Self-Directed IRA Prohibited Transaction Tax Court Rulings 2026

The statute, word for word

Two provisions do the work, and a third says what the owner does and does not pay. We copied the text from the U.S. Code as published by Cornell's Legal Information Institute on November 10, 2026.

For background on who is a disqualified person and on the rest of the rules, see our guide to self-directed IRA real estate rules. This page is the case list.

Six decisions where the IRA was lost, or the deal was prohibited

Each row below is a Tax Court opinion downloaded from the Court's public opinion system (or, for the appeal, from the Eighth Circuit's site). Individual petitioners are private people, so we describe them and cite each opinion by its official citation and docket number.

What each case turns on

• Guarantees (Peek and Thiessen). The IRA was not the borrower of record in a way the owners could ignore: the Court held that each personal guaranty “was an indirect extension of credit to the IRAs, which is a prohibited transaction.” In the later case the court assumed without deciding that the 4975(d)(23) cure rule applied and held it inapplicable because the guaranties were not in connection with a security or commodity.
• Salary (Ellis). The Eighth Circuit wrote that “Such transactions are prohibited even if they are made in good faith or are beneficial to the plan.” The IRA owner had the ability to direct the salary to himself.
• The investment itself. In the Ellis footnote the Tax Court found the IRA's purchase of the new company's shares was not itself prohibited because the company had no members yet, and the Eighth Circuit did not reach whether it was. The damage came from what the owner did next.
• Lending to family (2018-49). An IRA loan to a parent is covered because ancestors are in the statute's family definition. The tax result there favored the taxpayer only because the IRS conceded that the account was no longer an IRA in 2013.
• Home storage (McNulty). The opinion quotes what a checkbook-IRA website advertised: that IRA owners “could hold the coins at their homes without tax consequences or penalties so long as the coins were ‘titled’ to an LLC.” The record had no ownership certificates for the coins, and the Court treated the possession as a distribution.

What the 2015 to 2026 opinions add: distribution cases

A second group of cases is not about prohibited transactions but about the other way to lose IRA tax treatment: money leaves the account to the owner or to something the owner controls. These are the cases an owner of an LLC, SEP-IRA or hard-to-value asset also meets.

The 2023 case matters to anyone holding a private fund or an LLC interest in an IRA: the custodial agreement put the duty to supply a year-end value on the owner, and when none arrived the custodian reported a distribution. Our guide to Form 5498 and IRA fair market value shows where that value is reported, and our page on required minimum distributions from illiquid IRA assets shows the same valuation problem from the withdrawal side.

Roth IRAs that own a company

Two further opinions involve IRAs that owned a company, and the IRS used a different theory. In T.C. Memo. 2015-119 (Judge Kerrigan, filed June 29, 2015) the Tax Court held for the IRS against Summa Holdings, Inc. and its shareholders; 150 T.C. No. 7 (Judge Thornton, filed March 5, 2018) cites the Sixth Circuit's reversal of that decision (848 F.3d 779 (2017)) and held the owners liable for the section 4973 excise tax on excess contributions after $533,057 was routed from a family business through a foreign sales corporation into Roth IRAs. In that case the IRS “has not asserted that sections 408(e)(2) and 4975” apply. We list these so a reader searching for an IRA-owned company does not mistake them for prohibited-transaction rulings.

The numbers across the cases (our arithmetic)

The opinions state deficiencies and penalties as single figures; they do not split ordinary tax, the 10% additional tax and interest. Dividing each deficiency by the money at stake gives a rough measure of what an IRA mistake cost these owners (our arithmetic):

Worked example (our arithmetic). Take the IRA value in the Eighth Circuit case, $321,253. If a prohibited transaction on any day of the year makes the whole amount a January 1 distribution, the 10% additional tax alone is $32,125 (10% of $321,253), before ordinary income tax at the owner's rate, a 20% accuracy-related penalty if the understatement is substantial, and interest. The IRS-determined deficiency was $135,936, or 42.3% of the account. The opinions do not break that figure down, so we do not split it.

Why the Code treats it this way. Section 4975(c)(3) lets the IRA owner avoid the 15% and 100% excise taxes of section 4975(a) and (b), but only because the account stops being an IRA. In effect the owner trades an excise tax on the transaction for the loss of the whole account's tax deferral, and the loss is measured on January 1 even if the transaction happened in November.

What this search covers, and what it does not

We searched the Tax Court's public opinion system (DAWSON) for memorandum, Tax Court, and summary opinions filed between January 1, 2015 and November 9, 2026 using IRA-related phrases (prohibited transaction, self-directed IRA, 408(e)(2), 4975(c)(1), disqualified person, checkbook IRA, SEP-IRA, Roth IRA), downloaded the opinions returned, and text-searched them for section 4975 and 408(e). We added the 2013 decisions because later opinions cite them. Limits: the search is keyword based; bench opinions, unpublished orders and district court or appeals cases other than the Eighth Circuit appeal are not in the table; and an opinion that decides a prohibited transaction without using these words could be missing. One 2025 Tax Court memorandum that mentions section 4975 (T.C. Memo. 2025-1) is about two retirement plans from which a trustee diverted $5,307,688, not IRAs, so it is not in the tables.

What a reader can do with this

• Write down the six statute categories and test every planned act against them. Selling, lending, services, use, self-dealing and receiving consideration. The cases above map onto them: guarantee (B), salary (D and E), home storage (distribution).
• No personal guarantee on any loan to the IRA or its LLC. Two Tax Court opinions held guarantees prohibited, three years and a different couple apart (140 T.C. No. 12; 146 T.C. No. 7).
• Keep IRA-owned assets where the custodian or LLC keeps records, not at home. In 157 T.C. No. 10 the invoices named the LLC but the shipping labels named the owner, and the coins sat in a safe at the owners' residence.
• Do not take pay from an IRA-owned company without written advice. The salary in T.C. Memo. 2013-245 was $9,754; the account lost was $321,253.
• Give the custodian a year-end value for every hard-to-value asset. In 161 T.C. No. 6 the failure to supply it led to a Form 1099-R reporting a distribution.
• Check the year. The deemed distribution lands on January 1, so a transaction on December 15 reaches back to the first day of the year; the assessment period can be six years if the income was not disclosed (146 T.C. No. 7).
• Compare custodians before you hold real estate or an LLC in an IRA. See our reviews of Equity Trust Company and Strata Trust Company and our ranking of self-directed IRA custodians for real estate crowdfunding.

FAQ

Sources, read and saved on November 10, 2026: 26 U.S.C. 4975, 408 and 72 (law.cornell.edu); U.S. Tax Court opinions 140 T.C. No. 12, T.C. Memo. 2013-245, T.C. Memo. 2015-119, T.C. Memo. 2016-11, 2016-28, 2016-29, 146 T.C. No. 7, 150 T.C. No. 7, T.C. Memo. 2018-49, 2020-152, 157 T.C. No. 10, 161 T.C. No. 6, T.C. Memo. 2025-1 and T.C. Memo. 2026-93, downloaded from the Court's public opinion system (DAWSON); and the Eighth Circuit opinion in No. 14-1310 (June 5, 2015). This is analysis of public documents, not investment, legal or tax advice.