal residence. It is represented that Mr. Cole made the decision to purchase the Property as a investment for the IRA. The Department notes that section 4975(c)(1) (D) and (E) of the Code prohibits the use by or for the benefit of a disqualified person of the assets of a plan and prohibits a fiduciary from dealing with the assets of a plan in his own interest or for his own account. Accordingly, to the extent there were violations of section 4975(c)(1) (D) and (E) of the Code with respect to the decision to purchase the Property for the IRA, the Department notes that this proposed exemption is providing no relief for such transaction.
3. The Property is an approximately 176 acre parcel of unimproved land, located at 1352 Marble Valley Road, Deerfield, Virginia. The applicant represents that since the acquisition of the Property by the IRA, the Property has not been leased to or used by anyone, including any disqualified persons, as defined under section 4975(e)(2) 4975(e)(2) of the Code. In addition, the Property has not generated any income for the IRA since its acquisition. [FN8]
4. The Property was appraised on March 25, 1999 (the Appraisal). The Appraisal was prepared by James H. Woods, RM (Mr. Woods), who is an independent Virginia state licensed real estate appraiser. Mr. Woods is with Blue Ridge Appraisal Company L.L.C.., which has offices in Staunton, Virginia and Winchester, Virginia. Mr. Woods relied primarily on the market approach, with an analysis of recent sales of similar properties in the geographic area. Mr. Woods determined that the Property had a fair market value of approximately $212,350, as of March 25, 1999. FN8 The Department notes that the Internal Revenue Service has taken the position that a lack of diversification of investments in a qualified plan may raise questions in regard to the exclusive benefit rule under section 401(a) 401(a) of the Code. See, e.g., Rev. Rul. 73-532 73-532, 1973-2 C.B. 128. The Department further notes that section 408(a) 408(a) of the Code, which describes tax qualifications provisions for IRAs, mandates that an IRA trust be created for the exclusive benefit of an individual and his or her beneficiaries. However, the Department is expressing no opinion in this proposed exemption regarding whether any violations of the Code have taken place with respect to the acquisition and holding of the Property by the IRA. Mr. Woods updated the Appraisal on February 22, 2000 (the Update). In the Update, Mr. Woods considered more recent sales of similar properties located near or adjacent to the Property as well as other circumstances relating to the proposed sale of the Property to Mr. Cole. Specifically, because the Property is adjacent to other property owned by Mr. Cole, Mr. Woods considered whether the adjacency factor merits a premium above fair market value in a sale of the Property to Mr. Cole. Mr. Woods states that the Property has no road frontage, no access easement or right of way, and can be accessed only by crossing over other property. Based on the Property's location, size and other factors, Mr. Woods concludes that combining the Property with property already owned by Mr. Cole will have no effect on the Property's fair market value. Therefore, Mr. Woods states that the fair market value of the Property remains at approximately $212,350, as of February 22, 2000.
5. The applicant proposes that Mr. Cole purchase the Property from the IRA in a one-time cash transaction. The applicant represents that the proposed transaction would be in the best interest and protective of the IRA because the IRA will be able to dispose of the Property at its fair market value and will not pay any commissions or expenses associated with the sale. In this regard, Mr. Cole will pay the IRA an amount in cash equal to the current fair market value at the time of the transaction, based on a further update of the Appraisal. The sale of the Property will increase the liquidity of the IRA's portfolio, will enable the trustees to diversify the assets of the IRA, and will enable the IRA to sell an illiquid non-income producing asset.
6. In summary, the applicant represents that the proposed transaction *15369 satisfies the statutory criteria of section 4975(c)(2) 4975(c)(2) of the Code because:
   

(a) the sale will be a one-time cash transaction;

(b) the IRA will receive the current fair market value for the Property, as established

at the time of the sale by an independent qualified appraiser;

(c) the IRA will pay no commissions or other expenses associated with the sale; and

(d) the sale will provide the IRA with more liquidity, will enable the IRA to diversify its assets, and will allow the IRA to reinvest the proceeds of the sale in other investments that potentially could yield greater returns.

Notice to Interested Persons

Because Mr. Cole is the sole participant of the IRA, it has been determined that there is no need to distribute the notice of proposed exemption to interested persons. Comments and requests for a hearing are due thirty (30) days from the date of publication of this notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT:_Ekaterina A. Uzlyan of the Department_(202) 219-8883._(This is not a toll-free number.)

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