Owners of self-directed IRAs must be very careful with the IRAs’ investments, as this case shows. Two individuals formed a new firm and directed their IRAs to buy all of the stock. The company that the IRAs owned then purchased a business for cash and a note that was secured by the personal guaranties of the IRA owners. The guaranties by the IRA owners violate the prohibited transaction rules, according to the Tax Court. That means the IRAs are terminated for tax purposes, and the owners wound up having to pay a substantial tax bill (Peek, 140 TC No. 12). The moral of the story: Be sure that you get good legal advice in advance if you are planning to have your IRA invest in non-publicity traded stock and the like.