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

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

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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