Tag Archives: 401k

Does the IRS look at same sex marriage the same way in determining a Prohibited Transaction? by H. Quincy Long

4 Feb

Question: Hello Quincy, I am in a same sex marriage in California. Both I and my husband have Roth IRA’S. I want to use Quest to set up a self directed IRA and do some real estate investing.

My question is can my husband buy a HUD property and then sell me an option on it with me using my self directed IRA to pay for the option and then in turn I assign my option to an end buyer for profit without the IRS considering the transaction doing business with a disqualified person?

I see that the IRS defines a disqualified person as a spouse but the federal government does not recognize same sex marriage at this point. I understand that you may not be able to offer legal advice, but I would be interested to see your opinion on this issue.

Thank you very much for taking the time to answer.

Answer: You ask a very interesting question, but I would argue that the answer is no regardless of whether or not the federal government recognizes your marriage.  The problem is IRA transactions are intended to be on an arms length basis, and clearly a transaction with your husband would not be an arms length transaction.  He is a person in whom you have an interest which would affect your best judgment as a fiduciary for your IRA.  I presume he may also be the beneficiary of your IRA in the event of your death. You most likely have joint bank accounts and other assets.  Remember, that the prohibited transaction rules cover any direct or indirect transaction between your IRA and a disqualified person.  Either your husband is a disqualified person because your marriage is valid under state law (but I agree that there may be a problem with the IRS trying to argue that they don’t recognize your marriage for most federal purposes but want to recognize it for IRA prohibited transaction purposes) or even if he isn’t directly a disqualified person the benefits of the transaction indirectly affect and involve you, and you are a disqualified person to your IRA.  I would say the same thing to a male/female couple who lived together but were not married.  Certainly the better part of caution dictates that your IRA should not enter into transaction with your husband.  Sorry, but that’s my opinion.

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