One of the key tenets of IRAs is there is a specific list of persons and entities which are prohibited from interacting with your IRA. This leads people to believe that if you are not on the "list" (IRC 4975), then any transaction would be allowed.
However, as the IRA owner you have a fiduciary responsibility to act in the IRAs best interest. Therefore, giving a loan to a friend or brother or sister below market rates, or with no interest or terms could be deemed a prohibited transaction.
Additionally, agreeing to enter into a transaction due to coercion (e.g. sister tells you that she is going to tell your parents to change their Will if you do not give her a loan) could be deemed a prohibited transaction if your IRA engaged in the transaction.
Agreeing to enter into a transaction with an unrelated, non-disqualified party, in exchange for some personal benefit (e.g. agree to a loan or to fund a business and agree to receive some personal stake or interest for making the loan), can be a indirect benefit and could be deemed a prohibited transaction.
Not acting in the best interest of the plan could result in a prohibited transaction regardless of who you are dealing with
To learn more about self directed IRAs or IRA custodial services go to:
www.nafep.com