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--></style></head><body lang="EN-US" link="blue" vlink="purple"><div class="WordSection1"><p class="MsoNormal"><span style="font-family:"Times New Roman","serif";color:#1f497d">Eric,</span></p><p class="MsoNormal"><span style="font-family:"Times New Roman","serif";color:#1f497d"> </span></p><p class="MsoNormal"><span style="font-family:"Times New Roman","serif";color:#1f497d">I stand corrected – 49%, 49% and 2%.</span></p><p class="MsoNormal"><span style="font-family:"Times New Roman","serif";color:#1f497d"> </span></p><p class="MsoNormal"><span style="font-family:"Times New Roman","serif";color:#1f497d">Haven’t gotten any responses as set. Also stumbled upon the below ERISA Opinion Letter though not directly on point – helpful as to understanding the “form over substance” issues.</span></p><p class="MsoNormal"><span style="font-family:"Times New Roman","serif";color:#1f497d"> </span></p><div><p class="MsoNormal" style="line-height:12.0pt"><img width="86" height="130" src="cid:image002.jpg@01D00565.49600650" align="left" hspace="12"><b><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">Robert R. Rowley</span></b><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d"> | Attorney at Law</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">505 W. Riverside Ave, Suite 500</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">Spokane, WA 99201</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">Telephone: (509) 252-5074</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">Mobile: (509) 994-1143</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">Facsimile: (509) 928-3084</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">Email: </span><span style="color:#1f497d"><a href="mailto:rob@rowleylegal.com"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">rob@rowleylegal.com</span></a></span><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d"></span></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d">Web Site: </span><span style="color:#1f497d"><a href="http://www.rowleylegal.com/"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">www.rowleylegal.com</span></a></span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p style="margin:0in;margin-bottom:.0001pt;line-height:14.25pt;background:white"><em><b><span style="font-size:10.0pt;font-family:"Tahoma","sans-serif";color:#615e29;border:none windowtext 1.0pt;padding:0in">ERISA Opinion No. 2006–01A</span></b></em><span style="font-size:9.0pt;font-family:"Tahoma","sans-serif";color:#020202;border:none windowtext 1.0pt;padding:0in"><br><span class="text">A lesson to be gleaned from this opinion is that a prearranged transaction which is contingent upon the investment of an IRA may be a PT. This opinion letter involved an S Corporation that was 68% owned by a married couple (the "Berrys") as community property and 32% owned by a third party, George. Mr. Berry proposed to create a limited liability company ("LLC") that would purchase land, buy a warehouse and lease the real property to the S Corporation. The investors in the LLC would be Mr. Berry's IRA (49%), Robert Payne's IRA (31%) and George (20%). The party requesting the letter represented that S Corporation was a disqualified person under Section 4975(e)(2). (This representation apparently was based on the fact that the Berrys were the majority owners of S Corporation.)</span></span><span style="font-size:9.0pt;font-family:"Tahoma","sans-serif";color:#020202"></span></p><p style="margin-right:0in;margin-bottom:7.5pt;margin-left:0in;line-height:14.25pt;background:white;outline:0px;word-spacing:0px"><span style="font-size:9.0pt;font-family:"Tahoma","sans-serif";color:#020202">The Department cited Labor Regulation section 2509.75–2(c) and ERISA Opinion No. 75–103 for the proposition that "a prohibited transaction occurs when a plan invests in a corporation as part of an arrangement or understanding under which it is expected that the corporation will engage in a transaction with a party in interest (or disqualified person)." Based on that authority, the Department reasoned that since Berry's IRA invested in the LLC with the understanding that the LLC would lease its assets to the S Corporation (a disqualified person), the lease would be a prohibited transaction and Berry, as a fiduciary, would be in violation of PT rules. (Although it was not mentioned in the Opinion, the clear implication is that the Berry IRA would be disqualified as a result of such PT.)