Self Directed IRA - confused on the legality

[Kevin D Hooks]

Hello, new to the forum. I have a situation where I would like to open a self directed IRA and have contacted a few of the online players and am getting a mixed message, some say it's possible some say no way Jose'. I don't want to find myself in the IRS grinder, so posing it here. The situation is this:

1. My Grandfather passed about 20 years ago and left his estate to 4 children, uncle1, uncle2, aunt and my father
2. There are multiple properties/parcels (6 total) in the estate that are co-owned by the 4 siblings, all 4 names on the deeds.
3. Uncle1 defaulted on his personal mortgage
4. Lien holder(bank) repo’d his home but home was underwater, and thus still owed beyond the repo.
5. Lien holder found out about the shared/partner assets that uncle1 had with siblings and decided to go after them
6. I'm not clear on the exact process, but I believe the bank will take possession of uncle1 (1/4) share in the partnership properties then will legally force the 4 way partnership to be dissolved through a court proceeding.
7. The other partners or another investor are able to buyout the bank owned (1/4) share at an appraisal price.
8. The appraisal is filed with the court so there are no shenanigans with valuation
9. If no buyout then the whole property goes to sheriff sale
10. Two of the parcels are rental income farmland, these are the ones I'd be interested in investing in
11. Nobody in my family nor my grandfather are/were farmers, the acreage has always been rented out
12. I'm trying to determine whether I can buy out Uncle's1 share from the lien holder bank at the appraisal price with an IRA LLC and become the 4th partner?
13. Some have said that the department of labor says it's ok to be in a partnership with your father as long as it's an investment and nobody is taking personal benefit, but that the IRS is the one that doesn't like this.

Any thoughts please. #tryingtostayoutoftrouble

Thanks

[Brian Eastman]

@Kevin D Hooks

This is an absolute, 100% no-go.

Your father is a disqualified party to your IRA.

The IRS rules prohibit any direct or indirect transactions or provision of benefit - in either direction - between a plan and a disqualified party.

Your IRA coming into this transaction saves your father's interest in the deal. That is a clear benefit.

What you are reading about the potential for joint ventures with disqualified parties is A) gray area, and B) something that would only apply if an IRA and a disqualified party were jointly purchasing an asset from scratch together. Buying into an existing transaction that involves a disqualified party would not fit within that concept and would certainly create a self-dealing prohibited transaction. Such prohibited transactions come with extreme tax penalties and are not worth risking.

Your IRA is not an option, nor is that of your spouse.

Anyone who is saying this is OK is either uninformed or more interested in a sale than the well being of your IRA. This is a very clear cut matter.