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.
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 because the IRS and Labor Department contemplate consistency in enforcing the fiduciary prohibited transaction rules, 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.”
FAB 2017-1 “only applies to DOL enforcement,” Joshua Waldbeser, an attorney with Drinker, Biddle & Reath, told ThinkAdvisor Tuesday. “So the industry remained concerned that financial institutions could still be liable for excise taxes on prohibited transactions – which is an IRS issue – even where the DOL itself wouldn’t take enforcement action.”
The IRS announcement provides that “no excise taxes will attach where the DOL non-enforcement policy would apply,” Waldbeser explained. “In other words, it’s meant to sync up the IRS’ enforcement of the excise tax rules on prohibited transactions with the DOL’s non-enforcement policy,” which he characterized as “a very important piece of relief.”
For instance, consider advice to IRAs, Waldbeser said. “Here, the DOL doesn’t even have enforcement powers, and the excise taxes are the main ‘penalty for advisors and institutions who influence their compensation through their recommendations, without satisfying a prohibited transaction exemption. In the IRA space then, this announcement from the IRS is technically more important than the DOL non-enforcement policy it mirrors.”
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
