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In a message dated 9/20/99 4:09:39 PM Eastern Daylight Time, CalaxCorp writes:
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1. Would paying a 20% profit share out of one's IRA account to himself or
his corporation be a "related party transaction"? Could you clarify if this
is a "prohibitive transaction" or not?
2. Would the person or his corporation sharing the trading profit be
subject to CTA registration rules if the trades are in the futures markets?
Thank you in advance for your clarification.
>>
You raise an interesting point, in fact, that was what I had in mind when I
said "I wasn't sure that this thing would fly", relating to the issues
surrounding the related parties and disqualified transactions. I did look
into it a bit further as a result of your email, and found that it probably
would pass muster, although it does involve a "Disqualified Person" who owns
the corp. There is an exception to the rule even for disqualified persons.
Code section 4975 addresses prohibited transactions, and disqualified
persons. Code Section 4975(d)(10) though gives some exceptions to this and
it lists the following scenerio. Even though this arrangement is between
related parties and what would be a disqualified person, the transaction
would not be prohibited if "the compensation were reasonable for services
provided, and if the person who received the compensation was not already on
salary from the company that had established the plan". It looks like there
is an exception here under which this strategy could be enacted. As long as
the compensation was reasonable, and the person trading the plan was not
collecting double salary there is nothing apparent that flags it as a
prohibited transaction..
As far as your second question goes, with the CTA regisrtation issue, I don't
believe unless a certain amount of money is managed, or if the number of
accounts exceeds a certain amount, that registration is necessary. But then
again I am not a compliance guy, just a tax specialist. You would need to
check with a compliance lawyer or specialst in the area to make sure, but I
don't think so.
Regards
Ted Tesser
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