On March 27, 2017, the Treasury Department and the Internal Revenue Service (IRS) issued Announcement 2017-4 to provide relief from Internal Revenue Code Section 4975 (26 U.S.C. § 4975) excise taxes that may otherwise apply during the temporary non-enforcement period provided by the Department of Labor's (DOL's) Field Assistance Bulletin No. 2017-01 (FAB 2017-01). FAB 2017-01 provides a temporary non-enforcement policy related to the DOL's recent proposed rule that would extend for 60 days the applicability date of the final rule defining fiduciary investment advice under Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974, as amended (ERISA) (fiduciary rule).

The DOL issued the fiduciary rule on April 6, 2016 and it was scheduled to become applicable on April 10, 2017 (for more information on the fiduciary rule, see Fiduciary Investment Advice Toolkit). In connection with the fiduciary rule, the DOL issued two new prohibited transaction exemptions (PTEs) as well as revisions to several existing PTEs. The intent of these PTEs is to allow broker-dealers, insurance agents and others that act as investment advice fiduciaries to continue to receive common forms of compensation that would otherwise violate the prohibited transaction rules of ERISA and trigger excise taxes under Code Section 4975 (26 U.S.C. § 4975) (for more information on prohibited transactions, see Practice Note, Prohibited Transactions Under ERISA and the Code).

However, several recent changes have been made to the timing of the fiduciary rule, including:

ERISA Section 3003 (29 U.S.C. § 1203) provides that the DOL and the Treasury Department consult with each other to coordinate the rules applicable to the provisions of Code Section 4975 relating to prohibited transactions and exemptions. ERISA Section 3004 (29 U.S.C. § 1203) further provides that when the DOL and Treasury Department are required to carry out provisions relating to the same subject matter, the agencies are required to coordinate and develop rules, regulations and practices that, to the extent appropriate, are designed to reduce:

Because the Code and ERISA contemplate consistency in the enforcement of the prohibited transaction rules by the DOL and the IRS, IRS Announcement 2017-4 adopts a temporary excise tax non-applicability policy that conforms with the DOL's temporary enforcement policy described in FAB 2017-01. As a result, the IRS will not apply Code Section 4975 and related reporting obligations regarding any transaction or agreement to which the DOL's temporary enforcement policy, or other subsequent related enforcement guidance, would apply.

Following the issuance of DOL FAB 2017-01, some financial service providers and plan sponsors expressed concern about the potential application of excise taxes under Code Section 4975 and related reporting obligations in cases covered by the DOL's temporary enforcement policy. IRS Announcement 2017-4 provides confirmation that these entities will not be subject to excise taxes for failing to comply with the fiduciary rule during this period of uncertainty in which the DOL is currently considering delaying the rule, and for a short period after the rule becomes applicable to the extent that the DOL chooses not to delay the rule.