</span></p><p style="margin-right:0in;margin-bottom:7.5pt;margin-left:0in;line-height:14.25pt;background:white;outline:0px;word-spacing:0px"><span style="font-size:9.0pt;font-family:"Tahoma","sans-serif";color:#020202">Mr. Berry may have believed that the PT issues would be satisfactorily addressed by structuring the LLC as a real estate operating company (a "REOC"). Under the authority regarding "plan assets" (Labor Regulation section 2510.3–101), a REOC is a particular type of business entity that is structured so as to not be deemed to hold the assets of a plan investor such as an IRA. If a REOC is properly established, ordinarily a transaction between a REOC and a disqualified person would not be a PT because the transaction would not involve the use of plan assets.</span></p><p style="margin-right:0in;margin-bottom:7.5pt;margin-left:0in;line-height:14.25pt;background:white;outline:0px;word-spacing:0px"><span style="font-size:9.0pt;font-family:"Tahoma","sans-serif";color:#020202">Because Mr. Berry "exercises authority or control over its assets and management," the Department determined that Mr. Berry was a fiduciary to his own IRA, and as such, a disqualified person with respect to his IRA. The Department concluded that a lease of property between the LLC and S Corporation would be a prohibited transaction under Code section 4975 as to Berry's IRA. As indicated in the Opinion, the Department perceived a problem in the decision to establish the LLC as both a vehicle for IRA investment and as a lessor of real property to the S Corporation. Mr. Berry was the IRA owner and also the majority owner of S Corporation, the entity that would lease the real property from the REOC. Consequently, in the Department's view, the investment by Berry's IRA in the LLC was itself a PT.</span></p><p style="margin-right:0in;margin-bottom:7.5pt;margin-left:0in;line-height:14.25pt;background:white;outline:0px;word-spacing:0px"><span style="font-size:9.0pt;font-family:"Tahoma","sans-serif";color:#020202">If properly structured, it is permissible for an IRA to invest along with related parties. ERISA Opinion 2000–10A addressed such a co-investment structure, and comparison between the two rulings is instructive. The approach taken in ERISA Opinion 2000–10A yielded an acceptable co-investment opportunity without running afoul of the PT rules. In sum, an individual who had an existing interest in an investment partnership wanted his self-directed IRA to co-invest with the partnership. The pool of assets that would be available in the co-invested entity would be large enough to secure the services of a particular investment adviser.</span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#1f497d"> </span></p></div><p class="MsoNormal"><span style="font-family:"Times New Roman","serif";color:#1f497d"> </span></p><div><div style="border:none;border-top:solid #b5c4df 1.0pt;padding:3.0pt 0in 0in 0in"><p class="MsoNormal"><b><span style="font-size:10.0pt;font-family:"Tahoma","sans-serif"">From:</span></b><span style="font-size:10.0pt;font-family:"Tahoma","sans-serif""> <a href="mailto:wsbarp-bounces@lists.wsbarppt.com">wsbarp-bounces@lists.wsbarppt.com</a> [mailto:<a href="mailto:wsbarp-bounces@lists.wsbarppt.com">wsbarp-bounces@lists.wsbarppt.com</a>] <b>On Behalf Of </b>Eric Nelsen<br><b>Sent:</b> Thursday, November 20, 2014 3:46 PM<br><b>To:</b> WSBA Real Property Listserv; WSBA RPPT Probate & Trust Discussion Forum<br><b>Subject:</b> Re: [WSBARP] Using Self-Directed IRA for Real Estate Investing</span></p></div></div><p class="MsoNormal"> </p><p class="MsoNormal"><span style="color:#1f497d">I don't know the answer, but that's only 99% worth of interests. Is the third member 2%?</span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">Sincerely,</span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d"> </span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">Eric</span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d"> </span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">Eric C. Nelsen</span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">SAYRE LAW OFFICES, PLLC</span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">1320 University St</span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">Seattle WA 98101-2837</span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">phone 206-625-0092</span></p><p class="MsoNormal"><span style="font-size:12.0pt;color:#1f497d">fax 206-625-9040</span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><p class="MsoNormal"><span style="color:#1f497d"> </span></p><div><div style="border:none;border-top:solid #b5c4df 1.0pt;padding:3.0pt 0in 0in 0in"><p class="MsoNormal"><b><span style="font-size:10.0pt;font-family:"Tahoma","sans-serif"">From:</span></b><span style="font-size:10.0pt;font-family:"Tahoma","sans-serif""> <a href="mailto:wsbarp-bounces@lists.wsbarppt.com">wsbarp-bounces@lists.wsbarppt.com</a> [<a href="mailto:wsbarp-bounces@lists.wsbarppt.com">mailto:wsbarp-bounces@lists.wsbarppt.com</a>] <b>On Behalf Of </b>Rob Rowley<br><b>Sent:</b> Thursday, November 20, 2014 3:16 PM<br><b>To:</b> WSBA RPPT; WSBA RPPT Probate & Trust Discussion Forum<br><b>Subject:</b> [WSBARP] Using Self-Directed IRA for Real Estate Investing</span></p></div></div><p class="MsoNormal"> </p><p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Would like to hear from counsel who has experience using a self-directed IRA for real estate investing. I am familiar with the great RPPT article from the summer and am using it. Do have some prior experience with the practice in the context of ‘hard money loans’ with no ‘disqualified’ individuals but have a more of a technical question.