IRS Synchs Excise Tax to DOL's Enforcement Policy on Fiduciary Rule

The IRS released guidance this week announcing that it will not apply IRC § 4975 excise taxes (15% on prohibited transactions) and related reporting requirements "with respect to any transaction or agreement to which the DOL's temporary enforcement policy, or other subsequent related enforcement guidance, would apply."

On March 13, DOL issued its Field Assistance Bulletin saying it would forbear enforcement of the Fiduciary Duty Rule if Labor hasn't finished its review by the April 10 effective date. The review (and potential delay in implementation) of the Rule was ordered by an Executive Order signed February 3. I discussed the Field Bulletin here and the Executive Order here.

DOL's rulemaking continues on whether to delay implementation of the Rule from April 10 through June 9. Unless delayed, the Rule will become effective in less than two weeks, and we'll enter a Twilight Zone of non-enforcement of existing law implementing a policy anathema to the current administration (sound familiar?).

The need to synch the policies illustrates the awkward enforcement mechanisms under the Rule - part of opponents' criticism. Labor proposed the Rule, but part of its "stick" is that non-compliant transactions would be "prohibited transactions" subject to excise tax under the Internal Revenue Code and subject to IRS enforcement. And of course, the major "enforcement" mechanism is private civil litigation guaranteed to follow under the Rule's requirements, including prescribed BIC contract clauses.

The IRS Announcement 2017-4 is here.

Several lawsuits challenging the Rule continue working their way through the courts, now on appeal.

Thomas K. Potter, III ( is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.

© 2017 by Thomas K. Potter, III (all rights reserved).

Posted in: Fiduciary Rule
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