Td 9492 06jul10 75fr38700

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Federal Register / Vol. 75, No. 128 / Tuesday, July 6, 2010 / Rules and Regulations

cats for induction and maintenance of
anesthesia and for induction of
anesthesia followed by maintenance
with an inhalant anesthetic. The
application is approved as of May 21,
2010, and the regulations are amended
in 21 CFR 522.2005 to reflect the
approval.
In accordance with the freedom of
information provisions of 21 CFR part
20 and 21 CFR 514.11(e)(2)(ii), a
summary of safety and effectiveness
data and information submitted to
support approval of this application
may be seen in the Division of Dockets
Management (HFA–305), Food and Drug
Administration, 5630 Fishers Lane, rm.
1061, Rockville, MD 20852, between 9
a.m. and 4 p.m., Monday through
Friday.
The agency has determined under 21
CFR 25.33 that this action is of a type
that does not individually or
cumulatively have a significant effect on
the human environment. Therefore,
neither an environmental assessment
nor an environmental impact statement
is required.
Under section 512(c)(2)(F)(ii) of the
Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 360b(c)(2)(F)(ii)), this
approval qualifies for 3 years of
marketing exclusivity beginning on the
date of approval.
This rule does not meet the definition
of ‘‘rule’’ in 5 U.S.C. 804(3)(A) because
it is a rule of ‘‘particular applicability.’’
Therefore, it is not subject to the
congressional review requirements in 5
U.S.C. 801–808.
List of Subjects in 21 CFR Part 522

PART 522—IMPLANTATION OR
INJECTABLE DOSAGE FORM NEW
ANIMAL DRUGS
1. The authority citation for 21 CFR
part 522 continues to read as follows:

■

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

Authority: 21 U.S.C. 360b.

2. In § 522.2005, revise paragraphs (b)
and (c) to read as follows:

■

Propofol.

*

*
*
*
*
(b) Sponsors. See sponsor numbers in
§ 510.600(c) of this chapter.
(1) No. 059130 for use as in
paragraphs (c)(1), (c)(2)(i), and (c)(3) of
this section.

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(2) Indications for use—(i) As a single
injection to provide general anesthesia
for short procedures; for induction and
maintenance of general anesthesia using
incremental doses to effect; for
induction of general anesthesia where
maintenance is provided by inhalant
anesthetics.
(ii) For the induction and
maintenance of anesthesia and for
induction of anesthesia followed by
maintenance with an inhalant
anesthetic.
*
*
*
*
*
Dated: June 29, 2010.
Bernadette Dunham,
Director, Center for Veterinary Medicine.
[FR Doc. 2010–16301 Filed 7–2–10; 8:45 am]
BILLING CODE 4160–01–S

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 53, 54, 301 and 602
[TD 9492]

Animal drugs.
■ Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
authority delegated to the Commissioner
of Food and Drugs and redelegated to
the Center for Veterinary Medicine, 21
CFR part 522 is amended as follows:

§ 522.2005

(2) No. 000074 for use as in
paragraphs (c)(1), (c)(2)(i), and (c)(3) of
this section.
(3) No. 000856 for use as in
paragraphs (c)(1), (c)(2)(ii), and (c)(3) of
this section.
(c) Conditions of use in dogs and
cats—(1) Amount. Administer by
intravenous injection according to label
directions. The use of preanesthetic
medication reduces propofol dose
requirements.

RIN 1545–BG18

Excise Taxes on Prohibited Tax Shelter
Transactions and Related Disclosure
Requirements; Disclosure
Requirements With Respect to
Prohibited Tax Shelter Transactions;
Requirement of Return and Time for
Filing
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
SUMMARY: This document contains final
regulations that provide guidance under
section 4965 of the Internal Revenue
Code (Code), relating to entity-level and
manager-level excise taxes with respect
to prohibited tax shelter transactions to
which tax-exempt entities are parties;
sections 6033(a)(2) and 6011(g), relating
to certain disclosure obligations with
respect to such transactions; and
sections 6011 and 6071, relating to the

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requirement of a return and time for
filing with respect to section 4965 taxes.
This action is necessary to implement
section 516 of the Tax Increase
Prevention Reconciliation Act of 2005.
These final regulations affect a broad
array of tax-exempt entities, including
charities, state and local government
entities, Indian tribal governments and
employee benefit plans, as well as entity
managers of these entities.
DATES: Effective Date: These regulations
are effective July 6, 2010.
Applicability Date: For dates of
applicability, see §§ 1.6033–5(f),
53.4965–9(b) and (c), 53.6071–1(h),
54.6011–1(d), 301.6011(g)–1(j) and
301.6033–5(b).
FOR FURTHER INFORMATION CONTACT: For
questions concerning these regulations,
contact Benjamin Akins at (202) 622–
1124 or Michael Blumenfeld at (202)
622–6070. For questions specifically
relating to qualified pension plans,
individual retirement accounts, and
similar tax-favored savings
arrangements, contact Cathy Pastor at
(202) 622–6090 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information
contained in these final regulations has
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545–
2079. The collection of information in
these final regulations is in
§ 301.6011(g)–1. The collection of
information in § 301.6011(g)–1 flows
from section 6011(g), which requires a
taxable party to a prohibited tax shelter
transaction to disclose to any taxexempt entity that is a party to the
transaction that the transaction is a
prohibited tax shelter transaction. The
likely recordkeepers are taxable entities
or individuals that participate in
prohibited tax shelter transactions. The
estimated number of recordkeepers is
between 1,250 and 6,500. The
information that is required to be
collected for purposes of § 301.6011(g)–
1 is a subset of information that is
required to be collected in order to
complete and file Form 8886,
‘‘Reportable Transaction Disclosure
Statement.’’ The estimated paperwork
burden for taxpayers filling out Form
8886 is approved under OMB number
1545–1800.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control

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Federal Register / Vol. 75, No. 128 / Tuesday, July 6, 2010 / Rules and Regulations
number assigned by the Office of
Management and Budget.
Books and records relating to the
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
returns and return information are
confidential, as required by section
6103.
Background
The Tax Increase Prevention and
Reconciliation Act of 2005, Public Law
109–222 (120 Stat. 345) (TIPRA),
enacted on May 17, 2006, defines
certain transactions as prohibited tax
shelter transactions and imposes excise
taxes and disclosure requirements with
respect to prohibited tax shelter
transactions to which a tax-exempt
entity is a party. Section 516 of TIPRA
added new section 4965 and amended
sections 6033(a)(2) and 6011(g) of the
Code.
On July 6, 2007, the IRS and the
Treasury Department published final
and temporary regulations under
sections 6011 and 6071 (TD 9334) and
temporary regulations under section
6033 (TD 9335) in the Federal Register
(72 FR 36869; 72 FR 36871). Also on
July 6, 2007, the IRS and the Treasury
Department issued a notice of proposed
rulemaking cross-referencing those
temporary regulations (REG–142039–06;
REG–139268–06) in the Federal
Register (72 FR 36927). This notice of
proposed rulemaking also included
proposed regulations under sections
4965 and 6011(g). On August 16, 2007,
and August 31, 2007, the IRS and the
Treasury Department issued corrections
to TD 9334 (72 FR 45894; 72 FR 50211).
On August 16, 2007, the IRS and the
Treasury Department issued corrections
to TD 9335 (72 FR 45890).
The IRS did not receive any
comments or requests for a public
hearing. Accordingly, the proposed
regulations are adopted as final by this
Treasury decision with certain revisions
described below.
Explanation of Provisions

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

Definition of Party to a Prohibited Tax
Shelter Transaction
The proposed regulations set forth a
three-part definition of the term ‘‘party
to a prohibited tax shelter transaction.’’
Under the proposed regulations, a taxexempt entity is a party to a prohibited
tax shelter transaction if it: (1)
Facilitates a prohibited tax shelter
transaction by reason of its exempt, tax
indifferent or tax-favored status; (2)
enters into a listed transaction and
reflects on its tax return (whether an

