A client is a real estate agent and sponsors his own one man DB plan. He has the opportunity to loan a developer money from the plan as an investment. Once the developer builds on the land the real estate agent will have the opportunity to rent/lease/sell space and receive normal commissions on such rentals/leases/sales. Would this be considered a prohibitive transaction? Thanks.

The transactions involving the personal business of the real estate agent subsequent to the plan loan sound prohibited to me. I assume that the agent is a fiduciary of the plan. The transaction with the plan sets him up for personal business outside the plan. Therfore, the fiduciary would be using plan assets for the fiduciary's personal account.

So, even though the real estate agent is not receiving any greater commissions that he would get on other transactions, this would be considered a PT?

A PT exists if plan assets are used to benefit a fiduciary's personal account even if the transaction will not result in any greater income than if paid to a person who is not a party in interest.

The argument has been made that the plan is making a loan to an independent developer. That is the investment for the plan. The commissions earned on the rental/sale of the property after the development is a separate event. Does that matter?? Thanks.

It is a PT because the commissions will be paid directly to the agent to benefit his personal account. The gain to his personal account occurred only because the agents plan (at the direction of the agent) loaned money to the developer. The PT rules are absolute unless there is a PT exemption. The PT rules are intended to prevent plan assets being used to enrich the non retirement account of the plan fiduciary. the Plan sponsor can disregard the PT rules and take a risk that the IRS will never find out about the violaton. If they do then there will be n initial 15% tax and the laon will have to be paid off