3872. What is a “disqualified person” for purposes of the prohibited transaction rules?Nuco Employeercline202010-08-31T23:00:00Z2015-07-20T16:53:00Z2015-07-20T16:53:00Z34202395Microsoft195281014prohibited transaction exemption PTE2005-01-19T00:00:00ZTaxFactsDefaultArticleSite Map/Retirement Plans/Pension And Profit Sharing/Taxation of Distributions/Prohibited Transactions116880450-00-tf1.xml452.00;#2262;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1What are prohibited transactions? What is the tax penalty if a prohibited transaction takes place?81400.0000000000TaxFactsDefaultArticle2010-01-14T23:52:07ZSBMEDIA\moss-admin3872. What is a “disqualified person” for purposes of the prohibited transaction rules?A disqualified person is: (1)a fiduciary; (2)a person providing services to the plan; (3)an employer or employee organization, any of whose employees or members are covered by the plan; (4)a 50 percent owner, directly or indirectly, of an employer or employee organization described in (3); (5)a family member of any person described in (1) through (4); (6)a corporation, partnership, trust, or estate that is 50 percent or more owned by any person described in (1), (2), (3), or (5); (7)an officer, director, 10 percent or more shareholder, or highly compensated employee of a person described in (3), (4), or (6); or (8)a 10 percent or more (in capital or profits) partner or joint venturer of a person described in (3), (4), or (6)..IRC Sec. 4975(e)(2).FiduciaryA fiduciary is a person who has discretionary authority over plan management or administration or disposition of plan assets, or who renders investment advice for a fee or other compensation with respect to any money or other property of the plan..IRC Sec. 4975(e)(3).A person renders investment advice if he or she advises trustees as to the value of property or makes recommendations about the advisability of buying or selling property and, directly or indirectly (1) has discretionary authority with respect to buying or selling property, or (2) renders advice on a regular basis to the plan, pursuant to a mutual understanding that (x) the services will be the primary basis for investment decisions, and (y) he or she will render individualized advice regarding investment policies..Treas. Reg. §54.4975-9(c). Whether advice and recommendations regarding plan purchases of insurance contracts and annuities constitute investment advice depends on the facts in each situation..Prohibited Transaction Exemption (PTE) 77-9 (Discussion of Major Comments). A fee or other compensation can include insurance sales commissions. Under final Department of Labor regulations, a person who develops a computer model or who markets a computer model or investment advice program used in an ‘‘eligible investment advice arrangement’’ is a fiduciary of a plan by reason of the provision of investment advice and is treated as a ‘‘fiduciary adviser.’’.DOL Regs. § 2550.408g–2; IRC Sec. 4975(f)(8). The regulations specify the conditions that must be met for a fiduciary to elect to be the sole fiduciary adviser under the investment advice program.ERISA does not modify the definition of a fiduciary under IRC Section 4975; consequently, an individual who is not a fiduciary under ERISA still can be a fiduciary for purposes of IRC Section 4975..Flahertys Arden Bowl, Inc. v. Comm., 115 TC 269 (2000), aff’d, 262 F. 3d 1162, 88 AFTR 2d 2001-5547 (8th Cir. 2001).Family MemberA family member is defined as a spouse, ancestor, lineal descendant, or any spouse of a lineal descendant..IRC Sec. 4975(e)(6).Highly Compensated EmployeeA highly compensated employee is defined as any employee earning 10 percent or more of the yearly wages of an employer..IRC Sec. 4975(e)(2)(H).