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original or an amended return) a
reduction or elimination of its liability
for applicable Federal employment,
excise or unrelated business income
taxes that is derived directly or
indirectly from tax consequences or tax
strategy described in the published
guidance that lists the transaction; or (3)
is identified in published guidance, by
type, class or role, as a party to a
prohibited tax shelter transaction. The
final regulations eliminate the second
part of this definition; therefore, a taxexempt entity that enters into a
transaction to reduce or eliminate its
own tax liability generally will not be
considered a party to a prohibited tax
shelter transaction under these
regulations. However, under the third
part of the definition in the proposed
regulations, which is retained in the
final regulations, the IRS and the
Treasury Department may identify in
published guidance specific
transactions or circumstances in which
a tax-exempt entity that enters into a
transaction to reduce or eliminate its
own tax liability will be treated as a
party to a prohibited tax shelter
transaction for purposes of section 4965.
A variety of circumstances may arise
in which an entity generally exempt
from tax may nevertheless be subject to
some form of Federal taxation. When
such circumstances arise, some taxexempt entities may seek ways to
reduce or eliminate the Federal tax as
would a similarly situated entity that is
not exempt from tax. In general, exempt
status does not provide additional
opportunities or incentives for a taxexempt entity to engage in a listed
transaction to reduce or eliminate taxes
imposed upon it. Further, a tax-exempt
entity that engages in such transactions
is subject to the same disclosure rules
and increased penalties as other
similarly situated taxpayers (for
example, sections 6011, 6707A, 6662,
6662A and 6663).
Accordingly, the IRS and the Treasury
Department believe that, as a general
rule, a tax-exempt entity that engages in
a listed transaction to reduce or
eliminate its own tax liability should
not be considered a party to a prohibited
tax shelter transaction for purposes of
section 4965. The IRS and the Treasury
Department have retained the ability to
provide exceptions to this general rule
through published guidance that
identifies, by type, class or role, a taxexempt entity as a party to a prohibited
tax shelter transaction, including a taxexempt entity that enters into a
particular transaction to reduce or
eliminate its own tax liability.
Because the IRS and the Treasury
Department have eliminated the second

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38701

part of the definition of the term ‘‘party,’’
certain other conforming changes were
made to the regulations.
Timing for Disclosure by Taxable Party
to Tax-Exempt Party
The proposed regulations required a
taxable party to a prohibited tax shelter
transaction to disclose by statement to
each tax-exempt entity that the taxable
party knows or has reason to know is a
party to such transaction that the
transaction is a prohibited tax shelter
transaction. The proposed regulations
required the taxable party to make the
disclosure within 60 days after the last
to occur of (1) the date the person
becomes a taxable party to the
transaction, or (2) the date the taxable
party knows or has reason to know that
the tax-exempt entity is a party to the
transaction. The proposed regulations
provided an exception if the person
does not know or have reason to know
that the tax-exempt entity is a party to
the transaction on or before the first date
on which the transaction is required to
be disclosed by the person under
section 6011.
These final regulations modify the
rule governing the timing of this
disclosure. The taxable party now must
make the disclosure within 60 days after
the last to occur of (1) the date the
person becomes a taxable party to the
transaction, (2) the date the taxable
party knows or has reason to know that
the tax-exempt entity is a party to the
transaction, or (3) July 6, 2010. These
final regulations retain the exception for
persons who do not know or have
reason to know that a tax-exempt entity
is a party to the transaction on or before
the first date on which the transaction
is required to be disclosed by the person
under section 6011.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations. It is hereby
certified that the collection of
information in § 301.6011(g)–1 will not
have a significant economic impact on
a substantial number of small entities.
Accordingly, a regulatory flexibility
analysis under the Regulatory
Flexibility Act (5 U.S.C. 601) (RFA) is
not required. The effect of these
regulations on small entities flows
directly from the statutes these
regulations implement. Section 6011(g),
as amended by TIPRA, requires any

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taxable party to a prohibited tax shelter
transaction to notify any tax-exempt
entity that is a party to such transaction
that the transaction is a prohibited tax
shelter transaction. In implementing
this statute, § 301.6011(g)–1 of the
regulations requires every taxable party
to a prohibited tax shelter transaction
(or a single taxable party acting by
designation on behalf of other taxable
parties) to provide to every tax-exempt
entity that the taxable party knows or
has reason to know is a party to the
transaction a single statement disclosing
that the transaction is a prohibited tax
shelter transaction within 60 days after
the last to occur of: (1) The date the
taxable person becomes a taxable party
to the transaction; (2) the date the
taxable party knows or has reason to
know that the tax-exempt entity is a
party to the transaction; or (3) July 6,
2010. These final regulations retain the
exception for persons who do not know
or have reason to know that a taxexempt entity is a party to the
transaction on or before the first date on
which the transaction is required to be
disclosed by the person under section
6011. Moreover, it is unlikely that a
significant number of small businesses
will engage in transactions that are
subject to disclosure under
§ 301.6011(g).
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these regulations was
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Drafting Information
The principal authors of these
regulations are Benjamin Akins and
Cathy Pastor, Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities).
However, other personnel from the IRS
and the Treasury Department
participated in their development.
List of Subjects

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 53
Excise taxes, Foundations,
Investments, Lobbying, Reporting and
recordkeeping requirements.
26 CFR Part 54
Excise taxes, Pensions, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,

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Penalties, Reporting and recordkeeping
requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 53, 54,
301, and 602 are amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read, in part, as
follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.6033–5 is added to
read as follows:

■

§ 1.6033–5 Disclosure by tax-exempt
entities that are parties to certain reportable
transactions.

(a) In general. Every tax-exempt entity
(as defined in section 4965(c)) shall file
with the IRS on Form 8886–T,
‘‘Disclosure by Tax-Exempt Entity
Regarding Prohibited Tax Shelter
Transaction’’ (or a successor form), in
accordance with this section and the
instructions to the form, a disclosure
of—
(1) Such entity’s being a party (as
defined in § 53.4965–4 of this chapter)
to a prohibited tax shelter transaction
(as defined in section 4965(e)); and
(2) The identity of any other party
(whether taxable or tax-exempt) to such
transaction that is known to the taxexempt entity.
(b) Frequency of disclosure. A single
disclosure is required for each
prohibited tax shelter transaction.
(c) By whom disclosure is made—(1)
Tax-exempt entities referred to in
section 4965(c)(1), (2) or (3). In the case
of tax-exempt entities referred to in
section 4965(c)(1), (2) or (3), the
disclosure required by this section must
be made by the entity.
(2) Tax-exempt entities referred to in
section 4965(c)(4), (5), (6) or (7). In the
case of tax-exempt entities referred to in
section 4965(c)(4), (5), (6) or (7),
including a fully self-directed qualified
plan, IRA, or other savings arrangement,
the disclosure required by this section
must be made by the entity manager (as
defined in section 4965(d)(2)) of the
entity.
(d) Time and place for filing—(1) In
general. The disclosure required by this
section shall be filed on or before May
15 of the calendar year following the
close of the calendar year during which
the tax-exempt entity entered into the
prohibited tax shelter transaction.
(2) Subsequently listed transactions.
In the case of subsequently listed

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transactions (as defined in section
4965(e)(2)), the disclosure required by
this section shall be filed on or before
May 15 of the calendar year following
the close of the calendar year during
which the transaction was identified by
the Secretary as a listed transaction.
(3) Transition rule. If a tax-exempt
entity entered into a prohibited tax
shelter transaction after May 17, 2006,
and before January 1, 2007, the
disclosure required by this section shall
be filed on or before November 2, 2007.
(4) No disclosure. Disclosure is not
required with respect to any prohibited
tax shelter transaction entered into by a
tax-exempt entity on or before May 17,
2006.
(e) Penalty for failure to provide
disclosure statement. See section
6652(c)(3) for the penalty applicable to
the failure to disclose a prohibited tax
shelter transaction in accordance with
this section.
(f) Effective date/applicability date.
This section applies with respect to
transactions entered into by a taxexempt entity after May 17, 2006.
§ 1.6033–5T
■

[Removed].

Par. 3. Section 1.6033–5T is removed.

PART 53—FOUNDATION AND SIMILAR
EXCISE TAXES
Par. 4. The authority citation for part
53 continues to read, in part, as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 5. Sections 53.4965–1 through
53.4965–9 are added to subpart K to
read as follows:

■

§ 53.4965–1

Overview.

