Although the bill generally requires that a trustee administer an individual retirement account trust, the bill also provides that a custodial account may be treated as a trust, and that a custodian may hold the account assets and administer the trust. Under the bill, a custodial account may be treated as a trust if the custodian is a bank (described in sec. 401(de)(1)) or other person, if he demonstrates to the satisfaction of the Secretary of the Treasury that the manner in which he will hold the assets will be consistent with the requirements governing individual retirement accounts. Again, it is contemplated that the Secretary will require substantial evidence (as described above) to determine if a person other than a bank may act as custodian. (Emphases added.)
Congress further required the trustee of an IRA to file annual reports:
The bill provides that the trustee of an individual retirement account (or issuer of a retirement annuity) is to report annually to the Secretary of the Treasury regarding contributions to the account or annuity and regarding other matters as prescribed by regulations. Your committee intends that the regulations will include a requirement that the trustee or issuer file annual information returns with the Internal Revenue Service (with copies to each individual for whose benefit a retirement account or a retirement annuity is maintained) on the amount of contributions to and distributions from the account or annuity.
So, it is clear beyond peradventure that Congress enacted the 1974 law in order to be certain that pensions, IRAs and similar kinds of arrangements are safeguarded -- that "individuals who have spent their lives in useful and socially productive work will have adequate incomes to meet their needs when they retire. Subsequently, the IRS established regulations -- carrying out Congress' purposes -- that had to be met for an institution to be approved as a nonbank custodian (NBC). Among the regulations are ones which ensure continuity of the NBC by providing "Sufficient diversity in the ownership of an incorporated applicant, diversity requiring that any person who owns more than 20 percent of the voting stock in [an NBC] cannot own more than 50 percent of it. An NBC applicant also has to "demonstrate in detail its experience and competence with respect to accounting for the interests of a large number of individuals, and must have a "separate trust division in which "the investments of each account will not be commingled with any other property. Also, "Assets of accounts requiring safekeeping will be deposited in an adequate vault with "A permanent record . . . of assets deposited in or withdrawn from the vault. As well, the NBC "must keep its fiduciary records separate and distinct from other records.
In addition, by an IRS General Counsel Memorandum that was "Date Numbered: April 13, 1984 (but that also bears the date October 11, 1983), the IRS insisted that, in carrying out the duties Congress gave it, "The legal authority for the inspections of books and records of . . . [an] approved nonbank trustee for individual retirement accounts . . . is inherent in the language of the [statutory section] which allows substantive discretion to the Commissioner in the setting of standards for nonbank trustees as well as the method of enforcement of those standards. Because the IRS had reason to believe that various nonbank trustees "may not be in compliance with the applicable requirements for nonbank trustees, the Internal Revenue Service "propose[d] to institute a program to verify compliance of specific nonbank trustees with the applicable requirements of the regulations.
Thus, to carry out Congress' desire for the safeguarding of pension plans and IRAs, the IRS established rules limiting percentages of ownership in NBCs, requiring NBCs to show expertise in relevant accounting, requiring a separate trust division, requiring a separate vault and separate records, and demanding access to an NBC's books and records.
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