IRS Stays Excise Tax Enforcement for DOL Fiduciary Violations
Things are moving fast. As we all recently found out, the Department of Labor (DOL) recenlty put through a 60-day delay in the implementation of its fiduciary rule. The fiduciary rule is now delayed until June 9th. The delay will give the industry a little more time to get ready for the regulations or more time to figure out how to kill them.
Now, onto the new IRS announcement.
Some in the industry wondered if the IRS was going to chime in on the DOL Fiduciary Rule.
Now we know.
The IRS will temporarily NOT apply its normal rules to fiduciary violations under the DOL Fiduciary Rule.
To read the IRS’s three-page announcement in PDF format, click on the following link:
What’s this about?
If an advisor sells a product (like a Fixed Indexed Annuity (FIA)) in a manner that violates the new DOL fiduciary rule, part of the consequences can be an excise tax levied by the IRS.
Advisors who engage in prohibited transactions under the DOL fiduciary rule subject themselves to a 15% excise tax on the amount involved in the transaction and up to a 100% excise tax on prohibited transactions that are not corrected within the taxable period.
But the DOL issued FAB 2017-01 that delays enforcement action on violations of the fiduciary rule. Didn’t that also stay or delay an action the IRS could take?
That’s why it’s so important that the IRS issued guidance with Announcement 2017-4 that specifically states:
Because the Code and ERISA contemplate consistency in the enforcement of the prohibited transaction rules by the IRS and the DOL, as further reflected in and facilitated by the statutory Reorganization Plan, the Treasury Department and the IRS have determined that it is appropriate to adopt a temporary excise tax non-applicability policy that conforms with the DOL’s temporary enforcement policy described in FAB 2017-01. Accordingly, the IRS will not apply § 4975 (the section that authorizes excise taxes for violations of the DOL rule) 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.
Investment Risk Software
It is my belief that every advisor should be using an investment risk tolerance program to help prove suitability. That’s one reason we decided to roll out the OnPointe Risk Analyzer system.
To try the software as a consumer would to determine their investment risk tolerance, click on the following link:
Careful of FIA Product Picking Software
Some in the industry are pitching FIA product picking software as the “solution” to suitability for the DOL fiduciary rule.
To me such software puts the “cart before the horse.”
Before you ever pick the appropriate product for a client, you have to determine if FIAs are even suitable tools for clients. That’s where investment risk tolerance software comes into play.
So, be careful when someone pitches you product picking software as the “solution” to your suitability issues with the DOL. It might be decent software to help pick products, but using it as your “solution” for suitability is a mistake.
Roccy DeFrancesco, JD
144 Grand Blvd
Benton Harbor, MI 49022