Prospective client has called my firm asking for help. His current administrator just told him that they feel its best they part ways. I get the impression because his plan is a little screwed up and the administrator wanted to wash his hands of the problem.

The client has no employees and his business is real estate. he is a realtor. Supposedly he didn't know that you couldn't have a mortgage (which is guaranteed by him individually) on a piece of property inside the plan. Apparently his current administrator told him (after the fact) that the mortgage would have to be in the name of the plan, not his personally. Also the property is being rented. The plan is collecting rents and paying the mortgage. The client is not claiming any income or deducting any expenses on his personal return. So now I am also thinking he has UBTI.

My thought is that he needs to sell the property with the mortgage immediately. He also needs to talk to his CPA about UBTI and possibly amending some tax returns. Honestly I don't know anything about UBTI but the plan acting as a landlord really makes me feel that he is running a business inside of his plan.

I could just tell the client that I'm not interested and he needs to find someone else, but that is not in my nature. I would like to help if I can. Any suggestions?

My suggestion is to focus on these two statements.

You seem to be focused on UBIT rather than the PT issues. This is clearly a PT and needs to be corrected. Form 5330 needs to be filed with respect to the PT.

Yeah I know he has a prohibited transaction. Since this could be a takeover I don't mind jumping into a problem since I am not responsible for the past.

In my mind I thought UBIT was an accountant issue not really a TPA issue. Is that not typical? Also now I am not so sure that UBIT is an issue. I was forwarded a seminar outline from a local attorney and his position is that rents are excluded from UBIT. I did a little more digging and have found that position supported in other places as long as the income derived not more than 50% from the rent of personal property in conjunction with the real estate.

So maybe we only have a prohibited transaction at this point.

I think that UBIT references relate to the debt financing. I hope this is a QP and not an IRA, but you don't specify.

yes it is a qualified plan.