When a self-directed IRA loan touches someone connected to a disqualified person
Consider a self-directed IRA holding 178k, deployed as private notes at 11 percent on 12 month terms to unrelated borrowers, with two loans out performing cleanly. A third loan raises a harder question. Say the borrower is a two-member LLC doing scattered rehab work, and one of the members turns out to be a business partner of the IRA holder's brother-in-law, not the brother-in-law himself. No lineal relation to the account holder, and no ownership by a disqualified person on the surface. But custodians commonly ask two questions on the direction letter: whether the account holder holds management authority in the borrowing entity, and whether any disqualified person receives compensation from the transaction. That second question is where these situations usually get complicated. If the connected partner draws a management fee off the rehab budget, funded partly by the IRA's loan proceeds, that raises the indirect-benefit question under the prohibited transaction rules. A relationship this many steps removed likely does not make the partner a disqualified person under the standard relationship test, but the indirect-benefit analysis is fact specific enough that it deserves a real answer from a tax attorney rather than a guess. The safer framing for a call with counsel is not whether the connection technically qualifies as disqualified, but whether the fee arrangement itself creates an indirect benefit to someone connected to the account holder. When that answer is unclear, redeploying into a passive syndication instead of testing the edges of the rule is often the more conservative choice.
