[Federal Register Volume 59, Number 3 (Wednesday, January 5, 1994)]
[Notices]
[Pages 599-601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-116]


[[Page Unknown]]

[Federal Register: January 5, 1994]


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DEPARTMENT OF LABOR
[Application No. D-9470 through D-9473]

 

Proposed Exemptions; Avram A. Jacobson, M.D. Employee Profit 
Sharing Plan; The Avram A. Jacobson, M.D. Employee Money Purchase 
Pension Plan, Collectively

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
request for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Avram A. Jacobson, M.D. Employee Profit Sharing Plan (the Profit 
Sharing Plan) and the Avram A. Jacobson, M.D. Employee Money Purchase 
Pension Plan (the Money Purchase Plan; Collectively, the Plans) Located 
in Beverly Hills, California

[Application Nos. D-9470 through D-9473]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 4975(c)(2) of the Code and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the sanctions 
resulting from the application of section 4975 of the Code by reason of 
section 4975(c)(1)(A) through (E) of the Code, shall not apply to the 
proposed cash sale (the Sale) of certain works of art (the Art Work) by 
the Plans to Avram A. Jacobson, M.D., a sole proprietor and 
disqualified person with respect to the Plans.\1\
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    \1\Since Dr. Jacobson and his wife are the only participants in 
the Plans, there is no jurisdiction under Title I of the Act 
pursuant to 29 CFR 2510.3-3(b). However, there is jurisdiction under 
the Act pursuant to section 4975 of the Code.
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    This proposed exemption is conditioned upon the following 
requirements: (1) The Sale is a one-time cash transaction; (2) the 
Plans are not required to pay any commissions, costs or other expenses 
in connection with this transaction; (3) the Art Work is appraised by 
qualified, independent appraisers; (4) the sale price for the Art Work 
reflects the greater of either: (a) The original amount paid by the 
Plans at the time of acquisition; or (b) its fair market value on the 
date of the Sale; and (5) within ninety days of the publication in the 
Federal Register of the grant of this notice of proposed exemption, Dr. 
Jacobson will file Forms 5330 with the Internal Revenue Service (the 
Service) and pay all applicable excise taxes that are due by reason of 
the past prohibited transactions.

Summary of Facts and Representations

    1. The Plans are a profit sharing plan and a money purchase pension 
plan, which as of December 31, 1992, had total assets of $1,642,180 and 
$960,643 respectively. Dr. Jacobson is the 100 percent owner of Avram 
A. Jacobson, M.D. (the Employer), a sole proprietorship and the 
sponsoring employer of the Plans. Dr. Jacobson maintains a pathology 
practice in Beverly Hills, California. The only participants in the 
Plans are Dr. Jacobson and his wife. The Trustee of the Plans is Dr. 
Jacobson, who has sole investment discretion with respect to the assets 
of the Plans.
    2.The Profit Sharing Plan owns three works of contemporary art and 
the Money Purchase Pension Plan owns one work of mixed media art, 
collectively known as the Art Work. The Art Work was purchased for a 
cash amount of $685,000 by the Plans from unrelated parties with 
respect to Dr. Jacobson, the Employer, or the Plans. To date, the Plans 
have not incurred any costs associated with acquisition and holding of 
the Art Work. A description of the Art Work is as follows: 

