Prohibited Transactions and Plan Compliance
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
A transaction can be economically attractive and still prohibited because of the parties and use of plan assets.
A tax-practice scenario
A plan lends money to an owner and buys property from a relative. Identify parties, transaction type, exemption, and correction.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Analyzing only whether the plan received fair market value.
Turn the rule into recall.
Map every party's relationship to the plan before evaluating the transaction terms.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.