The IRS doesn't consider siblings, spouses, aunts, uncles, or cousins to be disqualified, so you can do business with them in your tax-advantaged plans however you want. Disqualified individuals are individuals or entities among whom an IRA is prohibited (except for special exceptions) from making any direct or indirect sale, exchange, or lease of any property; lending money or other extension of credit; providing goods, services or facilities; or transferring or allowing the use of IRA revenues or assets. In addition, any transaction between your IRA and a disqualified person (including IRA beneficiaries) is considered a prohibited transaction. As a result, this caused Jack's entire IRA to be disqualified, making him responsible for paying taxes on the full value of the IRA.
Jack should not have allowed his son to live in a rental property held in his IRA and should only have allowed tenants who don't fall into the category of disqualified people. As a result, this caused Larry's entire IRA to be disqualified, leaving him responsible for paying taxes on the full value of the IRA. Disqualified individuals include the IRA owner's trustee and family members (spouse, ancestor, linear descendant, and any spouse of a linear descendant). Your IRA cannot buy an investment or sell an investment to a disqualified person, as defined in section 4975 of the Internal Revenue Code.
In general, a prohibited IRA transaction is any misuse of an IRA account or annuity by the owner of the IRA, its beneficiary, or any disqualified person. Any transaction with a disqualified person is also prohibited, and making any of them within your IRA puts your account's tax situation at risk.