BACGROUND & QUESTIONS:
My solo 401K LLC is wanting to invest (buy) in a property (airport hangar lease) by being a member of an “Investment” LLC with 2 other members. None of the other two members are related parties or prohibited parties. In the “Investment LLC” the other 2 members don’t want to be the President and would like me to be the President. Is this possible and if so how?
I understand I can’t do any active work at the property although there is no physical structure. The property being purchased is a lot being “leased” from the airport authority for an aircraft hangar at the local airport. The planned investment would be to hold the lease that was acquired from the airport authority and resell the lease at a higher price in the future. Another option is we have a local builder come in to build a hangar at the builders expense on the leased property and then the builder sells the hangar/improvements and the “Investment LLC” assigns the lease at the time of the sale to the end buyer of the hangar for a higher price than the “Investment LLC” paid for the lease.
ANSWERS:
While a solo 401k or a solo 401k LLC may be invested in airport hangar leases directly or through a third-party LLC, it would not be prudent and the IRS may rule it as being prohibited for the solo 401k participant directly or through his solo 401k LLC to serve as the president and or manager of the third-party LLC (the LLC that will make the airport hangar investment). Reason being, the solo 401k participant would have signing authority both when making the investment through the solo 401k or the solo 401k in the third-party LLC (the LLC that will own the airport hangar or the lease) as well as signing authority for the third-party LLC. An IRS court case that is often referenced where the solo 40k owner sat at both sides of the table is Rollins v Commissioner (T.C. Memo 2004-260.)
