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March 28, 2017 at 10:12 AM
The Internal Revenue Service has released guidance providing relief from certain excise taxes under Section 4975 of the IRS Code and any related reporting requirements to conform to the temporary enforcement policy issued by the Department of Labor regarding its fiduciary rule.
Unless an exemption is satisfied, advisors who engage in prohibited transactions face an excise tax of 15% of the “amount involved,” rising to 100% if the transactions aren’t corrected within certain time frames.
“The problem is that the DOL non-enforcement policy isn’t actually an exemption,” Joshua Waldbeser, an attorney with Drinker, Biddle and Reath, told ThinkAdvisor in an email Tuesday. “So the IRS policy is designed to keep the tax from applying where the DOL’s non-enforcement policy would apply. It fills an important void that the DOL policy alone cannot.”
Labor released its Field Assistance Bulletin 2017-01 on March 13, explaining that while Labor expects the final regulation delaying the applicability date of its fiduciary rule from April 10 to June 9 to be effective before April 10, if Labor fails to meet that deadline, it plans to help fiduciary advisors avoid problems because of the delay.
The IRS noted in its guidance that the Treasury Department and IRS have determined that it is appropriate to adopt a temporary excise tax non-applicability policy that conforms with the Labor’s temporary enforcement policy described in FAB 2017-01.
Accordingly, “the IRS will not apply Section 4975 and related reporting obligations with respect to any transaction or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.”
As explained in the IRS notice, the fiduciary rule’s prohibited transaction exemptions ”would allow, subject to appropriate safeguards, certain broker-dealers, insurance agents, and others that act as investment advice fiduciaries, as defined under the final rule, to continue to receive a variety of forms of compensation that would otherwise violate prohibited transaction rules, triggering excise taxes and civil liability.”
