On December 12, the Internal Revenue Service (IRS) issued Announcement 2011-81, providing temporary relief from the potential negative tax consequences resulting from Department of Labor (DOL) Advisory Opinions (AOs) 2011-09A and 2009-03A. This temporary relief is pending further action by the DOL and further guidance from the IRS.

As explained in a previous LawFlash,1 on October 20, the DOL issued AO 2011-09A, in which it concluded that relief under Prohibited Transaction Class Exemption 80 26 is not available for an indemnification arrangement involving a futures trading agreement for an individual retirement account (IRA), raising the question as to whether such indemnification arrangements would be nonexempt prohibited transactions. If the indemnity is considered a nonexempt prohibited transaction, then the mere provision of the indemnity could result in the IRA being disqualified and all of its assets being deemed distributed and subject to tax in the tax year in which the indemnity was provided. This follows AO 2009-03A,2 which indicated that granting a broker a security interest in an individual’s non-IRA accounts to support the IRA would be a prohibited extension of credit to the IRA.