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                                                                                      Date of                   
         Plan                      Title                       Artist                purchase          Price    
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PSP...................  ``Untitled''...............  M. Merz....................         10/6/89        $135,000
PSP...................  ``Grau''...................  G. Richter.................         11/9/89         150,000
MPPP..................  ``Pau''....................  F. Stella..................          5/1/86         180,000
PSP...................  ``Fouffi Noutti in Hell''..  J. Schnabel................         5/18/93         220,000
                                                                                                 ---------------
    Total.............  ...........................  ...........................  ..............         685,000
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    3. Following its acquisition, the Art Work has been in the 
possession of Dr. Jacobson at his residence located at 630 N. Sierra 
Drive, Beverly Hills, California. During a 1993 audit, the Service 
determined that Dr. Jacobson had engaged in prohibited transactions 
with the Plans by reason of his use of the Art Work for the years 1989 
and 1990.\2\
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    \2\The Department notes that in 1987 the Profit Sharing Plan 
purchased a third party note for cash form the Norman L. Jacobson, 
M.D., P.A. Profit Sharing plan, the sole participant and trustee of 
which is Dr. Jacobson's brother, Norman L. Jacobson. In 1993, the 
Profit Sharing Plan sold the note back to the Norman L. Jacobson, 
M.D., P.A. Profit Sharing Plan for cash. The Department is not 
granting an exemption for such purchase and sale and is expressing 
no opinion as to whether the purchase and sale of such note 
constitutes a violation of any provision of the Code.
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    Dr. Jacobson represents that he will file Forms 5330 with the 
Service and pay the applicable excise taxes associated the past 
prohibited transactions within ninety days of the publication in the 
Federal Register of the notice granting this proposed exemption. In 
addition, Dr. Jacobson will pay the Plans the fair market rental value 
in the amount of approximately $90,000 for his use of the Art Work for 
years 1989 through 1993. Excise taxes will accrue for the period 
between 1989 and 1993.
    4. At present, the Art Work has produced no income for the Plans. 
In order to enable the Plans to divest themselves of the Art Work and 
to invest in income-producing, marketable securities, Dr. Jacobson 
proposes to purchase the Art Work from the Plans for a cash amount 
equal to the aggregate of the greater of either: (a) The original 
amount paid by the Plan at the time of acquisition; or (b) its fair 
market value on the date of the Sale. Accordingly, Dr. Jacobson 
requests an administrative exemption from the Department to permit his 
purchase of the Art Work from the Plans under the terms and conditions 
described herein.
    5. The Art Work has been valued by two separate, independent, 
qualified appraisers, Arline Edelbaum and Jacqueline Silverman, both 
the Los Angeles, California. Ms. Edelbaum is a senior member of the 
American Society of Appraisers and has nineteen years experience in 
appraising fine arts and personal property. Ms. Silverman is a 
certified member of Appraisers Association of America and has fifteen 
years experience in appraising modern and contemporary art. Both 
appraisers represent that they are unrelated to and independent of Dr. 
Jacobson. Ms. Edelbaum and Ms. Silverman's valuations of the Art Work 
as of June 28, 1993 and June 22, 1993, respectively, are as follows:

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             Plan                             Work                Purchase price     Edelbaum        Silverman  
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PSP..........................  ``Untitled''.....................        $135,000        $135,000        $120,000
PSP..........................  ``Grau''.........................         150,000         165,000         150,000
MPPP.........................  ``Pau''..........................         180,000         275,000         275,000
PSP..........................  ``Fouffi Noutti in Hell''........         220,000         165,000         175,000
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    Because their fair market values are less than or equal to their 
original purchase price, ``Untitled'' and ``Fouffi Noutti in Hell'' 
will be purchased by Dr. Jacobson for their original purchase prices of 
$135,000 and $220,000, respectively. In addition, Dr. Jacobson will 
purchase ``Grau for $165,000, which reflects its higher fair market 
valuation as determined by Ms. Edelbaum. Finally, Dr. Jacobson will 
purchase ``Pau'' for $275,000, which reflects its fair market value as 
determined by both appraisers. Dr. Jacobson proposes to purchase the 
Art Work for an aggregate cash purchase price of $795,000.
    6. In summary, it is represented that the proposed transactions 
will satisfy the statutory criteria for an exemption under section 
4975(c)(2) of the Code because: (a) The Sale will be a one-time cash 
transaction; (b) the Plan will not be required to pay any commissions, 
costs or other expenses in connection with this transaction; (c) the 
Art Work will be appraised by a qualified, independent appraiser; (d) 
the sale price for the Art Work will reflect the greater of either: (1) 
The original amount paid by the Plan at the time of acquisition; or (2) 
its fair market value on the date of the Sale; and (e) within ninety 
days of the publication in the Federal Register of the grant of this 
notice of proposed exemption, Dr. Jacobson will file Forms 5330 with 
the Service) and pay all applicable excise taxes that are due by reason 
of the past prohibited transactions.

Notice to Interested Persons

    Since Dr. Jacobson and his wife are the only participants in the 
Plan, it has been determined that there is no need to distribute the 
notice of the proposed exemption to interested persons. Comments are 
due thirty days after publication of this notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Ms. Kathryn Parr of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 30th day of December, 1993.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-116 Filed 1-4-94; 8:45 am]
BILLING CODE 4510-29-P