January 24, 1990
TO: PENSION MEMBERS NO. 2-90
INVESTMENT ADVISER MEMBERS NO. 4-90
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 4-90
RE: PRIVATE LETTER RULING PERMITTING DIRECT PAYMENT OF
MARKET-TIMING FEES FROM IRA
__________________________________________________________
Attached is a copy of IRS Private Letter Ruling 8951010,
which addresses the direct payment of market-timing fees from an
IRA.
The taxpayer's IRA trustee entered into an agreement with a
market-timing service, which transfers investments between
various mutual funds. Under the agreement, the IRA is solely
liable for the payment of the fee, and the IRA pays the fee
directly to the service. The taxpayer never paid the fee
personally.
The IRS concluded that, since the IRA is solely liable for
the payment of the fee, the direct payment constitutes a trust
expense. Accordingly, the IRS held that this payment would not
be included in gross income under section 408(d)(1) of the Code
and would not be subject to the additional tax under section
72(t). The IRS added, however, that the ruling would not apply
if, at any subsequent time, the IRA is not solely liable for
subsequently incurred fees or if the IRA does not actually pay
the fees.
We will keep you informed of further developments.
Kathy D. Ireland
Associate General Counsel
Attachment