A Missouri business startup that involved an IRA rollover violated prohibited transaction rules, according to the United States tax court.
The case involved the creation of a limited liability company to operate the defendant, Terry Ellis' used car business, which was funded with IRA assets the defendant rolled over from a 401(k) plan.
The court's biggest problem with the rollover was that the defendant was paying himself a salary to manage the used car business in 2005 and 2006 from funds that belonged to the IRA. The used car business owned by the IRA also entered into a real estate agreement with a second LLC, whose members were the defendant, his wife and three sons.
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