(a) Entity-level excise tax. Section
4965 imposes two excise taxes with
respect to certain tax shelter
transactions to which tax-exempt
entities are parties. Section 4965(a)(1)
imposes an entity-level excise tax on
certain tax-exempt entities that are
parties to ‘‘prohibited tax shelter
transactions,’’ as defined in section
4965(e). See § 53.4965–2 for the
discussion of covered tax-exempt
entities. See § 53.4965–3 for the
definition of prohibited tax shelter
transactions. See § 53.4965–4 for the
definition of tax-exempt party to a
prohibited tax shelter transaction. The
entity-level excise tax under section
4965(a)(1) is imposed on a specified
percentage of the entity’s net income or
proceeds that are attributable to the
transaction for the relevant tax year (or
a period within that tax year). The rate
of tax depends on whether the entity
knew or had reason to know that the
transaction was a prohibited tax shelter
transaction at the time the entity became

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Federal Register / Vol. 75, No. 128 / Tuesday, July 6, 2010 / Rules and Regulations
a party to the transaction. See
§ 53.4965–7(a) for the discussion of the
entity-level excise tax under section
4965(a)(1). See § 53.4965–6 for the
discussion of ‘‘knowing or having reason
to know.’’ See § 53.4965–8 for the
definition of net income and proceeds
and the standard for allocating net
income and proceeds that are
attributable to a prohibited tax shelter
transaction to various periods.
(b) Manager-level excise tax. Section
4965(a)(2) imposes a manager-level
excise tax on ‘‘entity managers,’’ as
defined in section 4965(d), of taxexempt entities who approve the entity
as a party (or otherwise cause the entity
to be a party) to a prohibited tax shelter
transaction and know or have reason to
know, at the time the tax-exempt entity
enters into the transaction, that the
transaction is a prohibited tax shelter
transaction. See § 53.4965–5 for the
definition of entity manager and the
meaning of ‘‘approving or otherwise
causing,’’ and § 53.4965–6 for the
discussion of ‘‘knowing or having reason
to know.’’ See § 53.4965–7(b) for the
discussion of the manager-level excise
tax under section 4965(a)(2).
(c) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

§ 53.4965–2

Covered tax-exempt entities.

(a) In general. Under section 4965(c),
the term ‘‘tax-exempt entity’’ refers to
entities that are described in sections
501(c), 501(d), or 170(c) (other than the
United States), Indian tribal
governments (within the meaning of
section 7701(a)(40)), and tax-qualified
pension plans, individual retirement
arrangements and similar tax-favored
savings arrangements that are described
in sections 4979(e)(1), (2) or (3), 529,
457(b), or 4973(a). The tax-exempt
entities referred to in section 4965(c) are
divided into two broad categories, nonplan entities and plan entities.
(b) Non-plan entities. Non-plan
entities are—
(1) Entities described in section
501(c);
(2) Religious or apostolic associations
or corporations described in section
501(d);
(3) Entities described in section
170(c), including states, possessions of
the United States, the District of
Columbia, political subdivisions of
states and political subdivisions of
possessions of the United States (but not
including the United States); and
(4) Indian tribal governments within
the meaning of section 7701(a)(40).
(c) Plan entities. Plan entities are—

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(1) Entities described in section
4979(e)(1) (qualified plans under section
401(a), including qualified cash or
deferred arrangements under section
401(k) (including a section 401(k) plan
that allows designated Roth
contributions));
(2) Entities described in section
4979(e)(2) (annuity plans described in
section 403(a));
(3) Entities described in section
4979(e)(3) (annuity contracts described
in section 403(b), including a section
403(b) arrangement that allows Roth
contributions);
(4) Qualified tuition programs
described in section 529;
(5) Eligible deferred compensation
plans under section 457(b) that are
maintained by a governmental employer
as defined in section 457(e)(1)(A);
(6) Arrangements described in section
4973(a) which include—
(i) Individual retirement plans
defined in sections 408(a) and (b),
including—
(A) Simplified employee pensions
(SEPs) under section 408(k);
(B) Simple individual retirement
accounts (SIMPLEs) under section
408(p);
(C) Deemed individual retirement
accounts or annuities (IRAs) qualified
under a qualified plan (deemed IRAs)
under section 408(q)); and
(D) Roth IRAs under section 408A.
(ii) Arrangements described in section
220(d) (Archer Medical Savings
Accounts (MSAs));
(iii) Arrangements described in
section 403(b)(7) (custodial accounts
treated as annuity contracts);
(iv) Arrangements described in
section 530 (Coverdell education
savings accounts); and
(v) Arrangements described in section
223(d) (health savings accounts (HSAs)).
(d) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.
§ 53.4965–3 Prohibited tax shelter
transactions.

(a) In general. Under section 4965(e),
the term prohibited tax shelter
transaction means—
(1) Listed transactions within the
meaning of section 6707A(c)(2),
including subsequently listed
transactions described in paragraph (b)
of this section; and
(2) Prohibited reportable transactions,
which consist of the following
reportable transactions within the
meaning of section 6707A(c)(1)—
(i) Confidential transactions, as
described in § 1.6011–4(b)(3) of this
chapter; or

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38703

(ii) Transactions with contractual
protection, as described in § 1.6011–
4(b)(4) of this chapter.
(b) Subsequently listed transactions.
A subsequently listed transaction for
purposes of section 4965 is a transaction
that is identified by the Secretary as a
listed transaction after the tax-exempt
entity has entered into the transaction
and that was not a prohibited reportable
transaction (within the meaning of
section 4965(e)(1)(C) and paragraph
(a)(2) of this section) at the time the
entity entered into the transaction.
(c) Cross-reference. The determination
of whether a transaction is a listed
transaction or a prohibited reportable
transaction for section 4965 purposes
shall be made under the law applicable
to section 6707A(c)(1) and (c)(2).
(d) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.
§ 53.4965–4 Definition of tax-exempt party
to a prohibited tax shelter transaction.

(a) In general. For purposes of
sections 4965 and 6033(a)(2), a taxexempt entity is a party to a prohibited
tax shelter transaction if the entity—
(1) Facilitates a prohibited tax shelter
transaction by reason of its tax-exempt,
tax indifferent or tax-favored status; or
(2) Is identified in published
guidance, by type, class or role, as a
party to a prohibited tax shelter
transaction.
(b) Published guidance may identify
which tax-exempt entities, by type, class
or role, will not be treated as a party to
a prohibited tax shelter transaction.
(c) Example. The following example
illustrates the principle of paragraph
(a)(1) of this section:
Example. A tax-exempt entity enters into
a transaction (Transaction A) with an S
corporation. Transaction A is the same as or
substantially similar to the transaction
identified by the Secretary as a listed
transaction in Notice 2004–30 (2004–1 CB
828). The tax-exempt entity’s role in
Transaction A is similar to the role of the taxexempt party, as described in Notice 2004–
30. Under the terms of the transaction, as
described in Notice 2004–30, the tax-exempt
entity receives the S corporation stock and
purports to aid the S corporation and its
shareholders in avoiding taxable income. The
tax-exempt entity facilitates Transaction A by
reason of its tax-exempt, tax indifferent or
tax-favored status. Accordingly, the taxexempt entity is a party to Transaction A for
purposes of sections 4965 and 6033(a)(2). See
§ 601.601(d)(2)(ii)(b) of this chapter.

(d) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.

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§ 53.4965–5
definitions.

Federal Register / Vol. 75, No. 128 / Tuesday, July 6, 2010 / Rules and Regulations
Entity managers and related

(a) Entity manager of a non-plan
entity—(1) In general. Under section
4965(d)(1), an entity manager of a nonplan entity is—
(i) A person with the authority or
responsibility similar to that exercised
by an officer, director, or trustee of an
organization (that is, the non-plan
entity); and
(ii) With respect to any act, the person
who has final authority or responsibility
(either individually or as a member of
a collective body) with respect to such
act.
(2) Definition of officer. For purposes
of paragraph (a)(1)(i) of this section, a
person is considered to be an officer of
the non-plan entity (or to have similar
authority or responsibility) if the
person—
(i) Is specifically designated as such
under the certificate of incorporation,
by-laws, or other constitutive
documents of the non-plan entity; or
(ii) Regularly exercises general
authority to make administrative or
policy decisions on behalf of the nonplan entity.
(3) Exception for acts requiring
approval by a superior. With respect to
any act, any person is not described in
paragraph (a)(2)(ii) of this section if the
person has authority merely to
recommend particular administrative or
policy decisions, but not to implement
them without approval of a superior.
(4) Delegation of authority. A person
is an entity manager of a non-plan entity
within the meaning of paragraph
(a)(1)(ii) of this section if, with respect
to any prohibited tax shelter transaction,
such person has been delegated final
authority or responsibility with respect
to such transaction (including by
transaction type or dollar amount) by a
person described in paragraph (a)(1)(i)
of this section or the governing board of
the entity. For example, an investment
manager is an entity manager with
respect to a prohibited tax shelter
transaction if the non-plan entity’s
governing body delegated to the
investment manager the final authority
to make certain investment decisions
and, in the exercise of that authority, the
manager committed the entity to the
transaction. To be considered an entity
manager of a non-plan entity within the
meaning of paragraph (a)(1)(ii) of this
section, a person need not be an
employee of the entity. A person is not
described in paragraph (a)(1)(ii) of this
section if the person is merely
implementing a decision made by a
superior.
(b) Entity manager of a plan entity—
(1) In general. Under section 4965(d)(2),

