In Announcement 2011-81 (December 12, 2011), the Internal Revenue Service (IRS) granted temporary relief for an indemnity, security interest or other cross-collateralization agreement provided by an individual retirement account(IRA) owner in circumstances similar to those addressed in U.S. Department of Labor (DOL) Advisory Opinion 2009-03A and Advisory Opinion 2011-09A. Those opinions conclude, generally, that a cross-collateralization agreement committing non-IRA assets of the IRA owner to cover indebtedness of, or arising from, the IRA to a bank or other financial institution is an ERISA prohibited transaction for which PTE 80-26 does not provide exemptive relief.
The Announcement states that DOL is considering further action to address these issues, including a possible prohibited transaction class exemption. The Announcement further provides that, pending further action from DOL or guidance from the IRS, the tax treatment of an IRA will be determined without taking into account the potential prohibited transaction consequences of such a cross-collateralization agreement so long as there has been no execution or other enforcement of the agreement against IRA assets (that is, the flip side of the fact pattern considered in the Advisory Opinions).
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