[Federal Register: March 4, 2003 (Volume 68, Number 42)]
[Rules and Regulations]
[Page 10161-10178]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr03-10]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 31, 53, 54, 56, 301, and 602
[TD 9046]
RIN 1545-AX81; 1545-BB49; 1545-BB50; 1545-BB48; 1545-BB53; 1545-BB51;
1545-BB52; 1545-AW26; 1545-AX79
Tax Shelter Regulations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: These regulations finalize the rules relating to the filing by
certain taxpayers of a disclosure statement with their Federal tax
returns under section 6011(a), the rules relating to the registration
of confidential corporate tax shelters under section 6111(d), and the
rules relating to the list maintenance requirements under section 6112.
These regulations affect taxpayers participating in reportable
transactions, persons responsible for registering confidential
corporate tax shelters, and organizers and sellers of potentially
abusive tax shelters.
DATES: Effective Date: These regulations are effective February 28,
2003.
Applicability Date: For dates of applicability, see Sec. 1.6011-
4(h), Sec. 20.6011-4(b), Sec. 25.6011-4(b), Sec. 31.6011-4(b), Sec.
53.6011-4(b), Sec. 54.6011-4(b), Sec. 56.6011-4(b), Sec. 301.6111-
2(h), and Sec. 301.6112-1(j).
FOR FURTHER INFORMATION CONTACT: Tara P. Volungis or Charlotte Chyr,
202-622-3070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations
have been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control numbers 1545-1685, 1545-1687, and 1545-1686. Responses to these
collections of information are mandatory. Form 8886, ``Reportable
Transaction Disclosure Statement'', reflects the collection of
information relating to the disclosure of reportable transactions for
the regulations under Sec. 1.6011-4, and was approved by OMB under
control number 1545-1800. Form 8264, ``Application for Registration of
a Tax Shelter'', reflects the collection of information relating to the
registration of tax shelters for the regulations under Sec. 301.6111-2
and Sec. 301.6111-1T, and was approved by OMB under control number
1545-0865.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid OMB control number assigned by the Office
of Management and Budget.
The estimated annual burden per respondent/recordkeeper for the
collection of information in Sec. 1.6011-4 will be reflected on Form
8886. The estimated annual burden for the collection of information in
Form 8886 is 3,770 hours and the estimated number of respondents/
recordkeepers is 500. The estimated annual burden per respondent/
recordkeeper for the collection of information in Sec. 301.6111-2 is
reflected on Form 8264. The estimated annual burden for the collection
of information in Form 8264 is 14,382 hours and the estimated number of
respondents/recordkeepers is 350. The estimated annual burden per
recordkeeper for the collection of information in Sec. 301.6112-1 is
100 hours and the estimated number of recordkeepers is 500.
Comments concerning the accuracy of these burden estimates and
suggestions for reducing these burdens should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:T:T:SP,
Washington, DC 20224, and to the Office of Management and Budget, Attn:
Desk Officer for the Department of the Treasury, Office of Information
and Regulatory Affairs, Washington, DC 20503.
Books and records relating to these collections of information must
be retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document amends 26 CFR part 1 to provide rules relating to the
disclosure of reportable transactions by certain taxpayers on their
Federal tax returns under section 6011, and also amends 26 CFR parts
20, 25, 31, 53, 54, and 56 to provide rules for purposes of estate,
gift, employment, and pension and exempt organizations excise taxes
requiring the disclosure of listed transactions by certain taxpayers on
their Federal tax returns under section 6011. This document amends 26
CFR part 301 to provide rules regarding the registration of
confidential corporate tax shelters under section 6111(d) and rules
relating to the list maintenance requirements under section 6112.
On February 28, 2000, the IRS issued temporary and proposed
regulations regarding sections 6011, 6111, and 6112 (TD 8877, REG-
103735-00; TD 8876, REG-110311-98; TD 8875, REG-103736-00) (the
February 2000 regulations). The February 2000 regulations were
published in the Federal Register (65 FR 11205, 65 FR 11269; 65 FR
11215, 65 FR 11272; 65 FR 11211, 65 FR 11271) on March 2, 2000. On
August 11, 2000, the IRS issued temporary and proposed regulations
modifying the rules under sections 6011, 6111, and 6112 (TD 8896, REG-
103735-00, REG-110311-98, REG-103736-00) (the August 2000 regulations).
The August 2000 regulations were published in the Federal Register (65
FR 49909, 65 FR 49955) on August 16, 2000. On August 2, 2001, the IRS
issued temporary and proposed regulations modifying the rules under
sections 6011 and 6111 (TD 8961, REG-103735-00, REG-110311-98) (the
August 2001 regulations). The August 2001 regulations were published in
the Federal Register (66 FR 41133, 66 FR 41169) on August 7, 2001. On
June 14, 2002, the IRS issued temporary and
[[Page 10162]]
proposed regulations modifying the rules under sections 6011 and 6111
(TD 9000, REG-103735-00, REG-110311-98) (the June 2002 regulations).
The June 2002 regulations were published in the Federal Register (67 FR
41324, 67 FR 41362) on June 18, 2002. On October 17, 2002, the IRS
issued temporary and proposed regulations modifying the rules under
sections 6011, 6111, and 6112 (TD 9017, REG-103735-00, REG-154117-02,
REG-154116-02, REG-154115-02, REG-154429-02, REG-154423-02, REG-154426-
02, REG-110311-98; TD 9018, REG-103736-00) (the October 2002
regulations). The October 2002 regulations were published in the
Federal Register (67 FR 64799, 67 FR 64840; 67 FR 64807, 67 FR 64842)
on October 22, 2002. On December 11, 2002, and on January 7, 2003, the
IRS and Treasury Department held a public hearing on these regulations.
Written and electronic comments responding to the temporary regulations
and the notices of proposed rulemaking were received. After
consideration of all the statements and comments, the proposed
regulations are adopted as amended by this Treasury decision, and the
corresponding temporary regulations are removed. The revisions are
discussed below.
Explanation and Summary of Comments
1. In General
These regulations finalize the rules for disclosure of reportable
transactions, registration of confidential corporate tax shelters, and
list maintenance of potentially abusive tax shelters. Sections 20.6011-
4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, 56.6011-4, and 301.6111-
2 finalize each corresponding proposed regulation with few, if any,
changes. Sections 1.6011-4 and 301.6112-1 modify and finalize each
corresponding proposed regulation.
The IRS and Treasury Department received numerous comments relating
to the October 2002 temporary regulations regarding disclosure under
Sec. 1.6011-4T and list maintenance under Sec. 301.6112-1T. All
comments were reviewed thoroughly. In particular, the IRS and Treasury
Department reviewed the commentators' suggested clarifications to the
rules pertaining to loss transactions and transactions with a
significant book-tax difference, and to the rules pertaining to who
must disclose transactions under section 6011. The IRS and Treasury
Department also focused specifically on the comments relating to the
rules pertaining to material advisors and the rules pertaining to the
persons who must be included on lists under section 6112. In response
to the commentators' suggested clarifications, the final regulations
have been revised to tailor more narrowly the scope of the transactions
for which disclosure and maintenance of information under sections 6011
and 6112 is required. The major changes to the regulations are
described below.
2. Section 6011--Participants
The definition of participation has been clarified in the final
regulations. Reporting of transactions by RICs and reporting of certain
leasing transactions have been excluded from the requirements under
Sec. 1.6011-4, provided that the transactions are not listed
transactions.
3. Section 6011--Confidential Transactions
A confidential transaction is a transaction that is offered under
conditions of confidentiality. The regulations generally provide a
presumption of non-confidentiality if the taxpayer receives written
authorization to disclose the tax treatment and tax structure of the
transaction. Some commentators suggested the following changes to the
regulations: (1) clarification regarding when the written authorization
to disclose has to be effective, (2) clarification regarding whether
proprietary transactions are confidential if there is a written
authorization to disclose, and (3) an exception for certain merger and
acquisition transactions. In response to those comments, the IRS and
Treasury Department have made modifications to the factors for a
confidential transaction in the final regulation.
The final regulations delete the clarification, under the
definition of a confidential transaction for purposes of both section
6011 and section 6111, that a privilege held by the taxpayer does not
cause a transaction to be confidential. The IRS and Treasury Department
believe that this clarification is not necessary because the attorney-
client privilege (or the confidentiality privilege of section 7525(a))
does not affect whether a transaction is confidential. A claim of
privilege does not restrict the taxpayer's ability to disclose the tax
treatment or tax structure of a transaction.
4. Section 6011--Transactions with Contractual Protection
Commentators indicated that it is inappropriate to require the
reporting of a transaction for which the taxpayer obtains tax
insurance. Other commentators suggested that the contractual protection
factor would require the reporting of numerous non-abusive types of
transactions, such as legitimate business transactions with tax
indemnities or rights to terminate the transaction in the event of a
change in tax law. In response to these comments, the IRS and Treasury
Department changed the focus of the contractual protection factor to
whether fees are refundable or contingent. However, if it comes to the
attention of the IRS and Treasury Department that other types of
contractual protection, including tax insurance or tax indemnities, are
being used to facilitate abusive transactions, changes to the
regulations will be considered.
5. Section 6011--Loss Transactions
Many commentators suggested that the loss transaction factor was
over broad and would require disclosure of a significant number of
transactions occurring in the ordinary course of business. In response
to these comments, exceptions to the loss transaction factor will be
issued in separate published guidance.
6. Section 6011--Transactions with a Significant Book-Tax Difference
The IRS and Treasury Department received many comments on the use
of U.S. GAAP, the manner in which gross assets are to be calculated,
and the potential exclusion of items for purposes of the book-tax
difference factor. In response, the final regulations revise the book-
tax difference factor to provide that if a taxpayer in the ordinary
course of its business keeps books on a basis other than U.S. GAAP and
does not use U.S. GAAP for any purpose, then the taxpayer may determine
the treatment of a book item by using the books maintained by the
taxpayer, provided the books are kept on the same basis consistently
from year to year. In addition, the final regulations increase the
requisite gross asset amount to $250 million or more and specify that
the amount of gross assets is determined by ascertaining whether the
gross assets equaled or exceeded $250 million for book purposes at the
end of any financial accounting period that ends with or within the
entity's taxable year in which the transaction occurs.
In response to comments that the scope of the book-tax difference
factor was over broad, the IRS and Treasury Department have revised the
exceptions to this factor. The exceptions to the book-tax difference
factor have been removed from the regulations and will
[[Page 10163]]
be issued in separate published guidance.
7. Section 6011--Form 8886
Taxpayers will disclose reportable transactions under the final
regulations on Form 8886. Reportable transactions entered into on or
after January 1, 2003, and prior to February 28, 2003, for which the
taxpayer does not choose to apply the final regulations, may be
disclosed on Form 8886 or as provided in Sec. 1.6011-4T(c) as
published in the Federal Register (67 FR 41324) on June 18, 2002. Form
8886 will allow taxpayers to aggregate substantially similar
transactions on one form for disclosure purposes.
8. Section 6112
Commentators requested clarification on the definition of a
material advisor and the threshold fee requirement. In response to
those comments, the final regulations provide that a person is a
material advisor if the person is required to register a transaction
under section 6111, or the person receives at least a minimum fee with
respect to the transaction and makes a tax statement to certain
taxpayers. In addition, the IRS and Treasury Department have clarified
that fees are defined as all fees for services for advice (whether or
not tax advice) or for the implementation of a transaction that is a
potentially abusive tax shelter.
In the final regulations, the IRS and Treasury Department have
clarified that the procedures for asserting a privilege claim apply to
information required to be maintained in Sec. 301.6112-1(e)(3)(i)(I)
that might be privileged. This change reflects the IRS and Treasury
Department's belief that the other information covered by these
regulations is not privileged. These procedures neither expand nor
contract the scope of items that may be privileged.
Effective Date
Regulations Sec. Sec. 1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4,
53.6011-4, 54.6011-4, 56.6011-4, 301.6111-2, and 301.6112-1 apply to
transactions entered into on or after February 28, 2003.
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 also has 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 these regulations will
not have a significant economic impact on a substantial number of small
entities. With regard to disclosure and registration, this
certification is based upon the fact that the time required to prepare
or retain the disclosure or registration is not lengthy and will not
have a significant impact on those small entities that are required to
provide disclosure or to register. With regard to list maintenance,
this certification is based upon the fact that the number of
respondents is small, those persons responsible for maintaining the
list described in the regulations are principally sophisticated
businesses, including accounting firms and law firms, and very few
respondents, if any, are likely to be small businesses. Therefore, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the
Internal Revenue 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 their impact on small
business.
Drafting Information
The principal authors of these regulations are Tara P. Volungis and
Charlotte Chyr of the Office of the Associate Chief Counsel
(Passthroughs and Special Industries). However, other personnel from
the IRS and Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 20
Estate tax, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
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 56
Excise taxes, Lobbying, Nonprofit organizations, Reporting and
recordkeeping requirements.
26 CFR Part 301
Administrative practice and procedure, Employment taxes, Estate
taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, 25, 31, 53, 54, 56, 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 1.6011-4 is added to read as follows:
Sec. 1.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. Every taxpayer that has participated, as described
in paragraph (c)(3) of this section, in a reportable transaction within
the meaning of paragraph (b) of this section and who is required to
file a tax return must attach to its return for the taxable year
described in paragraph (e) of this section a disclosure statement in
the form prescribed by paragraph (d) of this section. The fact that a
transaction is a reportable transaction shall not affect the legal
determination of whether the taxpayer's treatment of the transaction is
proper.
(b) Reportable transactions--(1) In general. A reportable
transaction is a transaction described in any of the paragraphs (b)(2)
through (7) of this section. The term transaction includes all of the
factual elements relevant to the expected tax treatment of any
investment, entity, plan, or arrangement, and includes any series of
steps carried out as part of a plan. There are six categories of
reportable transactions: listed transactions, confidential
transactions, transactions with contractual protection, loss
transactions, transactions with a significant book-tax difference, and
[[Page 10164]]
transactions involving a brief asset holding period.
(2) Listed transactions. A listed transaction is a transaction that
is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service (IRS) has determined to
be a tax avoidance transaction and identified by notice, regulation, or
other form of published guidance as a listed transaction.
(3) Confidential transactions--(i) In general. A confidential
transaction is a transaction that is offered to a taxpayer under
conditions of confidentiality. A transaction is considered offered to a
taxpayer under conditions of confidentiality if the taxpayer's
disclosure of the tax treatment or the tax structure of the transaction
is limited in any manner by an express or implied understanding or
agreement with or for the benefit of any person who makes or provides a
statement, oral or written, to the taxpayer (or for whose benefit a
statement is made or provided to the taxpayer) as to the potential tax
consequences that may result from the transaction, whether or not such
understanding or agreement is legally binding. A transaction also will
be considered offered to a taxpayer under conditions of confidentiality
if the taxpayer knows or has reason to know that the taxpayer's use or
disclosure of information relating to the tax treatment or tax
structure of the transaction is limited in any other manner (such as
where the transaction is claimed to be proprietary or exclusive) for
the benefit of any person, other than the taxpayer, who makes or
provides a statement, oral or written, to the taxpayer (or for whose
benefit a statement is made or provided to the taxpayer) as to the
potential tax consequences that may result from the transaction. All
the facts and circumstances relating to the transaction will be
considered when determining whether a transaction is offered to a
taxpayer under conditions of confidentiality, including the prior
conduct of the parties.
(ii) Exceptions--(A) Securities law. A transaction is not
considered offered to a taxpayer under conditions of confidentiality if
disclosure of the tax treatment or tax structure of the transaction is
subject to restrictions reasonably necessary to comply with securities
laws and such disclosure is not otherwise limited.
(B) Mergers and acquisitions. In the case of a proposed taxable or
tax-free acquisition of historic assets of a corporation (other than an
investment company, as defined in section 351(e), that is not publicly
traded) that constitute an active trade or business the acquirer
intends to continue, or a proposed taxable or tax-free acquisition of
more than 50 percent of the stock of a corporation (other than an
investment company, as defined in section 351(e), that is not publicly
traded) that owns historic assets used in an active trade or business
the acquirer intends to continue, the transaction is not considered a
confidential transaction under this paragraph (b)(3) if the taxpayer is
permitted to disclose the tax treatment and tax structure of the
transaction no later than the earlier of the date of the public
announcement of discussions relating to the transaction, the date of
the public announcement of the transaction, or the date of the
execution of an agreement (with or without conditions) to enter into
the transaction. However, this exception is not available where the
taxpayer's ability to consult any tax advisor (including a tax advisor
independent from all other entities involved in the transaction)
regarding the tax treatment or tax structure of the transaction is
limited in any way.
(iii) Presumption. Unless the facts and circumstances indicate
otherwise, a transaction is not considered offered to a taxpayer under
conditions of confidentiality if every person who makes or provides a
statement, oral or written, to the taxpayer (or for whose benefit a
statement is made or provided to the taxpayer) as to the potential tax
consequences that may result from the transaction, provides express
written authorization to the taxpayer in substantially the following
form: ``the taxpayer (and each employee, representative, or other agent
of the taxpayer) may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the
transaction and all materials of any kind (including opinions or other
tax analyses) that are provided to the taxpayer relating to such tax
treatment and tax structure''. Except as provided in paragraph
(b)(3)(ii) of this section, this presumption is available only in cases
in which each written authorization permits the taxpayer to disclose
the tax treatment and tax structure of the transaction immediately upon
commencement of discussions with the person providing the authorization
and each written authorization is given no later than 30 days from the
day the person providing the written authorization first makes or
provides a statement to the taxpayer regarding the tax consequences of
the transaction. A transaction that is claimed to be exclusive or
proprietary to any party other than the taxpayer will not be considered
a confidential transaction under this paragraph (b)(3) if written
authorization to disclose is provided to the taxpayer in accordance
with this paragraph (b)(3)(iii) and the transaction is not otherwise
confidential.
(4) Transactions with contractual protection--(i) In general. A
transaction with contractual protection is a transaction for which the
taxpayer or a related party (as described in section 267(b) or 707(b))
has the right to a full or partial refund of fees (as described in
paragraph (b)(4)(ii) of this section) if all or part of the intended
tax consequences from the transaction are not sustained. A transaction
with contractual protection also is a transaction for which fees (as
described in paragraph (b)(4)(ii) of this section) are contingent on
the taxpayer's realization of tax benefits from the transaction. All
the facts and circumstances relating to the transaction will be
considered when determining whether a fee is refundable or contingent,
including the right to reimbursements of amounts that the parties to
the transaction have not designated as fees or any agreement to provide
services without reasonable compensation.
(ii) Fees. Paragraph (b)(4)(i) of this section only applies with
respect to fees paid by or on behalf of the taxpayer or a related party
to any person who makes or provides a statement, oral or written, to
the taxpayer or related party (or for whose benefit a statement is made
or provided to the taxpayer or related party) as to the potential tax
consequences that may result from the transaction.
(iii) Exceptions--(A) Termination of transaction. A transaction is
not considered to have contractual protection solely because a party to
the transaction has the right to terminate the transaction upon the
happening of an event affecting the taxation of one or more parties to
the transaction.
(B) Previously reported transaction. If a person makes or provides
a statement to a taxpayer as to the potential tax consequences that may
result from a transaction only after the taxpayer has entered into the
transaction and reported the consequences of the transaction on a filed
tax return, and the person has not previously received fees from the
taxpayer relating to the transaction, then any refundable or contingent
fees are not taken into account in determining whether the transaction
has contractual protection. This paragraph (b)(4)(iii)(B) does not
provide any substantive rules regarding when a person may charge
refundable or contingent fees with respect to a
[[Page 10165]]
transaction. See Circular 230, 31 CFR Part 10, for the regulations
governing practice before the IRS.
(5) Loss transactions--(i) In general. A loss transaction is any
transaction resulting in the taxpayer claiming a loss under section 165
of at least--
(A) $10 million in any single taxable year or $20 million in any
combination of taxable years for corporations;
(B) $10 million in any single taxable year or $20 million in any
combination of taxable years for partnerships that have only
corporations as partners (looking through any partners that are
themselves partnerships), whether or not any losses flow through to one
or more partners; or $2 million in any single taxable year or $4
million in any combination of taxable years for all other partnerships,
whether or not any losses flow through to one or more partners;
(C) $2 million in any single taxable year or $4 million in any
combination of taxable years for individuals, S corporations, or
trusts, whether or not any losses flow through to one or more
shareholders or beneficiaries; or
(D) $50,000 in any single taxable year for individuals or trusts,
whether or not the loss flows through from an S corporation or
partnership, if the loss arises with respect to a section 988
transaction (as defined in section 988(c)(1) relating to foreign
currency transactions).
(ii) Cumulative losses. In determining whether a transaction
results in a taxpayer claiming a loss that meets the threshold amounts
over a combination of taxable years as described in paragraph (b)(5)(i)
of this section, only losses claimed in the taxable year that the
transaction is entered into and the five succeeding taxable years are
combined.
(iii) Section 165 loss. (A) For purposes of this section, in
determining the thresholds in paragraph (b)(5)(i) of this section, the
amount of a section 165 loss is adjusted for any salvage value and for
any insurance or other compensation received. See Sec. 1.165-1(c)(4).
However, a section 165 loss does not take into account offsetting
gains, or other income or limitations. For example, a section 165 loss
does not take into account the limitation in section 165(d) (relating
to wagering losses) or the limitations in sections 165(f), 1211, and
1212 (relating to capital losses). The full amount of a section 165
loss is taken into account for the year in which the loss is sustained,
regardless of whether all or part of the loss enters into the
computation of a net operating loss under section 172 or a net capital
loss under section 1212 that is a carryback or carryover to another
year. A section 165 loss does not include any portion of a loss,
attributable to a capital loss carryback or carryover from another
year, that is treated as a deemed capital loss under section 1212.
(B) For purposes of this section, a section 165 loss includes an
amount deductible pursuant to a provision that treats a transaction as
a sale or other disposition, or otherwise results in a deduction under
section 165. A section 165 loss includes, for example, a loss resulting
from a sale or exchange of a partnership interest under section 741 and
a loss resulting from a section 988 transaction.
(6) Transactions with a significant book-tax difference--(i) In
general. A transaction with a significant book-tax difference is a
transaction where the amount for tax purposes of any item or items of
income, gain, expense, or loss from the transaction differs by more
than $10 million on a gross basis from the amount of the item or items
for book purposes in any taxable year. For purposes of this
determination, offsetting items shall not be netted for either tax or
book purposes. For purposes of this paragraph (b)(6), the amount of an
item for book purposes is determined by applying U.S. generally
accepted accounting principles (U.S. GAAP) for worldwide income.
However, if a taxpayer, in the ordinary course of its business, keeps
books for reporting financial results to shareholders, creditors, or
regulators on a basis other than U.S. GAAP, and does not maintain U.S.
GAAP books for any purpose, then the taxpayer may determine the amount
of a book item for purposes of this paragraph (b)(6) by using the books
maintained by the taxpayer, provided the books are kept on the same
basis consistently from year to year. Adjustments to any reserve for
taxes are disregarded for purposes of determining the book-tax
difference.
(ii) Applicability--(A) In general. This paragraph (b)(6) applies
only to--
(1) Taxpayers that are reporting companies under the Securities
Exchange Act of 1934 (15 U.S.C. 78a) and related business entities (as
described in section 267(b) or 707(b)); or
(2) Business entities that have $250 million or more in gross
assets for book purposes at the end of any financial accounting period
that ends with or within the entity's taxable year in which the
transaction occurs (for purposes of this determination, the assets of
all related business entities (as defined in section 267(b) or 707(b))
must be aggregated).
(B) Consolidated returns. For purposes of this paragraph (b)(6), in
the case of taxpayers that are members of a group of affiliated
corporations filing a consolidated return, transactions solely between
or among members of the group will be disregarded. Moreover, where two
or more members of the group participate in a transaction that is not
solely between or among members of the group, items shall be aggregated
(as if such members were a single taxpayer), but any offsetting items
shall not be netted.
(C) Foreign persons. In the case of a taxpayer that is a foreign
person (other than a foreign corporation that is treated as a domestic
corporation for Federal tax purposes under section 269B, 953(d),
1504(d) or any other provision of the Internal Revenue Code), only
assets that are U.S. assets under Sec. 1.884-1(d) shall be taken into
account for purposes of paragraph (b)(6)(ii)(A)(2) of this section, and
only transactions that give rise to income that is effectively
connected with the conduct of a trade or business within the United
States (or to losses, expenses, or deductions allocated or apportioned
to such income) shall be taken into account for purposes of this
paragraph (b)(6).
(D) Owners of disregarded entities. In the case of an eligible
entity that is disregarded as an entity separate from its owner for
Federal tax purposes, items of income, gain, loss, or expense that
otherwise are considered items of the entity for book purposes shall be
treated as items of its owner, and items arising from transactions
between the entity and its owner shall be disregarded, for purposes of
this paragraph (b)(6).
(E) Partners of partnerships. In the case of a taxpayer that is a
member or a partner of an entity that is treated as a partnership for
Federal tax purposes, items of income, gain, loss, or expense that are
allocable to the taxpayer for Federal tax purposes, but otherwise are
considered items of the entity for book purposes, shall be treated as
items of the taxpayer for purposes of this paragraph (b)(6).
(7) Transactions involving a brief asset holding period. A
transaction involving a brief asset holding period is any transaction
resulting in the taxpayer claiming a tax credit exceeding $250,000
(including a foreign tax credit) if the underlying asset giving rise to
the credit is held by the taxpayer for 45 days or less. For purposes of
determining the holding period, the principles of section 246(c)(3) and
(c)(4) apply. Transactions resulting in a foreign tax credit for
withholding taxes or other taxes imposed in respect of a dividend that
are not disallowed under section 901(k) (including transactions
eligible for the exception for securities
[[Page 10166]]
dealers under section 901(k)(4)) are excluded from this paragraph
(b)(7).
(8) Exceptions--(i) In general. A transaction will not be
considered a reportable transaction, or will be excluded from any
individual category of reportable transaction under paragraphs (b)(3)
through (7) of this section, if the Commissioner makes a determination
by published guidance that the transaction is not subject to the
reporting requirements of this section. The Commissioner may make a
determination by individual letter ruling under paragraph (f) of this
section that an individual letter ruling request on a specific
transaction or type of transaction satisfies the reporting requirements
of this section with regard to that transaction or type of transaction
for the taxpayer who requests the individual letter ruling.
(ii) Special rule for RICs. For purposes of this section, a
regulated investment company (RIC) as defined in section 851 or an
investment vehicle that is owned 95 percent or more by one or more RICs
at all times during the course of the transaction are not required to
disclose a transaction that is described in any of paragraphs (b)(3)
through (7) of this section unless the transaction is also a listed
transaction.
(iii) Special rule for lease transactions. For purposes of this
section, leasing transactions of the type excepted from the
registration requirements under section 6111(d) of the Code and the
list maintenance requirements under section 6112 as described in Notice
2001-18 (2001-1 C.B. 731) (see Sec. 601.601(d)(2) of this chapter) are
excluded from paragraphs (b)(3) through (7) of this section.
(c) Definitions. For purposes of this section, the following terms
are defined as follows:
(1) Taxpayer. The term taxpayer means any person described in
section 7701(a)(1), including S corporations. Except as otherwise
specifically provided in this section, the term taxpayer also includes
an affiliated group of corporations that joins in the filing of a
consolidated return under section 1501.
(2) Corporation. When used specifically in this section, the term
corporation means an entity that is required to file a return for a
taxable year on any 1120 series form, or successor form, excluding S
corporations.
(3) Participation--(i) In general--(A) Listed transactions. A
taxpayer has participated in a listed transaction if the taxpayer's tax
return reflects tax consequences or a tax strategy described in the
published guidance that lists the transaction under paragraph (b)(2) of
this section. A taxpayer also has participated in a listed transaction
if the taxpayer knows or has reason to know that the taxpayer's tax
benefits are derived directly or indirectly from tax consequences or a
tax strategy described in published guidance that lists a transaction
under paragraph (b)(2) of this section. Published guidance may identify
other types or classes of persons that will be treated as participants
in a listed transaction.
(B) Confidential transactions. A taxpayer has participated in a
confidential transaction if the taxpayer's tax return reflects a tax
benefit from the transaction and the taxpayer's disclosure of the tax
treatment or tax structure of the transaction is limited in the manner
described in paragraph (b)(3) of this section. If a partnership's, S
corporation's or trust's disclosure is limited, and the partner's,
shareholder's, or beneficiary's disclosure is not limited, then the
partnership, S corporation, or trust, and not the partner, shareholder,
or beneficiary, has participated in the confidential transaction.
(C) Transactions with contractual protection. A taxpayer has
participated in a transaction with contractual protection if the
taxpayer's tax return reflects a tax benefit from the transaction and,
as described in paragraph (b)(4) of this section, the taxpayer has the
right to the full or partial refund of fees or the fees are contingent.
If a partnership, S corporation, or trust has the right to a full or
partial refund of fees or has a contingent fee arrangement, and the
partner, shareholder, or beneficiary does not individually have the
right to the refund of fees or a contingent fee arrangement, then the
partnership, S corporation, or trust, and not the partner, shareholder,
or beneficiary, has participated in the transaction with contractual
protection.
(D) Loss transactions. A taxpayer has participated in a loss
transaction if the taxpayer's tax return reflects a section 165 loss
and the amount of the section 165 loss equals or exceeds the threshold
amount applicable to the taxpayer as described in paragraph (b)(5)(i)
of this section. If a taxpayer is a partner in a partnership,
shareholder in an S corporation, or beneficiary of a trust and a
section 165 loss as described in paragraph (b)(5) of this section flows
through the entity to the taxpayer (disregarding netting at the entity
level), the taxpayer has participated in a loss transaction if the
taxpayer's tax return reflects a section 165 loss and the amount of the
section 165 loss that flows through to the taxpayer equals or exceeds
the threshold amounts applicable to the taxpayer as described in
paragraph (b)(5)(i) of this section. For this purpose, a tax return is
deemed to reflect the full amount of a section 165 loss described in
paragraph (b)(5) of this section allocable to the taxpayer under this
paragraph (c)(3)(i)(D), regardless of whether all or part of the loss
enters into the computation of a net operating loss under section 172
or net capital loss under section 1212 that the taxpayer may carry back
or carry over to another year.
(E) Transactions with a significant book-tax difference. A taxpayer
has participated in a transaction with a significant book-tax
difference if the taxpayer's tax treatment of an item from the
transaction differs from the book treatment of that item as described
in paragraph (b)(6) of this section. In determining whether a
transaction results in a significant book-tax difference for a
taxpayer, differences that arise solely because a subsidiary of the
taxpayer is consolidated with the taxpayer, in whole or in part, for
book purposes, but not for tax purposes, are not taken into account.
(F) Transactions involving a brief asset holding period. A taxpayer
has participated in a transaction involving a brief asset holding
period if the taxpayer's tax return reflects items giving rise to a tax
credit described in paragraph (b)(7) of this section. If a taxpayer is
a partner in a partnership, shareholder in an S corporation, or
beneficiary of a trust and the items giving rise to a tax credit
described in paragraph (b)(7) of this section flow through the entity
to the taxpayer (disregarding netting at the entity level), the
taxpayer has participated in a transaction involving a brief asset
holding period if the taxpayer's tax return reflects the tax credit and
the amount of the tax credit claimed by the taxpayer exceeds $250,000.
(G) Shareholders of foreign corporations--(1) In general. A
reporting shareholder of a foreign corporation participates in a
transaction described in paragraphs (b)(2) through (5) and (b)(7) of
this section if the foreign corporation would be considered to
participate in the transaction under the rules of this paragraph (c)(3)
if it were a domestic corporation filing a tax return that reflects the
items from the transaction. A reporting shareholder participates in a
transaction described in paragraph (b)(6) of this section only if the
foreign corporation would be considered to participate in the
transaction under the rules of this paragraph (c)(3) if it were
[[Page 10167]]
a domestic corporation and the transaction reduces or eliminates an
income inclusion that otherwise would be required under section 551,
951, or 1293. A reporting shareholder (and any successor in interest)
is considered to participate in a transaction under this paragraph
(c)(3)(i)(G) only for its first taxable year with or within which ends
the first taxable year of the foreign corporation in which the foreign
corporation participates in the transaction, and for the reporting
shareholder's five succeeding taxable years.
(2) Reporting shareholder. The term reporting shareholder means a
United States shareholder (as defined in section 551(a)) in a foreign
personal holding company (as defined in section 552), a United States
shareholder (as defined in section 951(b)) in a controlled foreign
corporation (as defined in section 957), or a 10 percent shareholder
(by vote or value) of a qualified electing fund (as defined in section
1295).
(ii) Examples. The following examples illustrate the provisions of
paragraph (c)(3)(i) of this section:
Example 1. Notice 95-53 (1995-2 C.B. 334) (see Sec.
601.601(d)(2) of this chapter), describes a lease stripping
transaction in which one party (the transferor) assigns the right to
receive future payments under a lease of tangible property and
receives consideration which the transferor treats as current
income. The transferor later transfers the property subject to the
lease in a transaction intended to qualify as a transferred basis
transaction, for example, a transaction described in section 351.
The transferee corporation claims the deductions associated with the
high basis property subject to the lease. The transferor's and
transferee corporation's tax returns reflect tax positions described
in Notice 95-53. Therefore, the transferor and transferee
corporation have participated in the listed transaction. In the
section 351 transaction, the transferor will have received stock
with low value and high basis from the transferee corporation. If
the transferor subsequently transfers the high basis/low value stock
to a taxpayer in another transaction intended to qualify as a
transferred basis transaction and the taxpayer uses the stock to
generate a loss, and if the taxpayer knows or has reason to know
that the tax loss claimed was derived indirectly from the lease
stripping transaction, then the taxpayer has participated in the
listed transaction. Accordingly, the taxpayer must disclose the
transaction and the manner of the taxpayer's participation in the
transaction under the rules of this section. If a bank lends money
to the transferor, transferee corporation, or taxpayer for use in
their transactions, the bank has not participated in the listed
transaction because the bank's tax return does not reflect tax
consequences or a tax strategy described in the listing notice (nor
does the bank's tax return reflect a tax benefit derived from tax
consequences or a tax strategy described in the listing notice), nor
is the bank described as a participant in Notice 95-53.
Example 2. XYZ is a limited liability company treated as a
partnership for tax purposes. X, Y, and Z are members of XYZ. X is
an individual, Y is an S corporation, and Z is a partnership. XYZ
enters into a confidential transaction under paragraph (b)(3) of
this section. X is bound by the confidentiality agreement, but Y and
Z are not bound by the agreement. As a result of the transaction,
XYZ, X, Y, and Z all reflect a tax benefit on their tax returns.
Because XYZ's and X's disclosure of the tax treatment and tax
structure are limited in the manner described in paragraph (b)(3) of
this section and their tax returns reflect a tax benefit from the
transaction, both XYZ and X have participated in the confidential
transaction. Neither Y nor Z has participated in the confidential
transaction because they are not subject to the confidentiality
agreement.
Example 3. Partnership AB has gross assets with a book value of
over $250 million. Partner A is an SEC reporting company and partner
B is an individual. AB enters into a transaction that results in a
book-tax difference for AB of $25 million. The transaction is a
reportable transaction for AB under paragraph (b)(6) of this section
because the book-tax difference exceeds $10 million. As a result of
A's partnership interest in AB and the allocation of items relating
to the transaction to A, A has a book-tax difference of $11 million.
The transaction is a reportable transaction for A under paragraph
(b)(6) of this section because the $11 million book-tax difference
exceeds $10 million. However, even though $14 million of the book-
tax difference would be allocated to B, the transaction is not a
reportable transaction for B under paragraph (b)(6) of this section
because B, an individual, is not subject to paragraph (b)(6) of this
section.
Example 4. (i) P corporation, the parent corporation of a group
of corporations that file a consolidated tax return, owns 60% of the
stock of T corporation. T files its own tax return and is not
included as a member of the P group on the P group consolidated tax
return. For book purposes, some or all of T's income is included by
the group of corporations that includes P. T engages in a
transaction that results in items of book income but does not result
in items of income for tax purposes. P and T are SEC reporting
companies.
(ii) T participated in the transaction. T has no items of
taxable income but has items of book income. If items from the
transaction result in a book-tax difference determined in accordance
with paragraph (b)(6) of this section of $10 million in any single
year, T will be required to file Form 8886. The P group did not
participate in the transaction, and does not have a book-tax
difference for purposes of paragraph (b)(6) of this section because,
even if the P group included $10 million in book income, the book
tax difference arises solely because T is not part of P's
consolidated group for tax purposes.
(iii) If the facts were changed so that P corporation owned 80%
of the stock of T and T was a member of the P consolidated group for
tax purposes, the P group would be the taxpayer that participated in
the transaction. If, in any single year, the transaction produced
items of income for book purposes of $10 million but no items of
taxable income, P would be required to file Form 8886. This result
would not change if T separately reported its items for book
purposes, if P reported none of T's items on its consolidated
financial statements, or if the P consolidated financial statements
included only part of a $10 million book-tax difference relating to
items from T's transaction.
Example 5. Domestic corporations X and Y each own 50 percent of
the voting stock of CFC, a controlled foreign corporation. X, Y, and
CFC each use the calendar year as their taxable year. CFC is not
engaged in the conduct of a trade or business within the United
States and has no U.S. source income. Accordingly, CFC is not
required to file a U.S. Federal income tax return. See Sec. 1.6012-
2(g). Under paragraph (c)(3)(i)(G)(2) of this section, X and Y are
reporting shareholders with respect to CFC. CFC purchases a Euro-
denominated bond on June 1, 2003, for 104,400,000 Euros. The bond
matures on June 7, 2003, and CFC collects 104,500,000 Euros, equal
to the bond's 100,000,000 Euro face amount plus 5,000,000 Euros of
accrued but unpaid interest, less a 10% foreign withholding tax of
500,000 Euros. The average dollar-Euro exchange rate for the year is
$.80 = 1 Euro, so CFC adds $400,000 to its post-1986 foreign income
taxes pool as a result of the transaction. See sections 986(a)(1)
and 902(c)(2). Under paragraph (c)(3)(i)(G)(1) of this section, X
and Y have each participated in a transaction involving a brief
asset holding period described in paragraph (b)(7) of this section
for their taxable years 2003 through 2008 because both X and Y are
reporting shareholders of CFC, and CFC would have been considered to
have participated in a reportable transaction if it were a domestic
corporation.
(4) Substantially similar. The term substantially similar includes
any transaction that is expected to obtain the same or similar types of
tax consequences and that is either factually similar or based on the
same or similar tax strategy. Receipt of an opinion regarding the tax
consequences of the transaction is not relevant to the determination of
whether the transaction is the same as or substantially similar to
another transaction. Further, the term substantially similar must be
broadly construed in favor of disclosure. The following examples
illustrate situations where a transaction is the same as or
substantially similar to a listed transaction under paragraph (b)(2) of
this section. (Such transactions may also be reportable transactions
under paragraphs (b)(3) through (7) of this section.) The following
examples
[[Page 10168]]
illustrate the provisions of this paragraph (c)(4):
Example 1. Notice 2000-44 (2000-2 C.B. 255) (see Sec.
601.601(d)(2) of this chapter), sets forth a listed transaction
involving offsetting options transferred to a partnership where the
taxpayer claims basis in the partnership for the cost of the
purchased options but does not adjust basis under section 752 as a
result of the partnership's assumption of the taxpayer's obligation
with respect to the options. Transactions using short sales,
futures, derivatives or any other type of offsetting obligations to
inflate basis in a partnership interest would be the same as or
substantially similar to the transaction described in Notice 2000-
44. Moreover, use of the inflated basis in the partnership interest
to diminish gain that would otherwise be recognized on the transfer
of a partnership asset would also be the same as or substantially
similar to the transaction described in Notice 2000-44.
Example 2. Notice 2001-16 (2001-1 C.B. 730) (see Sec.
601.601(d)(2) of this chapter), sets forth a listed transaction
involving a seller (X) who desires to sell stock of a corporation
(T), an intermediary corporation (M), and a buyer (Y) who desires to
purchase the assets (and not the stock) of T. M agrees to facilitate
the sale to prevent the recognition of the gain that T would
otherwise report. Notice 2001-16 describes M as a member of a
consolidated group that has a loss within the group or as a party
not subject to tax. Transactions utilizing different intermediaries
to prevent the recognition of gain would be the same as or
substantially similar to the transaction described in Notice 2001-
16. An example is a transaction in which M is a corporation that
does not file a consolidated return but which buys T stock,
liquidates T, sells assets of T to Y, and offsets the gain
recognized on the sale of those assets with currently generated
losses.
(5) Tax. For purposes of this section, the term tax means Federal
income tax.
(6) Tax benefit. A tax benefit includes deductions, exclusions from
gross income, nonrecognition of gain, tax credits, adjustments (or the
absence of adjustments) to the basis of property, status as an entity
exempt from Federal income taxation, and any other tax consequences
that may reduce a taxpayer's Federal income tax liability by affecting
the amount, timing, character, or source of any item of income, gain,
expense, loss, or credit.
(7) Tax return. For purposes of this section, the term tax return
means a Federal income tax return and a Federal information return.
(8) Tax treatment. The tax treatment of a transaction is the
purported or claimed Federal income tax treatment of the transaction.
(9) Tax structure. The tax structure of a transaction is any fact
that may be relevant to understanding the purported or claimed Federal
income tax treatment of the transaction.
(d) Form and content of disclosure statement. The IRS will release
Form 8886, ``Reportable Transaction Disclosure Statement'' (or a
successor form), for use by taxpayers in accordance with this paragraph
(d). A taxpayer required to file a disclosure statement under this
section must file a completed Form 8886 in accordance with the
instructions to the form. The Form 8886 is the disclosure statement
required under this section. The form must be attached to the
appropriate tax returns as provided in paragraph (e) of this section.
If a copy of a disclosure statement is required to be sent to the
Office of Tax Shelter Analysis (OTSA) under paragraph (e) of this
section, it must be sent to: Internal Revenue Service LM:PFTG:OTSA,
Large & Mid-Size Business Division, 1111 Constitution Ave., NW.,
Washington, DC 20224, or to such other address as provided by the
Commissioner.
(e) Time of providing disclosure--(1) In general. The disclosure
statement for a reportable transaction must be attached to the
taxpayer's tax return for each taxable year for which a taxpayer
participates in a reportable transaction. In addition, a copy of the
disclosure statement must be sent to OTSA at the same time that any
disclosure statement is first filed with the taxpayer's tax return. If
a reportable transaction results in a loss which is carried back to a
prior year, the disclosure statement for the reportable transaction
must be attached to the taxpayer's application for tentative refund or
amended tax return for that prior year. In the case of a taxpayer that
is a partnership or S corporation, the disclosure statement for a
reportable transaction must be attached to the partnership's or S
corporation's tax return for each taxable year in which the partnership
or S corporation participates in the transaction under the rules of
paragraph (c)(3)(i) of this section.
(2) Special rules--(i) Listed transactions. If a transaction
becomes a listed transaction after the filing of the taxpayer's final
tax 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) and before the end of
the statute of limitations period for that return, then a disclosure
statement must be filed as an attachment to the taxpayer's tax return
next filed after the date the transaction is listed.
(ii) Loss transactions. If a transaction becomes a loss transaction
because the losses equal or exceed the threshold amounts as described
in paragraph (b)(5)(i) of this section, a disclosure statement must be
filed as an attachment to the taxpayer's tax return for the first
taxable year in which the threshold amount is reached and to any
subsequent tax return that reflects any amount of section 165 loss from
the transaction.
(3) Multiple disclosures. The taxpayer must disclose the
transaction in the time and manner provided for under the provisions of
this section regardless of whether the taxpayer also plans to disclose
the transaction under other published guidance, for example, Rev. Proc.
94-69 (1994-2 C.B. 804) (see Sec. 601.601(d)(2) of this chapter).
(4) Example. The following example illustrates the application of
this paragraph (e):
Example. In January of 2004, F, a domestic calendar year
corporation, enters into a transaction that is not a listed
transaction when entered into and is not a transaction described in
any of the paragraphs (b)(3) through (7) of this section. All the
tax benefits from the transaction are reported on F's 2004 tax
return. On March 1, 2008, the IRS publishes a notice identifying the
transaction as a listed transaction described in paragraph (b)(2) of
this section. Thus, upon issuance of the notice, the transaction
becomes a reportable transaction described in paragraph (b) of this
section. The statute of limitations for F's 2004 taxable year is
still open. F is required to file Form 8886 for the transaction as
an attachment to F's next filed Federal income tax return and must
send a copy of Form 8886 to OTSA. If F's 2007 Federal income tax
return has not been filed on or before the date the Service
identifies the transaction as a listed transaction, Form 8886 must
be attached to F's 2007 return and at that time a copy of Form 8886
must be sent to OTSA.
(f) Rulings and protective disclosures--(1) Requests for ruling. A
taxpayer may, on or before the date that disclosure would otherwise be
required under this section, submit a request to the IRS for a ruling
as to whether a transaction is subject to the disclosure requirements
of this section. If the request fully discloses all relevant facts
relating to the transaction, the potential obligation of that taxpayer
to disclose the transaction will be suspended during the period that
the ruling request is pending and, if the IRS subsequently concludes
that the transaction is a reportable transaction subject to disclosure
under this section, until the 60th day after the issuance of the ruling
(or, if the request is withdrawn, 60 days after the date that the
request is withdrawn). Furthermore, in that taxpayer's individual
ruling, the Commissioner in his discretion may determine that the
submission satisfies the disclosure rules under this section for that
particular transaction or type of transaction.
[[Page 10169]]
(2) Protective disclosures. If a taxpayer is uncertain whether a
transaction must be disclosed under this section, the taxpayer may
disclose the transaction in accordance with the requirements of this
section, and indicate on the disclosure statement that the taxpayer is
uncertain whether the transaction is required to be disclosed under
this section and that the disclosure statement is being filed on a
protective basis.
(3) Rulings on the merits of a transaction. If a taxpayer requests
a ruling on the merits of a specific transaction on or before the date
that disclosure would otherwise be required under this section, and
receives a favorable ruling as to the transaction, the disclosure rules
under this section will be deemed to have been satisfied by that
taxpayer with regard to that transaction, so long as the request fully
discloses all relevant facts relating to the transaction which would
otherwise be required to be disclosed under this section.
(g) Retention of documents. In accordance with the instructions to
Form 8886, the taxpayer must retain a copy of all documents and other
records related to a transaction subject to disclosure under this
section that are material to an understanding of the tax treatment or
tax structure of the transaction. The documents must be retained until
the expiration of the statute of limitations applicable to the final
taxable year for which disclosure of the transaction was required under
this section. (This document retention requirement is in addition to
any document retention requirements that section 6001 generally imposes
on the taxpayer.) The documents may include the following: marketing
materials related to the transaction; written analyses used in
decision-making related to the transaction; correspondence and
agreements between the taxpayer and any advisor, lender, or other party
to the reportable transaction that relate to the transaction; documents
discussing, referring to, or demonstrating the purported or claimed tax
benefits arising from the reportable transaction; and documents, if
any, referring to the business purposes for the reportable transaction.
A taxpayer is not required to retain earlier drafts of a document if
the taxpayer retains a copy of the final document (or, if there is no
final document, the most recent draft of the document) and the final
document (or most recent draft) contains all the information in the
earlier drafts of the document that is material to an understanding of
the purported tax treatment or tax structure of the transaction.
(h) Effective dates. This section applies to Federal income tax
returns filed after February 28, 2000. However, paragraphs (a) through
(g) of this section apply to transactions entered into on or after
February 28, 2003. All the rules in paragraphs (a) through (g) of this
section may be relied upon for transactions entered into on or after
January 1, 2003, and before February 28, 2003. Otherwise, the rules
that apply with respect to transactions entered into before February
28, 2003 are contained in Sec. 1.6011-4T in effect prior to February
28, 2003 (see 26 CFR part 1 revised as of April 1, 2002, 2002-28 I.R.B.
90, and 2002-45 I.R.B. 818 (see Sec. 601.601(d)(2) of this chapter)).
Sec. 1.6011-4T [Removed]
Par. 3. Section 1.6011-4T is removed.
PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16,
1954
Par. 4. The authority citation for part 20 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 20.6011-4 is added to read as follows:
Sec. 20.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. If a transaction is identified as a listed
transaction as defined in Sec. 1.6011-4 of this chapter by the
Commissioner in published guidance (see Sec. 601.601(d)(2) of this
chapter), and the listed transaction involves an estate tax under
chapter 11 of subtitle B of the Internal Revenue Code, the transaction
must be disclosed in the manner stated in such published guidance.
(b) Effective date. This section applies to transactions entered
into on or after January 1, 2003.
Sec. 20.6011-4T [Removed]
Par. 6. Section 20.6011-4T is removed.
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 7. The authority citation for part 25 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 8. Section 25.6011-4 is added to read as follows:
Sec. 25.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. If a transaction is identified as a listed
transaction as defined in Sec. 1.6011-4 of this chapter by the
Commissioner in published guidance (see Sec. 601.601(d)(2) of this
chapter), and the listed transaction involves a gift tax under chapter
12 of subtitle B of the Internal Revenue Code, the transaction must be
disclosed in the manner stated in such published guidance.
(b) Effective date. This section applies to transactions entered
into on or after January 1, 2003.
Sec. 25.6011-4T [Removed]
Par. 9. Section 25.6011-4T is removed.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
Par. 10. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 11. Section 31.6011-4 is added to read as follows:
Sec. 31.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. If a transaction is identified as a listed
transaction as defined in Sec. 1.6011-4 of this chapter by the
Commissioner in published guidance (see Sec. 601.601(d)(2) of this
chapter), and the listed transaction involves an employment tax under
chapters 21 through 25 of subtitle C of the Internal Revenue Code, the
transaction must be disclosed in the manner stated in such published
guidance.
(b) Effective date. This section applies to transactions entered
into on or after January 1, 2003.
Sec. 31.6011-4T [Removed]
Par. 12. Section 31.6011-4T is removed.
PART 53--FOUNDATION AND SIMILAR EXCISE TAXES
Par. 13. The authority citation for part 53 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 14. Section 53.6011-4 is added to read as follows:
Sec. 53.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. If a transaction is identified as a listed
transaction as defined in Sec. 1.6011-4 of this chapter by the
Commissioner in published guidance (see Sec. 601.601(d)(2) of this
chapter), and the listed transaction involves an excise tax under
chapter 42 of subtitle D of the Internal Revenue
[[Page 10170]]
Code (relating to private foundations and certain other tax-exempt
organizations), the transaction must be disclosed in the manner stated
in such published guidance.
(b) Effective date. This section applies to transactions entered
into on or after January 1, 2003.
Sec. 53.6011-4T [Removed]
Par. 15. Section 53.6011-4T is removed.
PART 54--PENSION EXCISE TAXES
Par. 16. The authority citation for part 54 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 17. Section 54.6011-4 is added to read as follows:
Sec. 54.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. If a transaction is identified as a listed
transaction as defined in Sec. 1.6011-4 of this chapter by the
Commissioner in published guidance (see Sec. 601.601(d)(2) of this
chapter), and the listed transaction involves an excise tax under
chapter 43 of subtitle D of the Internal Revenue Code (relating to
qualified pension, etc., plans), the transaction must be disclosed in
the manner stated in such published guidance.
(b) Effective date. This section applies to transactions entered
into on or after January 1, 2003.
Sec. 54.6011-4T [Removed]
Par. 18. Section 54.6011-4T is removed.
PART 56--PUBLIC CHARITY EXCISE TAXES
Par. 19. The authority citation for part 56 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 20. Section 56.6011-4 is added to read as follows:
Sec. 56.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. If a transaction is identified as a listed
transaction as defined in Sec. 1.6011-4 of this chapter by the
Commissioner in published guidance (see Sec. 601.601(d)(2) of this
chapter), and the listed transaction involves an excise tax under
chapter 41 of subtitle D of the Internal Revenue Code (relating to
public charities), the transaction must be disclosed in the manner
stated in such published guidance.
(b) Effective date. This section applies to transactions entered
into on or after January 1, 2003.
Sec. 56.6011-4T [Removed]
Par. 21. Section 56.6011-4T is removed.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 22. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 23. Section 301.6111-2 is added as follows:
Sec. 301.6111-2 Confidential corporate tax shelters.
(a) In general.--(1) Under section 6111(d) and this section, a
confidential corporate tax shelter is treated as a tax shelter subject
to the requirements of sections 6111 (a) and (b).
(2) A confidential corporate tax shelter is any transaction--
(i) A significant purpose of the structure of which is the
avoidance or evasion of Federal income tax, as described in paragraph
(b) of this section, for a direct or indirect corporate participant;
(ii) That is offered to any potential participant under conditions
of confidentiality, as described in paragraph (c) of this section; and
(iii) For which the tax shelter promoters may receive fees in
excess of $100,000 in the aggregate, as described in paragraph (d) of
this section.
(3) For purposes of this section, references to the term
transaction include all of the factual elements relevant to the
expected tax treatment of any investment, entity, plan, or arrangement,
and include any series of steps carried out as part of a plan. For
purposes of this section, the term substantially similar includes any
transaction that is expected to obtain the same or similar types of tax
consequences and that is either factually similar or based on the same
or similar tax strategy. Receipt of an opinion regarding the tax
consequences of the transaction is not relevant to the determination of
whether the transaction is the same as or substantially similar to
another transaction. Further, the term substantially similar must be
broadly construed in favor of registration. For examples, see Sec.
1.6011-4(c)(4) of this chapter.
(4) A transaction described in paragraph (b) of this section is for
a direct or an indirect corporate participant if it is expected to
provide Federal income tax benefits to any corporation (U.S. or
foreign) whether or not that corporation participates directly in the
transaction.
(b) Transactions structured for avoidance or evasion of Federal
income tax--(1) In general. The avoidance or evasion of Federal income
tax will be considered a significant purpose of the structure of a
transaction if the transaction is described in paragraph (b)(2) or (3)
of this section. However, a transaction described in paragraph (b)(3)
of this section need not be registered if the transaction is described
in paragraph (b)(4) of this section. For purposes of this section,
Federal income tax benefits include deductions, exclusions from gross
income, nonrecognition of gain, tax credits, adjustments (or the
absence of adjustments) to the basis of property, status as an entity
exempt from Federal income taxation, and any other tax consequences
that may reduce a taxpayer's Federal income tax liability by affecting
the amount, timing, character, or source of any item of income, gain,
expense, loss, or credit.
(2) Listed transactions. A transaction is described in this
paragraph (b)(2) if the transaction is the same as or substantially
similar to one of the types of transactions that the Internal Revenue
Service (IRS) has determined to be a tax avoidance transaction and
identified by notice, regulation, or other form of published guidance
as a listed transaction. If a transaction becomes a listed transaction
after the date on which registration would otherwise be required under
this section, and if the transaction otherwise satisfies the
confidentiality and fee requirements of paragraphs (a)(2)(ii) and (iii)
of this section, registration shall in all events be required with
respect to any interests in the transaction that are offered for sale
after the transaction becomes a listed transaction. However, because a
transaction identified as a listed transaction is generally considered
to have been structured for a significant tax avoidance purpose, such a
transaction ordinarily will have been subject to registration under
this section before becoming a listed transaction if the transaction
previously satisfied the confidentiality and fee requirements of
paragraphs (a)(2)(ii) and (iii) of this section.
(3) Other tax-structured transactions. A transaction is described
in this paragraph (b)(3) if it has been structured to produce Federal
income tax benefits that constitute an important part of the intended
results of the transaction and the tax shelter promoter (or other
person who would be responsible for registration under this section)
[[Page 10171]]
reasonably expects the transaction to be presented in the same or
substantially similar form to more than one potential participant,
unless the promoter reasonably determines that--
(i) The potential participant is expected to participate in the
transaction in the ordinary course of its business in a form consistent
with customary commercial practice (a transaction involving the
acquisition, disposition, or restructuring of a business, including the
acquisition, disposition, or other change in the ownership or control
of an entity that is engaged in a business, or a transaction involving
a recapitalization or an acquisition of capital for use in the
taxpayer's business, shall be considered a transaction carried out in
the ordinary course of a taxpayer's business); and
(ii) There is a generally accepted understanding that the expected
Federal income tax benefits from the transaction (taking into account
any combination of intended tax consequences) are properly allowable
under the Internal Revenue Code for substantially similar transactions.
There is no minimum period of time for which such a generally accepted
understanding must exist. In general, however, a tax shelter promoter
(or other person who would be responsible for registration under this
section) cannot reasonably determine whether the intended tax treatment
of a transaction has become generally accepted unless information
relating to the tax treatment and tax structure of such transactions
has been in the public domain (e.g., rulings, published articles, etc.)
and widely known for a sufficient period of time (ordinarily a period
of years) to provide knowledgeable tax practitioners and the IRS
reasonable opportunity to evaluate the intended tax treatment. The mere
fact that one or more knowledgeable tax practitioners have provided an
opinion or advice to the effect that the intended tax treatment of the
transaction should or will be sustained, if challenged by the IRS, is
not sufficient to satisfy the requirements of this paragraph
(b)(3)(ii).
(4) Excepted transactions. The avoidance or evasion of Federal
income tax will not be considered a significant purpose of the
structure of a transaction if the transaction is described in either
paragraph (b)(4)(i), (ii), or (iii) of this section.
(i) In the case of a transaction other than a transaction described
in paragraph (b)(2) of this section, the tax shelter promoter (or other
person who would be responsible for registration under this section)
reasonably determines that there is no reasonable basis under Federal
tax law for denial of any significant portion of the expected Federal
income tax benefits from the transaction. This paragraph (b)(4)(i)
applies only if the tax shelter promoter (or other person who would be
responsible for registration under this section) reasonably determines
that there is no basis that would meet the standard applicable to
taxpayers under Sec. 1.6662-3(b)(3) of this chapter under which the
IRS could disallow any significant portion of the expected Federal
income tax benefits of the transaction. Thus, the reasonable basis
standard is not satisfied by an IRS position that would be merely
arguable or that would constitute merely a colorable claim. However,
the determination of whether the IRS would or would not have a
reasonable basis for such a position must take into account the
entirety of the transaction and any combination of tax consequences
that are expected to result from any component steps of the
transaction, must not be based on any unreasonable or unrealistic
factual assumptions, and must take into account all relevant aspects of
Federal tax law, including the statute and legislative history,
treaties, administrative guidance, and judicial decisions that
establish principles of general application in the tax law (e.g.,
Gregory v. Helvering, 293 U.S. 465 (1935)). The determination of
whether the IRS would or would not have such a reasonable basis is
qualitative in nature and does not depend on any percentage or other
quantitative assessment of the likelihood that the taxpayer would
ultimately prevail if a significant portion of the expected tax
benefits were disallowed by the IRS.
(ii) The IRS makes a determination by published guidance that the
transaction is not subject to the registration requirements of this
section.
(iii) The IRS makes a determination by individual ruling under
paragraph (b)(5) of this section that a specific transaction is not
subject to the registration requirements of this section for the
taxpayer requesting the ruling.
(5) Requests for ruling. If a tax shelter promoter (or other person
who would be responsible for registration under this section) is
uncertain whether a transaction is properly classified as a
confidential corporate tax shelter or is otherwise uncertain whether
registration is required under this section, that person may, on or
before the date that registration would otherwise be required under
this section, submit a request to the IRS for a ruling as to whether
the transaction is subject to the registration requirements of this
section. If the request fully discloses all relevant facts relating to
the transaction, that person's potential obligation to register the
transaction will be suspended during the period that the ruling request
is pending and, if the IRS subsequently concludes that the transaction
is a confidential corporate tax shelter subject to registration under
this section, until the sixtieth day after the issuance of the ruling
(or, if the request is withdrawn, sixty days from the date that the
request is withdrawn). In the alternative, that person may register the
transaction in accordance with the requirements of this section and
append a statement to the Form 8264, ``Application for Registration of
a Tax Shelter'', which states that the person is uncertain whether the
transaction is required to be registered as a confidential corporate
tax shelter, and that the Form 8264 is being filed on a protective
basis.
(6) Example. The following example illustrates the application of
paragraphs (b)(1) through (4) of this section. Assume, for purposes of
the example, that the transaction is not the same as or substantially
similar to any of the types of transactions that the IRS has identified
as listed transactions under section 6111 and, thus, is not described
in paragraph (b)(2) of this section. The example is as follows:
Example. (i) Facts. Y has designed a combination of financial
instruments to be issued as a package by corporations. The financial
instruments are expected to be treated as equity for financial
accounting purposes and as debt giving rise to allowable interest
deductions for Federal income tax purposes. Y reasonably expects to
present this method of raising capital to more than one potential
corporate participant. Assume that, because of the unusual nature of
the combination of financial instruments, Y cannot conclude either
that the transaction represented by the financial instruments is in
customary commercial form or that there is a generally accepted
understanding that interest deductions are available to issuers of
substantially similar combinations of financial instruments.
Further, assume that Y cannot reasonably determine that the IRS
would have no reasonable basis to deny the deductions.
(ii) Analysis. The transaction represented by this combination
of financial instruments is a transaction described in paragraph
(b)(3) of this section. However, if Y is uncertain whether this
transaction is described in paragraph (b)(3) of this section, or is
otherwise uncertain whether registration is required, Y may apply
for a ruling under paragraph (b)(5) of this section, and Y will not
be required to register the transaction while the ruling is pending
or for sixty days thereafter.
(c) Conditions of confidentiality--(1) In general. All the facts
and circumstances relating to the transaction will be considered when
determining
[[Page 10172]]
whether an offer is made under conditions of confidentiality as
described in section 6111(d)(2), including prior conduct of the
parties. Pursuant to section 6111(d)(2)(A), if an offeree's disclosure
of the tax treatment or tax structure of the transaction is limited in
any manner by an express or implied understanding or agreement with or
for the benefit of any tax shelter promoter, an offer is considered
made under conditions of confidentiality, whether or not such
understanding or agreement is legally binding. The tax treatment of a
transaction is the purported or claimed Federal income tax treatment of
the transaction. The tax structure of a transaction is any fact that
may be relevant to understanding the purported or claimed Federal
income tax treatment of the transaction. Pursuant to section
6111(d)(2)(B), an offer will also be considered made under conditions
of confidentiality in the absence of any such understanding or
agreement if any tax shelter promoter knows or has reason to know that
the offeree's use or disclosure of information relating to the tax
treatment or tax structure of the transaction is limited for the
benefit of any person other than the offeree in any other manner, such
as where the transaction is claimed to be proprietary or exclusive to
the tax shelter promoter or any party other than the offeree.
(2) Exceptions--(i) Securities law. An offer is not considered made
under conditions of confidentiality if disclosure of the tax treatment
or tax structure of the transaction is subject to restrictions
reasonably necessary to comply with securities laws and such disclosure
is not otherwise limited.
(ii) Mergers and acquisitions. In the case of a proposed taxable or
tax-free acquisition of historic assets of a corporation (other than an
investment company, as defined in section 351(e), that is not publicly
traded) that constitute an active trade or business the acquirer
intends to continue, or a proposed taxable or tax-free acquisition of
more than 50 percent of the stock of a corporation (other than an
investment company, as defined in section 351(e), that is not publicly
traded) that owns historic assets used in an active trade or business
the acquirer intends to continue, the transaction is not considered
offered under conditions of confidentiality under paragraph (c)(1) of
this section if the offeree is permitted to disclose the tax treatment
and tax structure of the transaction no later than the earlier of the
date of the public announcement of discussions relating to the
transaction, the date of the public announcement of the transaction, or
the date of the execution of an agreement (with or without conditions)
to enter into the transaction. However, this exception is not available
where the offeree's ability to consult any tax advisor (including a tax
advisor independent from all other entities involved in the
transaction) regarding the tax treatment or tax structure of the
transaction is limited in any way.
(3) Presumption. Unless facts and circumstances indicate otherwise,
an offer is not considered made under conditions of confidentiality if
the tax shelter promoter provides express written authorization to each
offeree permitting the offeree (and each employee, representative, or
other agent of such offeree) to disclose to any and all persons,
without limitation of any kind, the tax treatment and tax structure of
the transaction, and all materials of any kind (including opinions or
other tax analyses) that are provided to the offeree related to such
tax treatment and tax structure. Except as provided in paragraph (c)(2)
of this section, this presumption is available only in cases in which
each written authorization permits the offeree to disclose the tax
treatment and tax structure of the transaction immediately upon
commencement of discussions with the tax shelter promoter providing the
authorization and each written authorization is given no later than 30
days from the day the tax shelter promoter commenced discussions with
the offeree. A transaction that is exclusive or proprietary to any
party other than the offeree will not be considered offered under
conditions of confidentiality if written authorization to disclose is
provided to the offeree in accordance with this paragraph (c)(3) and
the transaction is not otherwise confidential.
(d) Determination of fees. All the facts and circumstances relating
to the transaction will be considered when determining the amount of
fees, in the aggregate, that the tax shelter promoters may receive. For
purposes of this paragraph (d), all consideration that tax shelter
promoters may receive is taken into account, including contingent fees,
fees in the form of equity interests, and fees the promoters may
receive for other transactions as consideration for promoting the tax
shelter. For example, if a tax shelter promoter may receive a fee for
arranging a transaction that is a confidential corporate tax shelter
and a separate fee for another transaction that is not a confidential
corporate tax shelter, part or all of the fee paid with respect to the
other transaction may be treated as a fee paid with respect to the
confidential corporate tax shelter if the facts and circumstances
indicate that the fee paid for the other transaction is in
consideration for the confidential corporate tax shelter. For purposes
of determining whether the tax shelter promoters may receive fees in
excess of $100,000, the fees from all substantially similar
transactions are considered part of the same tax shelter and must be
aggregated.
(e) Registration--(1) Time for registering--(i) In general. A tax
shelter must be registered not later than the day on which the first
offering for sale of interests in the shelter occurs. An offer to
participate in a confidential corporate tax shelter shall be treated as
an offer for sale. If interests in a confidential corporate tax shelter
were first offered for sale on or before February 28, 2000, the first
offer for sale of interests in the shelter that occurs after February
28, 2000 shall be considered the first offer for sale under this
section.
(ii) Special rule. If a transaction becomes a confidential
corporate tax shelter (e.g., because of a change in the law or factual
circumstances, or because the transaction becomes a listed transaction)
subsequent to the first offering for sale after February 28, 2000, and
the transaction was not previously required to be registered as a
confidential corporate tax shelter under this section, the transaction
must be registered under this section if interests are offered for sale
after the transaction becomes a confidential corporate tax shelter. The
transaction must be registered by the next offering for sale of
interests in the shelter. If, subsequent to the first offering for
sale, a transaction becomes a confidential corporate tax shelter
because the transaction becomes a listed transaction on or after
February 28, 2003, and the transaction was not previously required to
be registered as a confidential corporate tax shelter under this
section, the transaction must be registered under this section within
60 days after the transaction becomes a listed transaction/confidential
corporate tax shelter if any interests were offered for sale within the
previous six years.
(2) Procedures for registering. To register a confidential
corporate tax shelter, the person responsible for registering the tax
shelter must file Form 8264, ``Application for Registration of a Tax
Shelter''. (Form 8264 is also used to register tax shelters defined in
section 6111(c).) Similar to the treatment provided under Q&A-22 and
Q&A-48 of Sec. 301.6111-1T, transactions involving similar business
assets and similar plans or arrangements that are offered to corporate
taxpayers by the same person or related persons are aggregated and
considered part of a single tax shelter.
[[Page 10173]]
However, in contrast with the requirement of Q&A-48 of Sec. 301.6111-
1T, the tax shelter promoter may file a single Form 8264 with respect
to any such aggregated tax shelter, provided an amended Form 8264 is
filed to reflect any material changes and to include any additional or
revised written materials presented in connection with an offer to
participate in the shelter. Furthermore, all transactions that are part
of the same tax shelter and that are to be carried out by the same
corporate participant (or one or more other members of the same
affiliated group within the meaning of section 1504) must be registered
on the same Form 8264.
(f) Definition of tax shelter promoter. For purposes of section
6111(d)(2) and this section, the term tax shelter promoter includes a
tax shelter organizer and any other person who participates in the
organization, management or sale of a tax shelter (as those persons are
described in section 6111(e)(1) and Sec. 301.6111-1T (Q&A-26 through
Q&A-33) or any person related (within the meaning of section 267 or
707) to such tax shelter organizer or such other person.
(g) Person required to register--(1) Tax shelter promoters. The
rules in section 6111 (a) and (e) and Sec. 301.6111-1T (Q&A-34 through
Q&A-39) determine who is required to register a confidential corporate
tax shelter. A promoter of a confidential corporate tax shelter must
register the tax shelter only if it is a person required to register
under the rules in section 6111(a) and (e) and Sec. 301.6111-1T (Q&A-
34 through Q&A-39).
(2) Persons who discuss the transaction; all promoters are foreign
persons--(i) In general. If all of the tax shelter promoters of a
confidential corporate tax shelter are foreign persons, any person who
discusses participation in the transaction must register the shelter
under this section within 90 days after beginning such discussions.
(ii) Exceptions. Registration by a person discussing participation
in a transaction is not required if either--
(A) The person does not participate, directly or indirectly, in the
shelter and notifies the tax shelter promoter in writing, within 90
days of beginning such discussions, that the person will not
participate; or
(B) Within 90 days after beginning such discussions, the person
obtains and reasonably relies on both--
(1) A written statement from one of the tax shelter promoters that
such promoter has registered the tax shelter under this section; and
(2) A copy of the registration.
(iii) Determination of foreign status. For purposes of this
paragraph (g)(2), a person must presume that all tax shelter promoters
are foreign persons unless the person either--
(A) Discusses participation in the tax shelter with a promoter that
is a United States person; or
(B) Obtains and reasonably relies on a written statement from one
of the promoters that at least one of the promoters is a United States
person.
(iv) Discussion. Discussing participation in a transaction includes
discussing such participation with any person that conveys the tax
shelter promoter's proposal. For purposes of this paragraph (g)(2), any
person that participates directly or indirectly in a transaction will
be treated as having discussed participation in the transaction not
later than the date of the agreement to participate. Thus, a tax
shelter participant will be treated as having discussed participation
in the transaction even if all discussions were conducted by an
intermediary and the agreement to participate was made indirectly
through another person acting on the participant's behalf (for example,
through an intermediary empowered to commit the participant to
participate in the shelter).
(v) Special rule for controlled entities. A person (first person)
will be treated as participating indirectly in a confidential corporate
tax shelter if a foreign person controlled by the first person
participates in the shelter, and a significant purpose of the shelter
is the avoidance or evasion of the first person's Federal income tax.
For purposes of this paragraph (g)(2)(v), control of a foreign
corporation or partnership will be determined under the rules of
section 6038(e)(2) and (3), except that such section shall be applied
by substituting ``10'' for ``50'' each place it appears and ``at
least'' for ``more than'' each place it appears. In addition, section
6038(e)(2) shall be applied for these purposes without regard to the
constructive ownership rules of section 318 and by treating stock as
owned if it is owned directly or indirectly. Section 6038(e)(3) shall
be applied for these purposes without regard to the last sentence of
section 6038(e)(3)(B). Any beneficiary with a 10 percent or more
interest in a foreign trust or estate shall be treated as controlling
that trust or estate for purposes of this paragraph (g)(2)(v).
(vi) Other rules. (A) For purposes of the registration requirements
under section 6111(d)(3), it is presumed that the tax shelter promoters
will receive fees in excess of $100,000 in the aggregate unless the
person responsible for registering the tax shelter can show otherwise.
(B) Any person treated as a tax shelter promoter under section
6111(d) solely by reason of being related (within the meaning of
section 267 or 707) to a foreign promoter will be treated as a foreign
promoter for purposes of this paragraph (g)(2).
(h) Effective dates. This section applies to confidential corporate
tax shelters in which any interests are offered for sale after February
28, 2000. If an interest is sold after February 28, 2000, it is treated
as offered for sale after February 28, 2000, unless the sale was
pursuant to a written binding contract entered into on or before
February 28, 2000. However, paragraphs (a) through (g) of this section
apply to confidential corporate tax shelters in which any interests are
offered for sale on or after February 28, 2003, and to transactions
described in paragraph (e)(1)(ii) of this section. The rules that apply
to confidential corporate tax shelters in which any interests are
offered for sale after February 28, 2000, and before February 28, 2003,
are contained in Sec. 301.6111-2T in effect prior to February 28, 2003
(see 26 CFR part 301 revised as of April 1, 2002, 2002-28 I.R.B 91, and
2002-45 I.R.B. 823 (see Sec. 601.601(d)(2) of this chapter)).
Sec. 301.6111-2T [Removed]
Par. 24. Section 301.6111-2T is removed.
Par. 25. Section 301.6112-1 is added as follows:
Sec. 301.6112-1 Requirement to prepare, maintain, and furnish lists
with respect to potentially abusive tax shelters.
(a) In general. Each organizer and seller, as described in
paragraph (c) of this section, of a transaction that is a potentially
abusive tax shelter, as described in paragraph (b) of this section,
shall prepare and maintain a list of persons in accordance with
paragraph (e) of this section and upon request shall furnish such list
to the Internal Revenue Service (IRS) in accordance with paragraph (g)
of this section.
(b) Potentially abusive tax shelters. For purposes of this section,
a potentially abusive tax shelter is any transaction that is a section
6111 tax shelter, as described in paragraph (b)(1) of this section, or
that has a potential for tax avoidance or evasion, as described in
paragraph (b)(2) of this section. The term transaction includes all of
the factual elements relevant to the expected tax treatment of any
investment, entity, plan, or
[[Page 10174]]
arrangement, and includes any series of steps carried out as part of a
plan.
(1) Transaction that is a section 6111 tax shelter. A section 6111
tax shelter is any transaction that is required to be registered with
the IRS under section 6111, regardless of whether that tax shelter is
properly registered pursuant to section 6111.
(2) Transaction that has a potential for tax avoidance or evasion--
(i) In general. A transaction that has a potential for tax avoidance or
evasion includes--
(A) Any listed transaction as defined in Sec. 1.6011-4(b)(2) of
this chapter that is subject to disclosure under Sec. Sec. 1.6011-4,
20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of
this chapter;
(B) Any transaction that a potential material advisor (at the time
the transaction is entered into or an interest is acquired) knows is or
reasonably expects will become a reportable transaction under Sec.
1.6011-4(b)(3) through (7) of this chapter; and
(C) Any interest in a type of transaction that is transferred if
the transferor knows or reasonably expects that the transferee will
sell or transfer an interest in that type of transaction to another
transferee (subsequent participant), and the type of transaction would
be a listed transaction under Sec. Sec. 1.6011-4, 20.6011-4, 25.6011-
4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, or a
transaction described in Sec. 1.6011-4(b)(3) through (7) of this
chapter assuming that the relevant thresholds are met.
(ii) The determination of whether a transaction has the potential
for tax avoidance or evasion does not depend upon whether the
transaction is properly disclosed pursuant to Sec. Sec. 1.6011-4,
20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of
this chapter.
(iii) If a transaction becomes a potentially abusive tax shelter on
or after February 28, 2003, because it is a listed transaction as
defined in Sec. 1.6011-4 of this chapter and is subject to disclosure
under Sec. 1.6011-4 of this chapter this section shall apply with
respect to any such transaction entered into or any interest acquired
therein after February 28, 2000 (including interests acquired before
the transaction becomes a listed transaction). If a transaction becomes
a listed transaction as defined in Sec. 1.6011-4 of this chapter and
is subject to disclosure under Sec. Sec. 20.6011-4, 25.6011-4,
31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, this
section shall apply with respect to any such transaction entered into
or any interest acquired therein on or after January 1, 2003 (including
interests acquired before the transaction becomes a listed
transaction).
(c) Organizer and seller--(1) In general. A person is an organizer
of, or a seller of an interest in, a transaction that is a potentially
abusive tax shelter if that person is a material advisor, as described
in paragraph (c)(2) of this section, with respect to that transaction.
(2) Material advisor--(i) In general. A person is a material
advisor with respect to a transaction that is a potentially abusive tax
shelter if the person is required to register the transaction under
section 6111; or the person receives or expects to receive at least a
minimum fee (as defined in paragraph (c)(3) of this section) with
respect to the transaction, and the person makes a tax statement (as
defined in paragraph (c)(2)(iii) of this section) to or for the benefit
of--
(A) A taxpayer who is required to disclose the transaction under
Sec. Sec. 1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4,
54.6011-4, or 56.6011-4 of this chapter because the transaction is a
listed transaction or who would have been required to disclose a listed
transaction under Sec. Sec. 1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4,
53.6011-4, 54.6011-4, or 56.6011-4 of this chapter if the transaction
had become a listed transaction within the statute of limitations
period in Sec. 1.6011-4(e)(2);
(B) A taxpayer who the potential material advisor (at the time the
transaction is entered into) knows is or reasonably expects to be
required to disclose the transaction under Sec. 1.6011-4 because the
transaction is or is reasonably expected to become a transaction
described in Sec. 1.6011-4(b)(3) through (7);
(C) A person who is required to register the transaction under
section 6111;
(D) A person who purchases (or otherwise acquires) an interest in a
section 6111 tax shelter; or
(E) A transferee of an interest if the interest is described in
paragraph (b)(2)(i)(C) of this section.
(ii) Special rules. A material advisor generally does not include a
person who makes a tax statement solely in the person's capacity as an
employee, shareholder, partner or agent of another person. Any tax
statement made by that person will be attributed to that person's
employer, corporation, partnership or principal. However, a person
shall be treated as a material advisor if that person forms or avails
of an entity with the purpose of avoiding the rules of section 6111 or
6112 or the penalties under section 6707 or 6708.
(iii) Tax statement--(A) In general. A tax statement means any
statement, oral or written, that relates to a tax aspect of a
transaction that causes the transaction to be a reportable transaction
as defined in Sec. 1.6011-4(b)(2) through (7) or a tax shelter as
described in section 6111.
(B) Confidential transactions. A tax statement relates to an aspect
of a transaction that causes it to be a confidential transaction if the
statement concerns a tax benefit related to the transaction and either
the taxpayer's disclosure of the tax treatment or tax structure of the
transaction is limited in the manner described in Sec. 1.6011-4(b)(3)
of this chapter by or for the benefit of the person making the
statement, or the person making the statement knows the taxpayer's
disclosure of the tax structure or tax aspects of the transaction is
limited in the manner described in Sec. 1.6011-4(b)(3) of this
chapter.
(C) Transactions with contractual protection. A tax statement
relates to an aspect of a transaction that causes it to be a
transaction with contractual protection if the statement concerns a tax
benefit related to the transaction and either--
(1) The taxpayer has the right to a full or partial refund of fees
paid to the person making the statement or if these fees are contingent
in the manner described in Sec. 1.6011-4(b)(4) of this chapter; or
(2) The person making the statement knows that the taxpayer has the
right to a full or partial refund of fees (as described in Sec.
1.6011-4(b)(4)(ii)) paid to another if all or part of the intended tax
consequences from the transaction are not sustained or that fees (as
described in Sec. 1.6011-4(b)(4)(ii)) paid by the taxpayer to another
are contingent on the taxpayer's realization of tax benefits from the
transaction in the manner described in Sec. 1.6011-4(b)(4) of this
chapter.
(D) Loss transactions. A tax statement relates to an aspect of a
transaction that causes it to be a loss transaction if the statement
concerns an item that gives rise to a loss described in Sec. 1.6011-
4(b)(5) of this chapter.
(E) Transactions with a significant book-tax difference. A tax
statement relates to an aspect of a transaction that causes it to be a
transaction with a significant book-tax difference if the statement
concerns an item that gives rise to a book-tax difference described in
Sec. 1.6011-4(b)(6) of this chapter.
(F) Transactions involving a brief asset holding period. A tax
statement relates to an aspect of a transaction
[[Page 10175]]
involving a brief asset holding period if the statement concerns an
item that gives rise to a tax credit described in Sec. 1.6011-4(b)(7)
of this chapter.
(iv) Exceptions--(A) Post-filing advice. A person will not be
considered to be a material advisor with respect to a transaction if
that person does not make or provide a tax statement regarding the
transaction until after the first tax return reflecting tax benefit(s)
of the transaction is filed with the IRS.
(B) Publicly-filed statements. A tax statement with respect to a
transaction that includes only information about the transaction
contained in publicly-available documents filed with the Securities and
Exchange Commission no later than the close of the transaction will not
be considered a tax statement to or for the benefit of a person
described in paragraph (c)(2)(i)(A) through (E) of this section.
(3) Minimum fee--(i) In general. The minimum fee is $250,000 for a
transaction if every person to whom or for whose benefit the potential
material advisor makes or provides a tax statement with respect to the
transaction is a corporation. The minimum fee is $50,000 for a
transaction if any person to whom or for whose benefit a potential
material advisor makes or provides a tax statement with respect to the
transaction is a partnership or trust, unless all owners or
beneficiaries are corporations (looking through any partners or
beneficiaries that are themselves partnerships or trusts), in which
case the minimum fee is $250,000. For all other transactions, the
minimum fee is $50,000. For purposes of this paragraph (c)(3)(i) a
corporation means a corporation other than an S corporation.
(ii) Listed transactions. For listed transactions described in
Sec. Sec. 1.6011-4(b)(2), 20.6011-4(a), 25.6011-4(a), 31.6011-4(a),
53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter, the
minimum fees in paragraph (c)(3)(i) of this section are reduced from
$250,000 to $25,000 and from $50,000 to $10,000.
(iii) Determination of fees. In determining whether the minimum fee
threshold is satisfied, all fees for services for advice (whether or
not tax advice) or for the implementation of a transaction that is a
potentially abusive tax shelter are taken into account. For purposes of
this section, the minimum fee threshold must be met independently for
each transaction that is a potentially abusive tax shelter and
aggregation of fees among transactions is not required. Fees for advice
or implementation include consideration in whatever form paid, whether
in cash or in kind, for services to analyze the transaction (whether or
not related to the tax consequences of the transaction), for services
to implement the transaction, for services to document the transaction,
and for services to prepare tax returns to the extent return
preparation fees are unreasonable in light of all of the facts and
circumstances. The IRS will scrutinize carefully all of the facts and
circumstances in determining whether consideration received in
connection with a transaction that is a potentially abusive tax shelter
constitutes fees for purposes of this section.
(d) Definitions. For purposes of this section, the following terms
are defined as follows:
(1) Interest. The term interest includes, but is not limited to,
any right to participate in a transaction by reason of a partnership
interest, a shareholder interest, or a beneficial interest in a trust;
any interest in property (including a leasehold interest); the entry
into a leasing arrangement or a consulting, management or other
agreement for the performance of services; or any interest in any other
investment, entity, plan, or arrangement. The term interest includes
any interest that purportedly entitles the direct or indirect holder of
the interest to any tax consequence (including, but not limited to, a
deduction, loss, or adjustment to tax basis in an asset) arising from
the transaction. An interest also includes information or services
regarding the organization or structure of the transaction if the
information or services are relevant to the potential tax consequences
of the transaction.
(2) Substantially similar. The term substantially similar includes
any transaction that is expected to obtain the same or similar types of
tax consequences and that is either factually similar or based on the
same or similar tax strategy. Receipt of an opinion regarding the tax
consequences of the transaction is not relevant to the determination of
whether the transaction is the same as or substantially similar to
another transaction. Further, the term substantially similar must be
broadly construed in favor of list maintenance.
(3) Person. The term person means any person described in section
7701(a)(1), including an affiliated group of corporations that join in
the filing of a consolidated return under section 1501.
(4) Related party. A person is a related party with respect to
another person if such person bears a relationship to such other person
described in section 267 or 707.
(5) Tax. For purposes of this section, the term tax means Federal
tax.
(6) Tax benefit. A tax benefit includes deductions, exclusions from
gross income, nonrecognition of gain, tax credits, adjustments (or the
absence of adjustments) to the basis of property, status as an entity
exempt from Federal income taxation, and any other tax consequences
that may reduce a taxpayer's Federal tax liability by affecting the
amount, timing, character, or source of any item of income, gain,
expense, loss, or credit.
(7) Tax return. For purposes of this section, the term tax return
means a Federal tax return and a Federal information return.
(8) Tax treatment. The tax treatment of a transaction is the
purported or claimed Federal tax treatment of the transaction.
(9) Tax structure. The tax structure of a transaction is any fact
that may be relevant to understanding the purported or claimed Federal
tax treatment of the transaction.
(e) Preparation and maintenance of lists--(1) In general. A
separate list of persons must be prepared and maintained for each
transaction that is a potentially abusive tax shelter. However, one
list must be maintained for substantially similar transactions that are
potentially abusive tax shelters. A list may be maintained on paper,
card file, magnetic media, or in any other form, provided the method of
maintaining the list enables the IRS to determine without undue delay
or difficulty the information required in paragraph (e)(3) of this
section.
(2) Persons required to be included on lists--(i) In general. A
material advisor is required to list each person described in
paragraphs (c)(2)(i)(A) through (D) of this section to whom (or for
whose benefit) the material advisor makes or provides a tax statement
with respect to a transaction that is a potentially abusive tax
shelter. However, a material advisor is not required to list a person
described in paragraph (c)(2)(i)(A) of this section if that person
entered into, or acquired an interest in, a listed transaction more
than 6 years before the transaction was listed.
(ii) Subsequent participant. A material advisor must list any
subsequent participant if the material advisor knows the identity of
that subsequent participant, and the material advisor knows that the
subsequent participant either entered into a transaction that must be
disclosed under Sec. 1.6011-4(b) of this chapter or sold or
transferred to another subsequent participant an interest in that type
of transaction.
(iii) Section 6111 registrant. A material advisor required to
register a
[[Page 10176]]
transaction under section 6111 also must list each person who purchases
(or otherwise acquires) an interest in the transaction.
(iv) Examples. The following examples illustrate the provisions of
this section:
Example 1. An investment firm provides a tax statement as to a
type of transaction to three taxpayers: Corporation X, Corporation
Y, and Corporation Z (all of which are C corporations). Each
taxpayer agrees to pay the investment firm $300,000 in connection
with the transaction, and each taxpayer engages in a separate
transaction (transaction X, transaction Y, and transaction Z,
respectively). At the time the transactions are entered into, the
investment firm knows or reasonably expects that the transactions
will result in a single taxable year loss of $9 million for
Corporation X, $15 million for Corporation Y, and $12 million for
Corporation Z. The transactions do not satisfy the definitions of a
reportable transaction under Sec. 1.6011-4(b)(2), (3), (4), (6) or
(7) of this chapter.
(i) Transaction X. At the time transaction X is entered into,
the investment firm does not know or reasonably expect that the
transaction is a reportable transaction, because the $9 million loss
associated solely with transaction X does not satisfy the $10
million threshold under Sec. 1.6011-4(b)(5) of this chapter
(relating to loss transactions). Accordingly, transaction X is not a
potentially abusive tax shelter. The investment firm is not required
to maintain a list with respect to transaction X.
(ii) Transactions Y and Z. The investment firm satisfies the
requirements for being a material advisor with respect to
transaction Y and transaction Z. First, both of the transactions are
potentially abusive tax shelters with respect to the investment firm
because the investment firm knows, or reasonably expects, at the
time the transactions are entered into, that the losses for each of
Corporation Y and Z will exceed the $10 million threshold and, thus,
the investment firm knows or reasonably expects that the
transactions are or will become reportable transactions under Sec.
1.6011-4(b)(5) of this chapter (relating to loss transactions).
Second, the investment firm provides a tax statement to Corporation
Y and Corporation Z as to the transactions. Third, the investment
firm receives $300,000 in connection with each transaction (viewed
independently of each other and without regard to any other
transaction), which exceeds the minimum fee with respect to each
transaction ($250,000). Accordingly, the investment firm must
maintain a list with respect to transactions Y and Z. Because
transactions Y and Z are based on the same or similar tax strategy,
transactions Y and Z are substantially similar transactions, and the
investment firm must keep one list with respect to both
transactions. The list must contain information about Corporation Y
and Corporation Z (see paragraph (e)(2)(i) of this section).
