Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 1

all right; here's a return volley in the giveth-ing and taketh-ing away:

1. §4975(a), (b) & (c) particularly (c)(1)(B) make the loan between the plan and you (or your spouse) a prohibited transaction.

2. §4975(d)(1) seems to (or temporarily) bring back the loan ability as long as the loan environment is level for all participants in the plan.

3. However, §4975(d)starts with "except as provided in (f)(6)" which is the "taketh away" part and says "shall not apply to a transaction which...(i) such owner-employee..."

drilling down further into §4975 (f)(6), it seems that the language from subparagraph A that you quote in your point 3 is a general rule.

however, subparagraph (B) introduces a special rule covering shareholder-employees, which would seem to govern this situation.

clause (iii) of subparagraph (B) deals with loans by the plan to shareholder-employees. this clause specifically exempts shareholder-employees from the definition of "owner-employee" used in subparagraph A.

subparagraph (c) goes on to elaborate upon the definition of "shareholder-employee":
For purposes of subparagraph (B), the term
"shareholder-employee" means an employee or officer of an S
corporation who owns (or is considered as owning within the
meaning of section 318(a)(1)) more than 5 percent of the
outstanding stock of the corporation on any day during the
taxable year of such corporation.

thus it would seem that officers of S corporation who own more than 5% of the stock - and that would be me - are shareholder-employees, and therefore NOT owner-employees. as such, they qualify for the exemption in §4975(d), and they may conduct "prohibited transactions" with the plan without suffering onerous tax consequences.

am i missing something in there?

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.