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an entity manager of a plan entity is the
person who approves or otherwise
causes the entity to be a party to the
prohibited tax shelter transaction.
(2) Special rule for plan participants
and beneficiaries who have investment
elections—(i) Fully self-directed plans
or arrangements. In the case of a fully
self-directed qualified plan, IRA, or
other savings arrangement (including a
case where a plan participant or
beneficiary is given a list of prohibited
investments, such as collectibles), if the
plan participant or beneficiary selected
a certain investment and, therefore,
approved the plan entity to become a
party to a prohibited tax shelter
transaction, the plan participant or the
beneficiary is an entity manager.
(ii) Plans or arrangements with
limited investment options. In the case
of a qualified plan, IRA, or other savings
arrangement where a plan participant or
beneficiary is offered a limited number
of investment options from which to
choose, the person responsible for
determining the pre-selected investment
options is an entity manager and the
plan participant or the beneficiary
generally is not an entity manager.
(c) Meaning of ‘‘approves or otherwise
causes’’—(1) In general. A person is
treated as approving or otherwise
causing a tax-exempt entity to become a
party to a prohibited tax shelter
transaction if the person has the
authority to commit the entity to the
transaction, either individually or as a
member of a collective body, and the
person exercises that authority.
(2) Collective bodies. If a person
shares the authority described in
paragraph (c)(1) of this section as a
member of a collective body (for
example, board of trustees or
committee), the person will be
considered to have exercised such
authority if the person voted in favor of
the entity becoming a party to the
transaction. However, a member of the
collective body will not be treated as
having exercised the authority described
in paragraph (c)(1) of this section if he
or she voted against a resolution that
constituted approval or an act that
caused the tax-exempt entity to be a
party to a prohibited tax shelter
transaction, abstained from voting for
such approval, or otherwise failed to
vote in favor of such approval.
(3) Exceptions—(i) Successor in
interest. If a tax-exempt entity that is a
party to a prohibited tax shelter
transaction is dissolved, liquidated, or
merged into a successor entity, an entity
manager of the successor entity will not,
solely by reason of the reorganization,
be treated as approving or otherwise
causing the successor entity to become

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a party to a prohibited tax shelter
transaction, provided that the
reorganization of the tax-exempt entity
does not result in a material change to
the terms of the transaction. For
purposes of this paragraph (c)(3)(i), a
material change includes an extension
or renewal of the agreement (other than
an extension or renewal that results
from another party to the transaction
unilaterally exercising an option granted
by the agreement) or a more than
incidental change to any payment under
the agreement. A change for the sole
purpose of substituting the successor
entity for the original tax-exempt party
is not a material change.
(ii) Exercise or nonexercise of options.
Nonexercise of an option pursuant to a
transaction involving the tax-exempt
entity generally will not constitute an
act of approving or causing the entity to
be a party to the transaction. If, pursuant
to a transaction involving the taxexempt entity, the entity manager
exercises an option (such as a
repurchase option), the entity manager
will not be subject to the entity
manager-level tax if the exercise of the
option does not result in the tax-exempt
entity becoming a party to a second
transaction that is a prohibited tax
shelter transaction.
(4) Example. The following example
illustrates the principles of paragraph
(c)(3)(ii) of this section:
Example. In a sale-in, lease-out (SILO)
transaction described in Notice 2005–13
(2005–9 IRB 630), X, which is a non-plan
entity, has purported to sell property to Y, a
taxable entity and lease it back for a term of
years. At the end of the basic lease term, X
has the option of ‘‘repurchasing’’ the property
from Y for a predetermined purchase price,
with funds that have been set aside at the
inception of the transaction for that purpose.
The entity manager, by deciding to exercise
or not exercise the ‘‘repurchase’’ option is not
approving or otherwise causing the non-plan
entity to become a party to a second
prohibited tax shelter transaction. See
§ 601.601(d)(2)(ii)(b) of this chapter.

(5) Coordination with the reason-toknow standard. The determination that
an entity manager approved or caused a
tax-exempt entity to be a party to a
prohibited tax shelter transaction, by
itself, does not establish liability for the
section 4965(a)(2) tax. For rules on
determining whether an entity manager
knew or had reason to know that the
transaction was a prohibited tax shelter
transaction, see § 53.4965–6(b).
(d) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.

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§ 53.4965–6 Meaning of ‘‘knows or has
reason to know’’.

(a) Attribution to the entity. An entity
will be treated as knowing or having
reason to know for section 4965
purposes if one or more of its entity
managers knew or had reason to know
that the transaction was a prohibited tax
shelter transaction at the time the entity
manager(s) approved the entity as (or
otherwise caused the entity to be) a
party to the transaction. The entity shall
be attributed the knowledge or reason to
know of any entity manager described
in § 53.4965–5(a)(1)(i) even if that entity
manager does not approve the entity as
(or otherwise cause the entity to be) a
party to the transaction.
(b) Determining whether an entity
manager knew or had reason to know—
(1) In general. Whether an entity
manager knew or had reason to know
that a transaction is a prohibited tax
shelter transaction is based on all facts
and circumstances. In order for an entity
manager to know or have reason to
know that a transaction is a prohibited
tax shelter transaction, the entity
manager must have knowledge of
sufficient facts that would lead a
reasonable person to conclude that the
transaction is a prohibited tax shelter
transaction. An entity manager will be
considered to have ‘‘reason to know’’ if
a reasonable person in the entity
manager’s circumstances would
conclude that the transaction was a
prohibited tax shelter transaction based
on all the facts reasonably available to
the manager at the time of approving the
entity as (or otherwise causing the entity
to be) a party to the transaction. Factors
that will be considered in determining
whether a reasonable person in the
entity manager’s circumstances would
conclude that the transaction was a
prohibited tax shelter transaction
include, but are not limited to—
(i) The presence of tax shelter indicia
(see paragraph (b)(2) of this section);
(ii) Whether the entity manager
received a disclosure statement prior to
the consummation of the transaction
indicating that the transaction may be a
prohibited tax shelter transaction (see
paragraph (b)(3) of this section); and
(iii) Whether the entity manager made
appropriate inquiries into the
transaction (see paragraph (b)(4) of this
section).
(2) Tax-shelter indicia. The presence
of indicia that a transaction is a tax
shelter will be treated as an indication
that the entity manager knew or had
reason to know that the transaction was
a prohibited tax shelter transaction. Tax
shelter indicia include but are not
limited to—

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(i) The transaction is extraordinary for
the entity considering prior investment
activity;
(ii) The transaction promises an
economic return for the organization
that is exceptional considering the
amount invested by, the participation
of, or the absence of risk to the
organization; or
(iii) The transaction is of significant
size relative to the receipts of the entity.
(3) Effect of disclosure statements.
Receipt by an entity manager of a
statement, including a statement
described in section 6011(g), in advance
of a transaction that the transaction may
be a prohibited tax shelter transaction
(or a statement that a partnership, hedge
fund or other investment conduit may
engage in a prohibited tax shelter
transaction in the future) is a factor
relevant in the determination of whether
the entity manager knew or had reason
to know that the transaction is a
prohibited transaction. However, an
entity manager will not be treated as
knowing or having reason to know that
the transaction was a prohibited tax
shelter transaction solely because the
entity manager receives such a
disclosure.
(4) Appropriate inquiries. What
inquiries are appropriate will be
determined from the facts and
circumstances of each case. For
example, if one or more tax shelter
indicia are present or if an entity
manager receives a disclosure statement
described in paragraph (b)(3) of this
section, an entity manager has a
responsibility to inquire further whether
the transaction is a prohibited tax
shelter transaction.
(c) Reliance on professional advice—
(1) In general. An entity manager is not
required to obtain the advice of a
professional tax advisor to establish that
the entity manager made appropriate
inquiries. Moreover, not seeking
professional advice, by itself, shall not
give rise to an inference that the entity
manager had reason to know that a
transaction is a prohibited tax shelter
transaction.
(2) Reliance on written opinion of
professional tax advisor. An entity
manager may establish that he or she
did not have a reason to know that a
transaction was a prohibited tax shelter
transaction at the time the tax-exempt
entity entered into the transaction if the
entity manager reasonably, and in good
faith, relied on the written opinion of a
professional tax advisor. Reliance on the
written opinion of a professional tax
advisor establishes that the entity
manager did not have reason to know if,
taking into account all the facts and
circumstances, the reliance was

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reasonable and the entity manager acted
in good faith. For example, the entity
manager’s education, sophistication,
and business experience will be relevant
in determining whether the reliance was
reasonable and made in good faith. In
no event will an entity manager be
considered to have reasonably relied in
good faith on an opinion unless the
requirements of this paragraph (c)(2) are
satisfied. The fact that these
requirements are satisfied, however,
will not necessarily establish that the
entity manager reasonably relied on the
opinion in good faith. For example,
reliance may not be reasonable or in
good faith if the entity manager knew,
or reasonably should have known, that
the advisor lacked knowledge in the
relevant aspects of Federal tax law.
(i) All facts and circumstances
considered. The advice must be based
upon all pertinent facts and
circumstances and the law as it relates
to those facts and circumstances. The
requirements of this paragraph (c)(2) are
not satisfied if the entity manager fails
to disclose a fact that it knows, or
reasonably should know, is relevant to
determining whether the transaction is
a prohibited tax shelter transaction.
(ii) No unreasonable assumptions.
The advice must not be based on
unreasonable factual or legal
assumptions (including assumptions as
to future events) and must not
unreasonably rely on the
representations, statements, findings, or
agreements of the entity manager or any
other person (including another party to
the transaction or a material advisor
within the meaning of sections 6111 and
6112).
(iii) ‘‘More likely than not’’ opinion.
The written opinion of the professional
tax advisor must apply the appropriate
law to the facts and, based on this
analysis, must conclude that the
transaction was not a prohibited tax
shelter transaction at a ‘‘more likely than
not’’ level of certainty at the time the
entity manager approved the entity (or
otherwise caused the entity) to be a
party to the transaction.
(3) Special rule. An entity manager‘s
reliance on a written opinion of a
professional tax advisor will not be
considered reasonable if the advisor is,
or is related to a person who is, a
material advisor with respect to the
transaction within the meaning of
sections 6111 and 6112.
(d) Subsequently listed transactions.
An entity manager will not be treated as
knowing or having reason to know that
a transaction (other than a prohibited
reportable transaction as defined in
section 4965(e)(1)(C) and § 53.4965–
3(a)(2)) is a prohibited tax shelter

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transaction if the entity enters into the
transaction before the date on which the
transaction is identified by the Secretary
as a listed transaction.
(e) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

§ 53.4965–7 Taxes on prohibited tax
shelter transactions.

(a) Entity-level taxes—(1) In general.
Entity-level excise taxes apply to nonplan entities (as defined in § 53.4965–
2(b)) that are parties to prohibited tax
shelter transactions.
(i) Prohibited tax shelter transactions
other than subsequently listed
transactions—(A) Amount of tax if the
entity did not know and did not have
reason to know. If the tax-exempt entity
did not know and did not have reason
to know that the transaction was a
prohibited tax shelter transaction at the
time the entity entered into the
transaction, the tax is the highest rate of
tax under section 11 multiplied by the
greater of—
(1) The entity’s net income with
respect to the prohibited tax shelter
transaction (after taking into account
any tax imposed by Subtitle D, other
than by this section, with respect to
such transaction) for the taxable year; or
(2) 75 percent of the proceeds
received by the entity for the taxable
year that are attributable to such
transaction.
(B) Amount of tax if the entity knew
or had reason to know. If the tax-exempt
entity knew or had reason to know that
the transaction was a prohibited tax
shelter transaction at the time the entity
entered into the transaction, the tax is
the greater of—
(1) 100 percent of the entity’s net
income with respect to the transaction
(after taking into account any tax
imposed by Subtitle D, other than by
this section, with respect to such
transaction) for the taxable year; or
(2) 75 percent of the proceeds
received by the entity for the taxable
year that are attributable to such
transaction.
(ii) Subsequently listed transactions—
(A) In general. In the case of a
subsequently listed transaction (as
defined in section 4965(e)(2) and
§ 53.4965–3(b)), the tax-exempt entity’s
income and proceeds attributable to the
transaction are allocated between the
period before the transaction became
listed and the period beginning on the
date the transaction became listed. See
§ 53.4965–8 for the standard for
allocating net income or proceeds to
various periods. The tax for each taxable

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year is the highest rate of tax under
section 11 multiplied by the greater of—
(1) The entity’s net income with
respect to the subsequently listed
transaction (after taking into account
any tax imposed by Subtitle D, other
than by this section, with respect to
such transaction) for the taxable year
that is allocable to the period beginning
on the later of the date such transaction
is identified by the Secretary as a listed
transaction or the first day of the taxable
year; or
(2) 75 percent of the proceeds
received by the entity for the taxable
year that are attributable to such
transaction and allocable to the period
beginning on the later of the date such
transaction is identified by the Secretary
as a listed transaction or the first day of
the taxable year.
(B) No increase in tax. The 100
percent tax under section 4965(b)(1)(B)
and § 53.4965–7(a)(1)(i)(B) does not
apply to any subsequently listed
transaction (as defined in section
4965(e)(2) and § 53.4965–3(b)) entered
into by a tax-exempt entity before the
date on which the transaction is
identified by the Secretary as a listed
transaction.
(2) Taxable year. The excise tax
imposed under section 4965(a)(1)
applies for the taxable year in which the
entity becomes a party to the prohibited
tax shelter transaction and any
subsequent taxable year for which the
entity has net income or proceeds
attributable to the transaction. A taxable
year for tax-exempt entities is the
calendar year or fiscal year, as
applicable, depending on the basis on
which the tax-exempt entity keeps its
books for Federal income tax purposes.
If a tax-exempt entity has not
established a taxable year for Federal
income tax purposes, the entity’s
taxable year for the purpose of
determining the amount and timing of
net income and proceeds attributable to
a prohibited tax shelter transaction will
be deemed to be the annual period the
entity uses in keeping its books and
records.
(b) Manager-level taxes—(1) Amount
of tax. If any entity manager approved
or otherwise caused the tax-exempt
entity to become a party to a prohibited
tax shelter transaction and knew or had
reason to know that the transaction was
a prohibited tax shelter transaction,
such entity manager is liable for the
$20,000 tax. See § 53.4965–5(d) for the
meaning of approved or otherwise
caused. See § 53.4965–6 for the meaning
of knew or had reason to know.
(2) Timing of the entity manager tax.
If a tax-exempt entity enters into a
prohibited tax shelter transaction during

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a taxable year of an entity manager, then
the entity manager that approved or
otherwise caused the tax-exempt entity
to become a party to the transaction is
liable for the entity manager tax for that
taxable year if the entity manager knew
or had reason to know that the
transaction was a prohibited tax shelter
transaction.
(3) Example. The application of
paragraph (b)(2) of this section is
illustrated by the following example:
Example. The entity manager’s taxable year
is the calendar year. On December 1, 2006,
the entity manager approved or otherwise
caused the tax-exempt entity to become a
party to a transaction that the entity manager
knew or had reason to know was a prohibited
tax shelter transaction. The tax-exempt entity
entered into the transaction on January 31,
2007. The entity manager is liable for the
entity manager level tax for the entity
manager’s 2007 taxable year, during which
the tax-exempt entity entered into the
prohibited tax shelter transaction.

(4) Separate liability. If more than one
entity manager approved or caused a
tax-exempt entity to become a party to
a prohibited tax shelter transaction
while knowing (or having reason to
know) that the transaction was a
prohibited tax shelter transaction, then
each such entity manager is separately
(that is, not jointly and severally) liable
for the entity manager-level tax with
respect to the transaction.
(c) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.
§ 53.4965–8 Definition of net income and
proceeds and standard for allocating net
income or proceeds to various periods.

(a) In general. For purposes of section
4965(a), the amount and the timing of
the net income and proceeds
attributable to the prohibited tax shelter
transaction will be computed in a
manner consistent with the substance of
the transaction. In determining the
substance of listed transactions, the IRS
will look to, among other items, the
listing guidance and any subsequent
guidance published in the Internal
Revenue Bulletin relating to the
transaction.
(b) Definition of net income and
proceeds—(1) Net income. A tax-exempt
entity’s net income attributable to a
prohibited tax shelter transaction is its
gross income derived from the
transaction reduced by those deductions
that are attributable to the transaction
and that would be allowed by chapter
1 of the Internal Revenue Code if the
tax-exempt entity were treated as a
taxable entity for this purpose, and
further reduced by taxes imposed by

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Federal Register / Vol. 75, No. 128 / Tuesday, July 6, 2010 / Rules and Regulations
Subtitle D, other than by this section,
with respect to the transaction.
(2) Proceeds—(i) Tax-exempt entities
that facilitate the transaction by reason
of their tax-exempt, tax indifferent or
tax-favored status. Solely for purposes
of section 4965, in the case of a taxexempt entity that is a party to the
transaction by reason of § 53.4965–
4(a)(1) of this chapter, the term proceeds
means the gross amount of the taxexempt entity’s consideration for
facilitating the transaction, not reduced
for any costs or expenses attributable to
the transaction. Published guidance
with respect to a particular prohibited
tax shelter transaction may designate
additional amounts as proceeds from
the transaction for section 4965
purposes.
(ii) Treatment of gifts and
contributions. To the extent not
otherwise included in the definition of
proceeds in paragraph (b)(2)(i) of this
section, any amount that is a gift or a
contribution to a tax-exempt entity and
is attributable to a prohibited tax shelter
transaction will be treated as proceeds
for section 4965 purposes, unreduced by
any associated expenses.
(c) Allocation of net income and
proceeds—(1) In general. For purposes
of section 4965(a), the net income and
proceeds attributable to a prohibited tax
shelter transaction must be allocated in
a manner consistent with the taxexempt entity’s established method of
accounting for Federal income tax
purposes. If the tax-exempt entity has
not established a method of accounting
for Federal income tax purposes, solely
for purposes of section 4965(a) the taxexempt entity must use the cash receipts
and disbursements method of
accounting (cash method) provided for
in section 446 of the Internal Revenue
Code to determine the amount and
timing of net income and proceeds
attributable to a prohibited tax shelter
transaction.
(2) Special rule. If a tax-exempt entity
has established a method of accounting
other than the cash method, the taxexempt entity may nevertheless use the
cash method of accounting to determine
the amount of the net income and
proceeds—
(i) Attributable to a prohibited tax
shelter transaction entered into prior to
the effective date of section 4965(a) tax
and allocable to pre- and post-effective
date periods; or
(ii) Attributable to a subsequently
listed transaction and allocable to preand post-listing periods.
(d) Transition year rules. In the case
of the taxable year that includes August
16, 2006 (the transition year), the IRS
will treat the period beginning on the

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first day of the transition year and
ending on August 15, 2006, and the
period beginning on August 16, 2006,
and ending on the last day of the
transition year as short taxable years.
This treatment is solely for purposes of
allocating net income or proceeds under
section 4965. The tax-exempt entity
continues to file tax returns for the full
taxable year, does not file tax returns
with respect to these deemed short
taxable years and does not otherwise
take the short taxable years into account
for Federal tax purposes. Accordingly,
the net income or proceeds that are
properly allocated to the transition year
in accordance with this section will be
treated as allocable to the period—
(1) Ending on or before August 15,
2006 (and accordingly not subject to tax
under section 4965(a)) to the extent
such net income or proceeds would
have been properly taken into account
in accordance with this section by the
tax-exempt entity in the deemed short
year ending on August 15, 2006; and
(2) Beginning after August 15, 2006
(and accordingly subject to tax under
section 4965(a)) to the extent such
income or proceeds would have been
properly taken into account in
accordance with this section by the taxexempt entity in the short year
beginning August 16, 2006.
(e) Allocation to pre- and post-listing
periods. If a transaction (other than a
prohibited reportable transaction (as
defined in section 4965(e)(1)(C) and
§ 53.4965–3(a)(2)) to which the taxexempt entity is a party is subsequently
identified in published guidance as a
listed transaction during a taxable year
of the entity (the listing year) in which
it has net income or proceeds
attributable to the transaction, the net
income or proceeds are allocated
between the pre- and post-listing
periods. The IRS will treat the period
beginning on the first day of the listing
year and ending on the day immediately
preceding the date of the listing, and the
period beginning on the date of the
listing and ending on the last day of the
listing year as short taxable years. This
treatment is solely for purposes of
allocating net income or proceeds under
section 4965. The tax-exempt entity
continues to file tax returns for the full
taxable year, does not file tax returns
with respect to these deemed short
taxable years and does not otherwise
take the short taxable years into account
for Federal tax purposes. Accordingly,
the net income or proceeds that are
properly allocated to the listing year in
accordance with this section will be
treated as allocable to the period—
(1) Ending before the date of the
listing (and accordingly not subject to

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tax under section 4965(a)) to the extent
such net income or proceeds would
have been properly taken into account
in accordance with this section by the
tax-exempt entity in the deemed short
year ending on the day immediately
preceding the date of the listing; and
(2) Beginning on the date of the listing
(and accordingly subject to tax under
section 4965(a)) to the extent such
income or proceeds would have been
properly taken into account in
accordance with this section by the taxexempt entity in the short year
beginning on the date of the listing.
(f) Examples. The following examples
illustrate the allocation rules of this
section:
Example 1. (i) In 1999, X, a calendar year
non-plan entity using the cash method of
accounting, entered into a lease-in/lease-out
transaction (LILO) substantially similar to the
transaction described in Notice 2000–15
(2000–1 CB 826) (describing Rev. Rul. 99–14
(1999–1 CB 835), superseded by Rev. Rul.
2002–69 (2002–2 CB 760)). In 1999, X
purported to lease property to Y pursuant to
a ‘‘head lease,’’ and Y purported to lease the
property back to X pursuant to a ‘‘sublease’’
of a shorter term. In form, X received $268M
as an advance payment of head lease rent. Of
this amount, $200M had been, in form,
financed by a nonrecourse loan obtained by
Y. X deposited the $200M with a ‘‘debt
payment undertaker.’’ This served to defease
both a portion of X’s rent obligation under its
sublease and Y’s repayment obligation under
the nonrecourse loan. Of the remainder of the
$268M advance head lease rent payment, X
deposited $54M with an ‘‘equity payment
undertaker.’’ This served to defease the
remainder of X’s rent obligation under the
sublease as well as the exercise price of X’s
end-of-sublease term purchase option. This
amount inures to the benefit of Y and enables
Y to recover its investment in the transaction
and a return on that investment. In
substance, the $54M is a loan from Y to X.
X retained the remaining $14M of the
advance head lease rent payment. In
substance, this represents a fee for X’s
participation in the transaction. See
§ 601.601(d)(2)(ii)(b) of this chapter.
(ii) According to the substance of the
transaction, the head lease, sublease and
nonrecourse debt will be ignored for Federal
income tax purposes. Therefore, any net
income or proceeds resulting from these
elements of the transaction will not be
considered net income or proceeds
attributable to the LILO transaction for
purposes of section 4965(a). The $54M
deemed loan from Y to X and the $14M fee
are not ignored for Federal income tax
purposes.
(iii) Under X’s established cash basis
method of accounting, any net income
received in 1999 and attributable to the LILO
transaction is allocated to X’s December 31,
1999, tax year for purposes of section 4965.
The $14M fee received in 1999, and which
constitutes proceeds of the transaction, is
likewise allocated to that tax year. Because
the 1999 tax year is before the effective date

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of the section 4965 tax, X will not be subject
to any excise tax under section 4965 for the
amounts received in 1999.
(iv) Any earnings on the amount deposited
with the equity payment undertaker that
constitute gross income to X will be reduced
by X’s original issue discount deductions
with respect to the deemed loan from Y, in
determining X’s net income from the
transaction.
Example 2. B, a non-plan entity using the
cash method of accounting, has an annual
accounting period that ends on December 31,
2006. B entered into a prohibited tax shelter
transaction on March 15, 2006. On that date,
B received a payment of $600,000 as a fee for
its involvement in the transaction. B received
no other proceeds or income attributable to
this transaction in 2006. Under B’s method
of accounting, the payment received by B on
March 15, 2006, is taken into account in the
deemed short year ending on August 15,
2006. Accordingly, solely for purposes of
section 4965, the payment is treated as
allocable solely to the period ending on or
before August 15, 2006, and is not subject to
the excise tax imposed by section 4965(a).
Example 3. The facts are the same as in
Example 2, except that B received an
additional payment of $400,000 on
September 30, 2006. Under B’s method of
accounting, the payment received by B on
September 30, 2006, is taken into account in
the deemed short year beginning on August
16, 2006. Accordingly, solely for purposes of
section 4965, the $400,000 payment is treated
as allocable to the period beginning after
August 15, 2006, and is subject to the excise
tax imposed by section 4965(a).
Example 4. C, a non-plan entity using the
cash method of accounting, has an annual
accounting period that ends on December 31.
C entered into a prohibited tax shelter
transaction on May 1, 2005. On March 15,
2007, C received a payment of $580,000
attributable to the transaction. On June 1,
2007, the transaction is identified by the IRS
in published guidance as a listed transaction.
On June 15, 2007, C received an additional
payment of $400,000 attributable to the
transaction. Under C’s method of accounting,
the payments received on March 15, 2007,
and June 15, 2007, are taken into account in
2007. The IRS will treat the period beginning
on January 1, 2007, and ending on May 31,
2007, and the period beginning on June 1,
2007, and ending on December 31, 2007, as
short taxable years. The payment received by
C on March 15, 2007, is taken into account
in the deemed short year ending on May 31,
2007. Accordingly, solely for purposes of
section 4965, the payment is treated as
allocable solely to the pre-listing period, and
is not subject to the excise tax imposed by
section 4965(a). The payment received by C
on June 15, 2007, is taken into account in the
deemed short year beginning on June 1, 2007.
Accordingly, solely for purposes of section
4965, the payment is treated as allocable to
the post-listing period, and is subject to the
excise tax imposed by section 4965(a).

(g) Effective/applicability dates. See
§ 53.4965–9 for the discussion of the
relevant effective and applicability
dates.

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§ 53.4965–9

Effective/applicability dates.

(a) In general. The taxes under section
4965(a) and § 53.4965–7 are effective for
taxable years ending after May 17, 2006,
with respect to transactions entered into
before, on or after that date, except that
no tax under section 4965(a) applies
with respect to income or proceeds that
are properly allocable to any period
ending on or before August 15, 2006.
(b) Applicability of the regulations. As
of July 6, 2010, except as provided in
paragraph (c) of this section,
§§ 53.4965–1 through 53.4965–8 of this
chapter will apply to taxable years
ending after July 6, 2007. A tax-exempt
entity may rely on the provisions of
§§ 53.4965–1 through 53.4965–8 for
taxable years ending on or before July 6,
2007.
(c) Effective/applicability date with
respect to certain knowing
transactions—(1) Entity-level tax. The
100 percent tax under section
4965(b)(1)(B) and § 53.4965–7(a)(1)(i)(B)
does not apply to prohibited tax shelter
transactions entered into by a taxexempt entity on or before May 17,
2006.
(2) Manager-level tax. The IRS will
not assert that an entity manager who
approved or caused a tax-exempt entity
to become a party to a prohibited tax
shelter transaction is liable for the entity
manager tax under section 4965(b)(2)
and § 53.4965–7(b)(1) with respect to
the transaction if the tax-exempt entity
entered into such transaction prior to
May 17, 2006.
Par. 6. Section 53.6071–1, paragraphs
(g) and (h) are revised to read as follows:

■

§ 53.6071–1

Time for filing returns.

*

*
*
*
*
(g) Taxes imposed with respect to
prohibited tax shelter transactions to
which tax-exempt entities are parties—
(1) Returns by certain tax-exempt
entities. A Form 4720, ‘‘Return of
Certain Excise Taxes Under Chapters 41
and 42 of the Internal Revenue Code,’’
required by § 53.6011–1(b) for a taxexempt entity described in section
4965(c)(1), (c)(2) or (c)(3) that is a party
to a prohibited tax shelter transaction
and is liable for tax imposed by section
4965(a)(1) shall be filed on or before the
due date (not including extensions) for
filing the tax-exempt entity’s annual
information return under section
6033(a)(1). If the tax-exempt entity is
not required to file an annual
information return under section
6033(a)(1), the Form 4720 shall be filed
on or before the 15th day of the fifth
month after the end of the tax-exempt
entity’s taxable year or, if the entity has
not established a taxable year for

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Federal income tax purposes, the
entity’s annual accounting period.
(2) Returns by entity managers of taxexempt entities described in section
4965(c)(1), (c)(2) or (c)(3). A Form 4720,
required by § 53.6011–1(b) for an entity
manager of a tax-exempt entity
described in section 4965(c)(1), (c)(2) or
(c)(3) who is liable for tax imposed by
section 4965(a)(2) shall be filed on or
before the 15th day of the fifth month
following the close of the entity
manager’s taxable year during which the
entity entered into the prohibited tax
shelter transaction.
(3) Transition rule. A Form 4720, for
a section 4965 tax that is or was due on
or before October 4, 2007, will be
deemed to have been filed on the due
date if it is filed by October 4, 2007, and
if all section 4965 taxes required to be
reported on that Form 4720 are paid by
October 4, 2007.
(h) Effective/applicability date.
Paragraph (g) of this section is
applicable on July 6, 2007.
§ 53.6071–1T

[Amended]

Par. 7. Section 53.6071–1T(g) & (h) are
removed.

■

PART 54—PENSION EXCISE TAXES
Par. 8. The authority citation for part
54 continues to read, in part, as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 9. Section 54.6011–1, paragraphs
(c) and (d) are revised to read as follows:

■

§ 54.6011–1 General requirement of return,
statement or list.

*

*
*
*
*
(c) Entity manager tax on prohibited
tax shelter transactions—(1) In general.
Any entity manager of a tax-exempt
entity described in section 4965(c)(4),
(c)(5), (c)(6), or (c)(7) who is liable for
tax under section 4965(a)(2) shall file a
return on Form 5330, ‘‘Return of Excise
Taxes Related to Employee Benefit
Plans,’’ on or before the 15th day of the
fifth month following the close of such
entity manager’s taxable year during
which the entity entered into the
prohibited tax shelter transaction, and
shall include therein the information
required by such form and the
instructions issued with respect thereto.
(2) Transition rule. A Form 5330,
‘‘Return of Excise Taxes Related to
Employee Benefit Plans,’’ for an excise
tax under section 4965 that is or was
due on or before October 4, 2007, will
be deemed to have been filed on the due
date if it is filed by October 4, 2007, and
if the section 4965 tax that was required
to be reported on that Form 5330 is paid
by October 4, 2007.

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(d) Effective/applicability date.
Paragraph (c) of this section is
applicable on July 6, 2007.
§ 54.6011–1T

[Amended]

Par. 10. Section § 54.6011–1T(c) & (d)
are removed.

■

PART 301—PROCEDURE AND
ADMINISTRATION
Par. 11. The authority citation for part
301 continues to read, in part, as
follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 12. Section 301.6011(g)–1 is
added to read as follows:

■

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§ 301.6011(g)-1 Disclosure by taxable
party to the tax-exempt entity.

(a) Requirement of disclosure—(1) In
general. Except as provided in
paragraph (d)(2) of this section, any
taxable party (as defined in paragraph
(c) of this section) to a prohibited tax
shelter transaction (as defined in section
4965(e) and § 53.4965–3 of this chapter)
must disclose by statement to each taxexempt entity (as defined in section
4965(c) and § 53.4965–2 of this chapter)
that the taxable party knows or has
reason to know is a party to such
transaction (as defined in paragraph (b)
of this section) that the transaction is a
prohibited tax shelter transaction.
(2) Determining whether a taxable
party knows or has reason to know.
Whether a taxable party knows or has
reason to know that a tax-exempt entity
is a party to a prohibited tax shelter
transaction is based on all the facts and
circumstances. If the taxable party
knows or has reason to know that a
prohibited tax shelter transaction
involves a tax-exempt, tax indifferent or
tax-favored entity, relevant factors for
determining whether the taxable party
knows or has reason to know that a
specific tax-exempt entity is a party to
the transaction include—
(i) The extent of the efforts made to
determine whether a tax-exempt entity
is facilitating the transaction by reason
of its tax-exempt, tax indifferent or taxfavored status (or is identified in
published guidance, by type, class or
role, as a party to the transaction); and
(ii) If a tax-exempt entity is facilitating
the transaction by reason of its taxexempt, tax indifferent or tax-favored
status (or is identified in published
guidance, by type, class or role, as a
party to the transaction), the extent of
the efforts made to determine the
identity of the tax-exempt entity.
(b) Definition of tax-exempt party to a
prohibited tax shelter transaction. For
purposes of section 6011(g), a taxexempt entity is a party to a prohibited

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tax shelter transaction if the entity is
defined as such under § 53.4965–4 of
this chapter.
(c) Definition of taxable party—(1) In
general. For purposes of this section, the
term taxable party means—
(i) A person who has entered into and
participates or expects to participate in
the transaction under §§ 1.6011–
4(c)(3)(i)(A), (B), or (C), 20.6011–4,
25.6011–4, 31.6011–4, 53.6011–4,
54.6011–4, or 56.6011–4 of this chapter;
or
(ii) A person who is designated as a
taxable party by the Secretary in
published guidance.
(2) Special rules—(i) Certain listed
transactions. If a transaction that was
otherwise not a prohibited tax shelter
transaction becomes a listed transaction
after the filing of a person’s tax return
(including an amended return)
reflecting either tax consequences or a
tax strategy described in the published
guidance listing the transaction (or a tax
benefit derived from tax consequences
or a tax strategy described in the
published guidance listing the
transaction), the person is a taxable
party beginning on the date the
transaction is described as a listed
transaction in published guidance.
(ii) Persons designated as non-parties.
Published guidance may identify which
persons, by type, class or role, will not
be treated as a party to a prohibited tax
shelter transaction for purposes of
section 6011(g).
(d) Time for providing disclosure
statement—(1) In general. A taxable
party to a prohibited tax shelter
transaction must make the disclosure
required by this section to each taxexempt entity that the taxable party
knows or has reason to know is a party
to the transaction within 60 days after
the last to occur of—
(i) The date the person becomes a
taxable party to the transaction within
the meaning of paragraph (c) of this
section;
(ii) The date the taxable party knows
or has reason to know that the taxexempt entity is a party to the
transaction within the meaning of
paragraph (b) of this section; or
(iii) July 6, 2010.
(2) Termination of a disclosure
obligation. A person shall not be
required to provide the disclosure
otherwise required by this section if the
person does not know or have reason to
know that the tax-exempt entity is a
party to the transaction within the
meaning of paragraph (b) of this section
on or before the first date on which the
transaction is required to be disclosed
by the person under §§ 1.6011–4,
20.6011–4, 25.6011–4, 31.6011–4,

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38709

53.6011–4, 54.6011–4, or 56.6011–4 of
this chapter.
(3) Disclosure is not required with
respect to any prohibited tax shelter
transaction entered into by a tax-exempt
entity on or before May 17, 2006.
(e) Frequency of disclosure. One
disclosure statement is required per taxexempt entity per transaction. See
paragraph (h) of this section for rules
relating to designation agreements.
(f) Form and content of disclosure
statement. The statement disclosing to
the tax-exempt entity that the
transaction is a prohibited tax shelter
transaction must be a written statement
that—
(1) Identifies the type of prohibited
tax shelter transaction (including the
published guidance citation for a listed
transaction); and
(2) States that the tax-exempt entity’s
involvement in the transaction may
subject either it or its entity manager(s)
or both to excise taxes under section
4965 and to disclosure obligations
under section 6033(a) of the Internal
Revenue Code.
(g) To whom disclosure is made. The
disclosure statement must be
provided—
(1) In the case of a non-plan entity as
defined in § 53.4965–2(b) of this
chapter, to—
(i) Any entity manager of the taxexempt entity with authority or
responsibility similar to that exercised
by an officer, director or trustee of an
organization; or
(ii) If a person described in paragraph
(g)(1)(i) of this section is not known, to
the primary contact on the transaction.
(2) In the case of a plan entity as
defined in § 53.4965–2(c) of this
chapter, including a fully self-directed
qualified plan, IRA, or other savings
arrangement, to any entity manager of
the plan entity who approved or
otherwise caused the entity to become a
party to the prohibited tax shelter
transaction.
(h) Designation agreements. If more
than one taxable party is required to
disclose a prohibited tax shelter
transaction under this section, the
taxable parties may designate by written
agreement a single taxable party to
disclose the transaction. The transaction
must then be disclosed in accordance
with this section. The designation of
one taxable party to disclose the
transaction does not relieve the other
taxable parties of their obligation to
disclose the transaction to a tax-exempt
entity that is a party to the transaction
in accordance with this section, if the
designated taxable party fails to disclose
the transaction to the tax-exempt entity
in a timely manner.

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(i) Penalty for failure to provide
disclosure statement. See section 6707A
for the penalty applicable to the failure
to disclose a prohibited tax shelter
transaction in accordance with this
section.
(j) Effective date/applicability date.
This section will apply with respect to
transactions entered into by a taxexempt entity after May 17, 2006.
Par. 13. Section 301.6033–5 is added
to read as follows:

■

§ 301.6033–5 Disclosure by tax-exempt
entities that are parties to certain reportable
transactions.

(a) In general. For provisions relating
to the requirement of the disclosure by
a tax-exempt entity that it is a party to
certain reportable transactions, see
§ 1.6033–5 of this chapter (Income Tax
Regulations).
(b) Effective date/applicability date.
This section applies with respect to
transactions entered into by a taxexempt entity after May 17, 2006.
§ 301.6033–5T

[Removed]

Par. 14. Section 301.6033–5T is
removed.

■

PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 15. The authority citation for part
602 continues to read, in part, as
follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 16. In § 602.101, paragraph (b) is
amended by adding the following entry
in numerical order to the table to read
as follows:

■

§ 602.101

*

OMB Control Numbers.

*
*
(b) * * *

*

*

CFR part or section where
identified and described
*
*
*
301.6011(g)–1 ......................

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*

*

*

Current OMB
Control No.
*

*
1545–2079

*

Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: June 29, 2010.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2010–16237 Filed 7–2–10; 8:45 am]
BILLING CODE 4830–01–P

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*

DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 100
[Docket No. USCG–2009–0520]
RIN 1625–AA08

Special Local Regulation, Fran Schnarr
Open Water Championships,
Huntington Bay, NY
Coast Guard, DHS.
Final rule.

AGENCY:
ACTION:

SUMMARY: The Coast Guard is
establishing a permanent Special Local
Regulation on the navigable waters of
Huntington Bay, New York due to the
annual Fran Schnarr Open Water
Championships. This Special Local
Regulation is necessary to provide for
the safety of life by protecting swimmers
and their safety craft from the hazards
imposed by marine traffic. Entry into
this zone is prohibited unless
authorized by the Captain of the Port
Long Island Sound, New Haven, CT.
DATES: This rule is effective July 6,
2010.

Comments and material
received from the public, as well as
documents mentioned in this preamble
as being available in the docket, are part
of docket USCG–2009–0520 and are
available online by going to http://
www.regulations.gov, inserting USCG–
2009–0520 in the ‘‘Keyword’’ box, and
then clicking ‘‘Search.’’ This material is
also available for inspection or copying
at the Docket Management Facility (M–
30), U.S. Department of Transportation,
West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue, SE.,
Washington, DC 20590, between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this rule, call or
e-mail Chief Petty Officer Christie
Dixon, Prevention Department, USCG
Sector Long Island Sound at 203–468–
4459, [email protected]. If you
have questions on viewing the docket,
call Renee V. Wright, Program Manager,
Docket Operations, telephone 202–366–
9826.
SUPPLEMENTARY INFORMATION:
ADDRESSES:

Regulatory Information
On March 22, 2010, the Coast Guard
published a Supplemental Notice of
Proposed Rulemaking (SNPRM) entitled
‘‘Special Local Regulation, Fran Schnarr
Open Water Championships,
Huntington Bay, NY’’ in the Federal

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Register (75 FR 13454). The Coast Guard
received no comments or requests for
meetings on the proposed rule.
The Coast Guard is issuing this
temporary final rule without the 30-day
delayed effective date normally required
by the Administrative Procedure Act
(APA) (5 U.S.C. 553(d)). Under 5 U.S.C.
553(d)(3), the Coast Guard finds that
good cause exists for making this rule
effective less than 30 days after
publication in the Federal Register. To
delay the effective date in this case
would be impractical and unnecessary.
Delay would be impractical because it
would require that the event be
rescheduled, a change which would
affect hundreds of persons. Delay is also
unnecessary because this event is not
controversial; in the three months since
the initial notice of proposed
rulemaking, exactly zero comments
have been received.
Basis and Purpose
The Fran Schnarr Open Water
Championships is an annual open water
swim on the waters of Huntington Bay,
NY. This swim has historically involved
up to 150 swimmers and accompanying
safety craft. Prior to this rule there was
not a permanent regulation in place to
protect the swimmers or safety craft
from the hazards imposed by marine
traffic. To provide for the safety of life,
the Coast Guard is establishing a
permanent special local regulation on
the navigable waters of Huntington Bay,
New York that excludes all
unauthorized persons and vessels from
approaching within 100 yards of any
swimmer or safety craft on the race
course.
Background
On October 6, 2009 the Coast Guard
published a Notice of Proposed
Rulemaking with request for comments
titled, ‘‘Special Local Regulation, Fran
Schnarr Open Water Championships,
Huntington Bay, NY’’ (Docket number
USCG–2009–0520) in the Federal
Register (74 FR 51243). The notice
proposed a regulated area encompassing
100 yards around the race course for the
duration of the race. This provided
safety of life for swimmers and safety
craft, but any vessel transiting through
the Bay would have to pass through the
regulated area putting a burden on
vessel traffic. This regulated area was
considered but was not chosen due to
its burden on vessel traffic.
On March 22, 2010, the Coast Guard
published a supplemental notice of
proposed rulemaking (SNPRM) entitled:
Special Local Regulation, Fran Schnarr
Open Water Championships,

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