IRS notice eases net-worth test for broker-dealer trustees

Broker-dealers that already live under SEC capital and custody rules got a cleaner path to meeting an IRS trust requirement that has long sat awkwardly beside securities regulation. Notice 2026-32, released May 21, let carrying broker-dealers satisfy the nonbank trustee net-worth test by showing compliance with SEC Rule 15c3-1 and Rule 15c3-3 instead of the older standard in Treas. Reg. § 1.408-2(e)(5)(ii).

That matters well beyond tax. For KPMG teams in benefits, financial services, employee plans and compliance, the change shifts the work from proving two similar standards to documenting one coherent control environment. Broker-dealers that carry customer accounts and receive or hold customer funds or securities now have a more direct way to defend IRA trustee status if they already maintain SEC-caliber capital and customer-protection controls. The notice applies under § 1.408-2(e)(6)(ii), but it does not extend to broker-dealers operating under an exemption report under SEC Rule 17a-5(d).

The IRS was not starting from scratch. Under section 408(a)(2), an IRA trustee generally must be a bank or another person approved by the Secretary. The 1995 Treasury framework for nonbank trustees set a basic net-worth threshold at the greater of $100,000 or 4 percent of the value of assets held in fiduciary accounts, and required trustees to keep net worth above the greater of $50,000 or 2 percent of those assets. Notice 2026-32 does not replace that regime, but it does give certain broker-dealers an alternate compliance route tied to securities rules instead of the older fiduciary-account formula.

The SEC side of the ledger helps explain why. On December 20, 2024, the SEC adopted amendments to Rule 15c3-3 and Rule 15c3-1 for certain broker-dealers with average total credits of at least $500 million, requiring daily reserve computations and cutting the customer-reserve buffer from 3 percent to 2 percent. The SEC said the changes were meant to better match reserve deposits to customer liabilities and reduce the risk that a failing broker-dealer could not promptly return customer cash and securities.

For firms that advise broker-dealers or retirement-platform providers, the operational effect is real: fewer duplicative capital proofs, cleaner memos for trustees and auditors, and a simpler story when explaining why a broker-dealer meets the IRS standard. But the notice also raises the bar on documentation, because compliance teams still have to map exactly which SEC rule is being satisfied, preserve evidence in the right file, and explain the alternative test to internal stakeholders.

The policy is still moving. The notice asked for public comments, and in the March 9 Trump Accounts proposed-regulations process, Treasury and the IRS asked whether the net-worth requirement should be changed to treat certain debt as equity for broker-dealers. For KPMG practitioners, that makes this less like a narrow tax tweak and more like a governance issue that can change how retirement-plan engagements are structured, reviewed and defended.