Recent events lead to a conclusion the IRS is on the cusp of launching a nationwide assault on self-directed ERISA plan fiduciary abuses. Changes in Form 5498 reporting requirements incrementally require non-traditional asset and valuation disclosures. The IRS commenced a 1-year Form 5500 amnesty program this past June, targeting small business ERISA plan reporting noncompliance. And, in 2013, the United States Tax Court issued decisions in Peek and Ellis substantively holding disqualified person weak-form fiduciary abuses preempt the otherwise taxpayer favorable operating exception to the plan asset look-through rule.
Catching abusive self-directed account holder fiduciaries should net the government a minimum of $10 to $20 billion in unreported UBTI tax, penalties, and interest from the $130 billion self-directed segment of the retirement plan industry. It is estimated 80% of self-directed ERISA plan assets are invested in real estate activities. Based on the foregoing recent events, it is foreseeable the IRS will take a position UBTI dealer issues will be based on the totality of the circumstances among the plan, the account holder, plan derived constructively owned disqualified person entities, and account holder derived constructively owned disqualified person entities.
My recent paper, “Changes in Form 5498 Reporting And Foreseeable IRS Correction of Self-Directed ERISA Plan Fiduciary Abuses,” sheds light on the arguments the IRS will most likely advance in correcting self-directed ERISA plan fiduciary abuses.