Under the self-dealing prohibited transaction
rule, a fiduciary may not use its fiduciary authority to cause itself to receive compensation from its own plan.
One way to potentially avoid the prohibited transaction
issue is through a "co-advisor" relationship.
"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
RIAs can use the level-fee fiduciary exemption to cover this type of prohibited transaction
but Roberts says the exemption is complex and requires strict compliance with technical procedural safeguards.
Here, the court ruled that because a married couple had entered into prohibited transactions
with respect to their IRAs, the assets in the IRAs were deemed to have been distributed, resulting in a huge tax bill.
Although these dealer cases do not directly involve REITs, the IRS has issued private letter rulings addressing REIT prohibited transactions
that acknowledge the useful application of the principles of these cases (see Letter Rulings 200945025, 201340004, and 201315004).
It's easy to make an IRA-killing mistake by entering into a prohibited transaction
• Prohibited Transaction
Exemptions and Amendments
Importantly, the court held that the initial purchase of LLC units by Ellis's IRA was not a prohibited transaction
. However, the payment of compensation to Ellis was prohibited under Secs.
Given the broad nature of prohibited transactions
on the part of fiduciaries of pension and other employee benefit plans provided for by the Employee Retirement Income Security Act of 1974 (ERISA), Congress also provided an administrative exemption procedure which has since been utilized by the Department of Labor (and, early on, the Internal Revenue Service) to grant prohibited transaction
Similarly, revising Labor's prohibited transaction
exemption for securities lending to restrict those securities lending arrangements that may pose unreasonable financial terms upon plans and providing more guidance, in general, about such transactions can also help plan sponsors and participants understand the risks that cash collateral reinvestment can pose to plan assets in investment options that lend securities and how to mitigate them.
At issue are the statutory prohibited transaction
rules, which generally prevent the provision of investment advice where an advisor could benefit based on the advice given.