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Look back period for determining disqualified person?


AmyR

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For purposes of 4975(e)(6) - has anyone seen a situation in which there was a look-back time period during which a former fiduciary of a profit sharing plan (who is now the ex-wife of the remaining fiduciary/sole participant) would still be considered a disqualified person? I would like to propose a sale of land from the Plan to the ex-wife, but don't want to get tripped up on any PT issues!

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  • 2 months later...
  • 1 year later...

I am struggling with the look-back question now. I note that the definition of "disqualified person" under the private foundation rules specifically includes a 5-year look-back period for "any person who was . . . in a position to exercise substantial influence over the affairs or the organization." IRC Section 4958(f)(1).

Thus it seems reasonable to me to conclude that the absence of any look-back provision in the definition of "disqualified person" under 4975(e)(2) means that there is none. Yet prudence might dictate some delay between the time of escape from disqualified person classification to the date of the transaction to minimize any possible claim of some inappropriate lingering influence.

I would be interested in anyone else's thoughts on this question.

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  • 8 months later...

Yesrod5 - sorry I missed your reply to this topic. I agree with your thoughts - in a literal world, absence of a look-back provision means there is none. Was hoping I didn't miss something in a ruling or memorandum though - made me nervous.

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Consider whether the remaining fiduciary might engage in a self-dealing prohibited transaction because the fiduciary has some personal interest involved.

Of all the possible buyers in the world, why is the ex-wife the best buyer?

And if selling to the remaining fiduciary's ex-wife really is the best deal for the plan, consider whether one might remove doubt about a possibly self-dealing or indirect prohibited transaction by using an independent fiduciary.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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An independent fiduciary is an idea I had not thought about. Thanks for that perspective. Plan owned/owns a parcel of land as a directed investment - 50/50 allocation between spouse and wife who were both employees and plan trustees. Ex-wife over a period of years took distributions of her 50% undivided interest and ate the taxes on the distribution so it is now out of the plan. So, arguably, the other 50% interest still in the plan has a higher value to her than to someone else.

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Very interesting. I can see making the case that there is no self-dealing/self-interest involved as a sale to the ex-spouse based on these facts (and absent other, bad facts we don't know about) is designed to maximize the plan's return on its investment.

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I don't think it's so strange. It seems logical that the status as a DP or PII is to be determined at the time the transaction occurs. For example, fiduciaries and service-providers are hired and fired all the time. What would be the policy reason for prohibiting a plan's transaction with a former service provider? I agree with the general consensus that absent some look-back rule in the statute there is none. That is not to say that the former status couldn't still raise self-dealing PT issues, but we've already discussed that here.

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