IRS Announces Non-Applicability of Conflict of Interest Rule Excise Taxes

On March 28, 2017, the IRS released Announcement 2017-4, announcing that they are adopting a temporary non-applicability policy on any excise taxes that could be levied as a result of the DOL’s Conflict of Interest Rule (the Rule). As we reported in the last edition of Compliance Corner, the DOL recently released Field Assistance Bulletin (FAB) No. 2017-01. The FAB announced a temporary enforcement policy related to the DOL’s Rule, which broadens the definition of the term “fiduciary” under ERISA.

In addition to broadening the definition of the term “fiduciary”, the Rule creates new, and modifies existing, prohibited transaction exemptions (PTEs) in order to permit common compensation structures and to cover certain types of transactions. Violations of PTEs can result in excise taxes that are payable to the IRS. However, pursuant to this announcement, the IRS will not apply any excise tax penalties with respect to any transaction or agreement to which the DOL’s temporary enforcement policy applies.

While this temporary non-applicability policy is the IRS’ way of conforming to the DOL’s temporary policy, this is still not an issue that will directly affect employer plan sponsors. Instead, we are providing this information to keep clients and advisers aware of the changes in the Rule. We will continue to follow any developments on the Rule and provide updates in Compliance Corner.

Announcement 2017-4