[maxk42]

That's not how it works. When you incorporate, the corporation has shares split among the founders. The founders themselves determine the "par" value of each share - essentially its intrinsic worth.

You have to pay this amount of money to acquire the shares upon incorporation. (Each state does it a little differently.) So it's generally made a very low value between $0.0001 and $0.01. You'd pay the same amount if you were to incorporate a new business. That's it. He put some of his founding shares in Paypal in the Roth IRA when he founded the company and he got incredibly lucky. Nothing sinister happened.

[phonon]

Except if these were founder shares, he would likely be disqualified. "Disqualified person...an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more of the yearly wages of an employer)"

  (2)Disqualified person
  For purposes of this section, the term “disqualified person” means a person who is—
  (A)a fiduciary;
  (B)a person providing services to the plan;
  (C)an employer any of whose employees are covered by the plan;
  (D)an employee organization any of whose members are covered by the plan;
  (E)an owner, direct or indirect, of 50 percent or more of—
  (i)the combined voting power of all classes of stock entitled to vote or the total value of shares of all 
  classes of stock of a corporation,
  (ii)the capital interest or the profits interest of a partnership, or
  (iii)the beneficial interest of a trust or unincorporated enterprise,
  which is an employer or an employee organization described in subparagraph (C) or (D);
  (F)a member of the family (as defined in paragraph (6)) of any individual described in subparagraph (A), 
  (B), (C), or (E);
  (G)a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of—
  (i)the combined voting power of all classes of stock entitled to vote or the total value of shares of all 
  classes of stock of such corporation,
  (ii)the capital interest or profits interest of such partnership, or
  (iii)the beneficial interest of such trust or estate,
  is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E);
  (H)an officer, director (or an individual having powers or responsibilities similar to those of officers or 
  directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more 
  of the yearly wages of an employer) of a person described in subparagraph (C), (D), (E), or (G); or
  (I)a 10 percent or more (in capital or profits) partner or joint venturer of a person described in 
  subparagraph (C), (D), (E), or (G).
  The Secretary, after consultation and coordination with the Secretary of Labor or his delegate, may by 
  regulation prescribe a percentage lower than 50 percent for subparagraphs (E) and (G) and lower than 10 
  percent for subparagraphs (H) and (I).

https://www.law.cornell.edu/uscode/text/26/4975

[hagy]

I was surprised by that also and asked a friend who has a CPA, but doesn't work in tax law. Their first comment after briefly scanning the legal code is that "disqualified person" is only used within the context of "prohibited transaction". The definition of "prohibited transaction" concerning "disqualified person" doesn't seem to address this case. Instead, it seems to focus on dealing with the Roth IRA assets in a manner to benefits ones accounts outside of the Roth.

[phonon]

I don't know if that's a distinction with a difference. The rules are that they don't want you investing in a business you have material control over, as part of your IRA. Maybe it's because they think it's too risky, or can lead to self-dealing abuses...or $5 Billion tax loopholes.

The guidance they give you may be helpful

Department of Labor (DOL) Advisory Opinions suggest that under the following circumstances, a prohibited transaction would likely occur:

The transaction is part of an agreement by which an IRA owner causes IRA assets to be used in a manner designed to benefit the IRA owner (or any person in which the IRA owner has an interest) such that it would affect the exercise of the IRA owner's best judgment as an IRA fiduciary. The IRA owner receives or will receive compensation from the subject company.

By the terms or nature of the transaction, a conflict of interest exists between the IRA and the IRA owner (or persons in which the IRA owner has an interest).

The IRA owner will be relying upon or otherwise be dependent upon the IRA investment in order for the IRA owner (or persons in which the IRA owner has an interest) to undertake or to continue the investment (e.g., minimum investment to be satisfied jointly by the IRA and IRA owner).

https://www.dwt.com/blogs/startup-law-blog/2020/10/startup-i...

https://www.irs.gov/retirement-plans/plan-participant-employ...

[IncRnd]

I think that was the poster's point.