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Jax Tax
Jax Tax, Tax Attorney
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Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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I have been told that under IRC 4975(e)(2) that corporation,

Customer Question

I have been told that under IRC 4975(e)(2) that corporation, Partnership, or trust or estate of which (50 percent or more of the beneficial interest of such is owned by persons described in subparagraph A,B,C,D, or E (but not F) is a disqualified person. Does this provide the pass for a son working for that corporation on the behalf of a Profit Sharing Plan esp. in real estate.
Submitted: 3 years ago.
Category: Tax
Expert:  Jax Tax replied 3 years ago.

Jax Tax : What kind of plan is it considered under section 43. I will have your answer once I have this information.
JACUSTOMER-yiv1iham- :

The plan is not defined benefit or defined contribution. It is administered by me being the (A) Fiduciary. I have had the plan for 35 years.

JACUSTOMER-yiv1iham- :

I have forgotten the specific classification.

Jax Tax :

My thought is that under paragraph 6, this is a prohibited transaction, but I am looking for support. I am 98% sure.

Jax Tax :

I need to under stand what the relationship between the Corp, your son, and the plan. What is meant by on behalf of a PSP

JACUSTOMER-yiv1iham- :

I would be creating a LLC for the purpose of property management. My sons already own a real estate company as a proprietership.

JACUSTOMER-yiv1iham- :

It is curious that the letter F( member of the family ) was left out

Expert:  BK-CPA replied 3 years ago.

No.

 

See IRC 4975(e)(2)(G) first:

 

http://www.law.cornell.edu/uscode/26/usc_sec_26_00004975----000-.html

 

(e) Definitions

(2) Disqualified person

(G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of-

 

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,

(ii) the capital interest or profits interest of such partnership, or

(iii) the beneficial interest of such trust or estate,

 

is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E);

...

...

 

 

Now, look to IRC 4975(e)(2)(E), bolding mine:

 

(E) an owner, direct or indirect, of 50 percent or more of-

 

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation,

(ii) the capital interest or the profits interest of a partnership, or

(iii) the beneficial interest of a trust or unincorporated enterprise,

 

which is an employer or an employee organization described in subparagraph (C) or (D);

...

...

 

 

Thank you!

Expert:  Jax Tax replied 3 years ago.
I need to know what kind of plan you are the fiduciary for.
Expert:  Jax Tax replied 3 years ago.
I am trying to determine if the plan you are speaking of is regulated by this section. F does speak to family which is defined in paragraph 6(6) Member of family
For purposes of paragraph (2)(F), the family of any individual shall include his spouse, ancestor, lineal descendant, and any spouse of a lineal descendant.

I am confused about the relationship. Are you saying that your son works for the company who's plan you control? Is he a beneficiary of the plan?
Customer: replied 3 years ago.
No and no
Expert:  Jax Tax replied 3 years ago.
So how do you interpret these regulations to apply in your situation? Who told you that they did?
Customer: replied 3 years ago.
I'm sorry, but you haven't answered my question. An answer would show rulings or court decisions that invalidate a position that (F) is omitted in the original question. Please read my question carefully. The problem with many ERISA experts seems to be a knee jerk response when regulations seem to the contrary.

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JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions