Posted by John K Haslach, CPA, MST on July 13, 2005 at 16:21:48:
The IRS will say, “No way.”
MH’s, 401(k)'s & UBIT - Posted by patsears
Posted by patsears on July 12, 2005 at 23:35:09:
Hello,
I’ve been reading the IRS circulars on UBIT, and have got a pretty good grip on what constitutes UBIT. I can understand their examples. For instance, a church, who by definition has as their primary “exempt” purpose, the evangelical promotion of a particular religion. If this same church operates a used car lot “on the side” for its profitable income stream, the car lot would be considered a UBIT, since the car lot would not be considered a function of the exempt evangelical nature of the main business.
However, in the case of an exempt 401(k)plan, I would argue that the main function of a 401(k) “business” is to generate income, and grow in size; therefore, any legal activity that helps to accomplish that purpose (unless it is specifically denied) should naturally be considered NON-UBIT in nature. If it is non-UBIT, then there should be no taxable event with regards to using ‘debt-financed property’ in pursuit of this goal.
By reading just the IRS publications, I feel I can easily defend this argument. However, I know that the actual IRS code, along with case law, is the final word on this subject.
What are your thoughts on this, and how can I resolve this question?
Thanks!
patsears
p.s. I am mainly considering this question with regards to investing in chattel mobile homes in my Individual 401(k) plan
Some issues - Posted by John Merchant
Posted by John Merchant on August 01, 2005 at 09:25:46:
You don’t make clear what, if anything, a 401k plan has to do with this, or what, if anything, a church has to do with it.
A church never has a 401k plan for its employees, but, as a non-profit, has a 403b plan which is the retirement plan available for any 401c3 non-profit like a church.
Next, a 401k or 403b plan is not the ideal plan to be using for RE or MH investing, BUT the money in that plan might be “rolled over” into your own SDIRA and that can be used for RE, MHs, etc.
While 403b money can normally (if it’s not currently invested in a fixed annuity like TIAA) be rolled over, tax deferred, into a SDIRA, not all 401k money can be and you’d have to talk to your plan administrator to see if yours might be.