Example 2. (i) Corporation M provides a tax statement to
Corporation N (a C corporation) describing the potential loss from a
type of transaction. Corporation N pays Corporation M $300,000 for
the information about that type of transaction. Corporation M knows
that Corporation N will sell the information to Taxpayer O (a C
corporation) and Taxpayer P (an individual), and that Taxpayer O and
Taxpayer P will participate in transactions of the type that
Corporation M described to Corporation N. Corporation N, in turn,
provides a tax statement as to that type of transaction to Taxpayer
O and Taxpayer P. Each taxpayer agrees to pay Corporation N $250,000
in connection with its transaction, and each taxpayer engages in a
separate transaction (transaction O and transaction P,
respectively). At the time the transactions are entered into, both
Corporation M and Corporation N know that the transactions are or
will become reportable transactions under Sec. 1.6011-4(b)(5) of
this chapter.
(ii) Corporation N is a material advisor with respect to
transaction O and transaction P. First, at the time the transactions
are entered into, Corporation N knows that the transactions are
reportable transactions. Thus, the transactions are potentially
abusive tax shelters. Second, Corporation N provides a tax statement
to Taxpayer O and Taxpayer P as to the transactions. Third,
Corporation N receives $250,000 in connection with transaction O and
transaction P (each viewed independently of any other transaction),
which equals or exceeds the minimum fee for those transactions
($50,000 and $250,000, respectively). Accordingly, Corporation N
must keep a list with respect to transaction O and transaction P.
The list must contain information about Taxpayer P (see paragraph
(e)(2)(i) of this section). Because transactions O and P are based
on the same or similar tax strategy, transactions O and P are
substantially similar transactions, and Corporation N must keep one
list with respect to both transactions. The list must contain
information about Taxpayer O and Taxpayer P (see (e)(2)(i) of this
section).
(iii) Corporation M's tax statement to Corporation N constitutes
a potentially abusive tax shelter under paragraph (b)(2)(C) of this
section. Corporation M transferred information to Corporation N
regarding the potential tax consequences of a type of transaction
that, if entered into and if the relevant thresholds are met, would
be a reportable transaction described in Sec. 1.6011-4(b)(5). In
addition, Corporation M knew that Corporation N would transfer that
information to another person. Corporation M is a material advisor
with respect to that potentially abusive tax shelter. Corporation M
made a tax statement to Corporation N and Corporation M received
$300,000 in connection with the potentially abusive tax shelter,
which exceeds the minimum fee for that transaction ($250,000).
Accordingly, Corporation M must keep a list with respect to that
potentially abusive tax shelter. The list must contain information
with respect to Corporation N (see paragraph (e)(2)(i) of this
section). The list must also contain information about Taxpayer O
and Taxpayer P because Corporation M knows the identity of Taxpayer
O and Taxpayer P, and Corporation M knows that Taxpayer O and
Taxpayer P entered into transaction O and transaction P,
respectively (see paragraph (e)(2)(ii) of this section).
(3) Contents--(i) In general. Each list must contain the following
information--
(A) The name of each transaction that is a potentially abusive tax
shelter and the registration number, if any, obtained under section
6111;
(B) The TIN (as defined in section 7701(a)(41)), if any, of each
transaction;
(C) The name, address, and TIN of each person required to be on the
list;
(D) If applicable, the number of units (i.e., percentage of
profits, number of shares, etc.) acquired by each person required to be
included on the list, if known by the material advisor;
(E) The date on which each person required to be included on the
list entered into each transaction, if known by the material advisor;
(F) The amount invested in each transaction by each person required
to be included on the list, if known by the material advisor;
(G) A detailed description of each transaction that describes both
the tax structure and its expected tax treatment;
(H) A summary or schedule of the tax treatment that each person is
intended or expected to derive from participation in each transaction,
if known by the material advisor;
(I) Copies of any additional written materials, including tax
analyses or opinions, relating to each transaction that are material to
an understanding of the purported tax treatment or tax structure of the
transaction that have been shown or provided to any person who acquired
or may acquire an interest in the transactions, or to their
[[Page 10177]]
representatives, tax advisors, or agents, by the material advisor or
any related party or agent of the material advisor. However, a material
advisor is not required to retain earlier drafts of a document provided
the material advisor retains a copy of the final document (or, if there
is no final document, the most recent draft of the document) and the
final document (or most recent draft) contains all the information in
the earlier drafts of such document that is material to an
understanding of the purported tax treatment or the tax structure of
the transaction; and
(J) For each person required to be on the list, if the interest in
the transaction was not acquired from the material advisor maintaining
the list, the name of the person from whom the interest was acquired.
(ii) [Reserved]
(f) Retention of lists. Each material advisor must maintain the
list described in paragraph (e) of this section for seven years
following the earlier of the date on which the material advisor last
made a tax statement relating to the transaction, or the date the
transaction was entered into, if known. If the material advisor
required to prepare, maintain, and furnish the list is a corporation,
partnership, or other entity (entity) that has dissolved or liquidated
before completion of the seven-year period, the person responsible
under state law for winding up the affairs of the entity must prepare,
maintain and furnish the list on behalf of the entity, unless the
entity submits the list to the Office of Tax Shelter Analysis (OTSA)
within 60 days after the dissolution or liquidation. If state law does
not specify any person as responsible for winding up the affairs, then
each of the directors of the corporation, the general partners of the
partnership, or the trustees, owners, or members of the entity are
responsible for preparing, maintaining and furnishing the list on
behalf of the entity, unless the entity submits the list to the Office
of Tax Shelter Analysis (OTSA) within 60 days after the dissolution or
liquidation. The responsible person must also provide notice to OTSA of
such dissolution or liquidation within 60 days after the dissolution or
liquidation. The list and the notice provided to OTSA may be sent to:
IRS LM:PFTG:OTSA, Large & Mid-Size Business Division, 1111 Constitution
Ave., NW., Washington, DC 20224, or to such other address as provided
by the Commissioner.
(g) Furnishing of lists--(1) In general. Each material advisor and
person responsible for maintaining a list of persons must, upon written
request by the IRS, furnish the list to the IRS within 20 days from the
day on which the request is provided. The request is not required to be
in the form of an administrative summons. The list may be furnished to
the IRS on paper, card file, magnetic media, or in any other form,
provided the method of furnishing the list enables the IRS to determine
without undue delay or difficulty the information required in paragraph
(e)(3) of this section.
(2) Claims of privilege--(i) In any case in which an attorney or
federally authorized tax practitioner within the meaning of section
7525 is required to maintain a list with respect to a transaction that
is a potentially abusive tax shelter, and that person has a reasonable
belief that information specified in paragraph (e)(3)(i)(I) required to
be furnished under this paragraph (g) is protected by the attorney-
client privilege or by the confidentiality privilege of section
7525(a), the attorney or federally authorized tax practitioner must
still maintain the list of persons pursuant to the requirements of this
section. When the list is requested by the IRS, as provided in
paragraph (g)(1) of this section, the material advisor may assert a
privilege claim as to the information specified in paragraph
(e)(3)(i)(I) subject to the requirements of this paragraph (g)(2).
(ii) The claimed privilege must be supported by a statement that is
signed by the attorney or federally authorized tax practitioner under
penalties of perjury, must identify and describe (as set forth in this
paragraph (g)(2)) the nature of each document that is not produced
which will allow the IRS to determine the applicability of the
privilege or protection claimed, without revealing the privileged
information itself, and must include the following representations with
respect to each document for which the privilege is claimed--
(A) Specifically represent that the information was a confidential
practitioner-client communication and, in the case of information which
a federally authorized tax practitioner claims is privileged under
section 7525, that the omitted information was not part of tax advice
that constituted the promotion of the direct or indirect participation
of a corporation in any tax shelter (as defined in section
6662(d)(2)(C)(iii)); and
(B) Specifically represent that to the best of such person's
knowledge and belief, that the person and all others in possession of
the omitted information did not disclose the omitted information to any
person whose receipt of such information would result in a waiver of
the privilege.
(iii) Identification and description of a document includes, but is
not limited to--
(A) The date appearing on such document or, if it has no date, the
date or approximate date that such document was created;
(B) The general nature, description and purpose of such document
and the identity of the person who signed such document, and, if it was
not signed, the identity of each person who prepared it; and
(C) The identity of each person to whom such document was addressed
and the identity of each person, other than such addressee, to whom
such document, or a copy thereof, was given or sent.
(h) Designation agreements. If more than one material advisor is
required to maintain a list of persons, in accordance with paragraph
(e) of this section, for a potentially abusive tax shelter, the
material advisors may designate by written agreement a single material
advisor to maintain the list or a portion of the list. The designation
of one material advisor to maintain the list does not relieve the other
material advisors from their obligation to furnish the list to the IRS
in accordance with paragraph (g)(1) of this section, if the designated
material advisor fails to furnish the list to the IRS in a timely
manner. A material advisor is not relieved from the requirement of this
section because a material advisor is unable to obtain the list from
any designated material advisor, any designated material advisor did
not maintain a list, or the list maintained by any designated material
advisor is not complete.
(i) Procedure for obtaining rulings. A person may submit a request
to the IRS for a ruling as to whether a specific transaction will be
considered a potentially abusive tax shelter for purposes of this
section and whether that person is a material advisor with respect to
that transaction. If the request fully discloses all relevant facts
relating to the transaction (including all facts relevant to the
person's relationship to such transaction), then the requirement to
maintain a list shall be suspended for that person during the period
that the ruling request is pending and for 60 days thereafter; however,
if it is ultimately determined that the transaction is a potentially
abusive tax shelter and that the person is a material advisor with
respect to that transaction, the pendency of such a ruling request
shall not affect the requirement to maintain the list, nor shall it
affect the
[[Page 10178]]
persons required to be included on the list (including persons who
acquired interests in the potentially abusive tax shelter prior to and
during the pendency of the ruling request), or the other information
required to be included as part of the list.
(j) Effective date. This section applies to any transaction that is
a potentially abusive tax shelter entered into, or any interest
acquired therein, on or after February 28, 2003. However, this section
shall apply to any transaction that was entered into, or in which an
interest was acquired, after February 28, 2000, if the transaction
becomes a potentially abusive tax shelter on or after February 28, 2003
because it is a listed transaction as defined in Sec. 1.6011-4 of this
chapter, and is subject to disclosure under Sec. 1.6011-4 of this
chapter. This section also shall apply to any transaction that was
entered into, or in which an interest was acquired, after January 1,
2003, if the transaction becomes a listed transaction as defined in
Sec. 1.6011-4 of this chapter and is subject to disclosure under
Sec. Sec. 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4 or
56.6011-4 of this chapter. The rules in Sec. 301.6112-1T as contained
in 2002-45 I.R.B. 826 (see Sec. 601.601(d)(2) of this chapter) apply
only to a transaction entered into, or an interest acquired therein, on
or after January 1, 2003, and before February 28, 2003, if the
transaction is a listed transaction as defined in Sec. 1.6011-4 of
this chapter or a section 6111 tax shelter. Otherwise, the rules that
apply with respect to any transaction that is a potentially abusive tax
shelter entered into, or any interest acquired therein, before January
1, 2003, are contained in Sec. 301.6112-1T in effect prior to January
1, 2003 (see 26 CFR part 301 revised as of April 1, 2002).
Additionally, the IRS will not ask to inspect any list for a
potentially abusive tax shelter that is entered into, or any interest
acquired therein, on or after January 1, 2003, until June 1, 2003,
unless the potentially abusive tax shelter is a listed transaction as
defined in Sec. 1.6011-4 of this chapter or a transaction that is a
section 6111 tax shelter.
Sec. 301.6112-1T [Removed]
Par. 26. Section 301.6112-1T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 27. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 28. In Sec. 602.101, paragraph (b) is amended as follows:
1. The following entries to the table are removed:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.6011-4T............................................... 1545-1685
* * * * *
301.6111-2T............................................. 1545-0865
1545-1687
301.6112-1T............................................. 1545-1686
* * * * *
------------------------------------------------------------------------
2. The following entries are added in numerical order to the table:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.6011-4................................................ 1545-1685
* * * * *
301.6111-2.............................................. 1545-0865
1545-1687
301.6112-1.............................................. 1545-1686
* * * * *
------------------------------------------------------------------------
Approved: February 26, 2003.
David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
Pamela F. Olsen,
Assistant Secretary of the Treasury.
[FR Doc. 03-4958 Filed 2-28-03; 10:47 am]
BILLING CODE 4830-01-P