</span></p><p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p><p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Using an LLC where there are three members and one of the members has a 49% interest, the second member has a 49% interest and a third member has a 1% interest. All three members are unrelated. Having one of the 49% interest members borrowing money from a lineal ancestor using a self-directed IRA.. Normally would be problematic because the borrower would be a “disqualified individual". 26 USC 4975(e)(2). The 49% rule from </span>26 USC 4975(e)(2)(G),</p><p class="MsoNormal"> </p><p class="MsoNormal">Thanks.</p><p class="MsoNormal" style="line-height:12.0pt"><b><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> </span></b></p><p class="MsoNormal" style="line-height:12.0pt"><b><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> </span></b></p><p class="MsoNormal" style="line-height:12.0pt"><img width="86" height="130" src="cid:image008.jpg@01D00564.E6621340" align="left" hspace="12"><b><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Robert R. Rowley</span></b><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> | Attorney at Law</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">505 W. Riverside Ave, Suite 500</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Spokane, WA 99201</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Telephone: (509) 252-5074</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Mobile: (509) 994-1143</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Facsimile: (509) 928-3084</span></p><p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Email: </span><a href="mailto:rob@rowleylegal.com"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">rob@rowleylegal.com</span></a></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Web Site: </span><a href="http://www.rowleylegal.com/"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">www.rowleylegal.com</span></a></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> </span></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Practice concentrated on business, real estate and general legal matters in Washington and Idaho.</span></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> </span></p><p class="MsoNormal"><a href="https://www.facebook.com/rowleylegal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:windowtext;text-decoration:none"><img border="0" width="24" height="24" id="Picture_x0020_2" src="cid:image009.gif@01D00564.E6621340"></span></a><a href="https://www.linkedin.com/pub/rob-rowley/11/172/b20"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:windowtext;text-decoration:none"><img border="0" width="24" height="24" id="Picture_x0020_3" src="cid:image010.gif@01D00564.E6621340"></span></a><a href="https://twitter.com/ROBERTRROWLEY"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:windowtext;text-decoration:none"><img border="0" width="24" height="24" id="Picture_x0020_4" src="cid:image011.gif@01D00564.E6621340"></span></a><a href="http://www.yelp.com/biz/robert-r-rowley-spokane"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:windowtext;text-decoration:none"><img border="0" width="43" height="21" id="Picture_x0020_5" src="cid:image012.jpg@01D00564.E6621340"></span></a></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> </span></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">NOTICE: The contents of this message and any attachments may be protected by the attorney-client privilege, work product doctrine or other applicable protections. If you are not the intended recipient or have received this message in error, please notify the sender and promptly delete the message. Thank you for your assistance.</span></p><p class="MsoNormal" style="background:white"><span style="font-size:10.0pt;font-family:"Times New Roman","serif";color:#222222">DISCLAIMER: You should recognize that responses provided by e-mail means are akin to ordinary telephone or face-to-face conversations and do not reflect the level of factual or legal inquiry or analysis which would be applied in the case of a formal legal opinion. A formal opinion may very well reach a different conclusion.</span></p><p class="MsoNormal"> </p></div></body></html>