Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued final regulations on the disclosure of reportable transactions that affect taxpayers participating in such transactions, material advisors responsible for disclosing reportable transactions and material advisors responsible for keeping lists relating to reportable transactions. The final rules reflect changes required by the amendments to Code Secs. 6111 and 6112
that were made by the American Jobs Creation Act of 2004 (P.L. 108-357).
T.D. 9350
The first set of final regulations under Code Sec. 6011 modify and clarify the rules relating to the disclosure of reportable transactions. The final rules add a new category of reportable transactions, called "transactions of interest." This category includes transactions that the IRS and Treasury Department believe have a potential for tax avoidance or evasion, but for which the IRS and Treasury Department lack enough information to determine whether the transaction should be specifically identified as a tax-avoidance transaction. The IRS will identify transactions of interest by notice, regulation or other form of published guidance. From such published guidance, taxpayers will then be able to determine whether a particular transaction is the same or substantially similar to the transaction described and to determine who participated in the transaction. The transactions-of-interest category will apply to transactions entered into on or after November 2, 2006.
The final regulations under Code Sec. 6011 also cover the disclosure of reportable transactions by owners of a pass-through entity. If a taxpayer who is a partner in a partnership, a shareholder in an S corporation or a beneficiary of a trust receives a timely Schedule K-1 less than 10 calendar days before the due date of the taxpayer's return (including extensions) and the taxpayer determines that it participated in a reportable transaction, the disclosure statement will not be considered late if the taxpayer discloses the reportable transaction by filing a disclosure statement with the Office of Tax Shelter Analysis (OTSA) within 60 calendar days after the due date of the taxpayer's return, including extensions.
This 60-day period provided by the final rules is longer than the 45-day disclosure period that was included in the proposed rules. A 90-day period is allowed for taxpayers to disclose their participation in a transaction that is subsequently identified as a listed transaction or transaction of interest after the filing of the taxpayer's return. The disclosure statement is made on Form 8886, Reportable Transaction Disclosure Statement.
Since some pass-through entity owners may have minimal interests or may be unaware that the entity is engaged in a reportable transaction, the final rules also vary from the proposals by allowing the IRS and the Treasury Department to issue other provisions for disclosure through published guidance. This will give the IRS flexibility in determining who is subject to the disclosure requirements for a particular transaction.
Finally, based on other changes to the foreign tax credit rules under Code Sec. 901, the brief asset holding period reportable transaction category that was included in the proposed rules has been found unnecessary and has been removed from the categories of reportable transactions. Also, Forms 8271, Investor Reporting of Tax Shelter Registration Number, that are otherwise due on or after August 3, 2007, will no longer need to be filed by investors and will be obsoleted.
T.D. 9351
The final regulations under Code Sec. 6111, provide rules regarding the disclosure of reportable transactions by material advisors. A material advisor is a person who provides any material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction, and directly or indirectly derives gross income in excess of a threshold amount for such aid, assistance or advice. The threshold amount is generally $250,000, but is lowered to only $50,000 if substantially all of the tax benefits from the reportable transaction are provided to natural persons, looking through any partnerships, S corporations or trusts. Unless the facts and circumstances prove otherwise, substantially all of the tax benefits will be considered to be provided to natural persons if 70 percent or more the tax benefits from the reportable transactions are provided to natural persons.
Under the final disclosure requirements, a material advisor must file Form 8918, Material Advisor Disclosure Statement. In addition to information about the transaction, the material advisor must provide in the disclosure statement the identities of any material advisor or advisors who the material advisor knows or has reason to know acted as a material advisor with respect to the transaction. The IRS will provide a reportable transaction number for the disclosed reportable transaction to the material advisor. The material advisor must then provide the reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor. The final rule is therefore less stringent than the proposed rule, which would have required the material advisor to provide a reportable transaction number to all persons for whom the material advisor made a tax statement.
The final regulation also adopts the proposal that allows material advisors to designate, by written agreement, a single material advisor to disclose a reportable transaction where more than one material advisor is required to make a disclosure. However, the designation of one material advisor to disclose the transaction does not relieve the other material advisors of their obligation to disclose if the designated material advisor fails to disclose in a timely manner. Potential material advisors who are uncertain as to whether a transaction must be disclosed may also file a protective disclosure.
T.D. 9352
The final regulations under Code Sec. 6112 require each material advisor to prepare and maintain a list for each reportable transaction. The list must include an itemized statement of information, a description of the transaction, and copies of certain documents. Each material advisor responsible for maintaining a list must be able to make each component of the list available to the IRS upon written request. In order to provide more flexibility, the final regulations eliminate the requirement in the proposed regulation that the material advisor be able to produce each component of the list within 20 business days. Instead, the final rules set the time period for furnishing a list or components of a list as the period set forth in Code Sec. 6708
or in future published guidance under Code Sec. 6708.
T.D. 9350, 2007FED ¶47,055
T.D. 9350, FINH ¶43,112
T.D. 9351, 2007FED ¶47,056
T.D. 9352, 2007FED ¶47,057
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,125B
CCH Reference - 2007FED ¶35,126C
CCH Reference - 2007FED ¶35,127C
CCH Reference - 2007FED ¶35,129AA
CCH Reference - 2007FED ¶35,131
CCH Reference - FINH ¶20,060
CCH Reference - FINH ¶20,065
CCH Reference - FINH ¶20,070
Code Sec. 6111
CCH Reference - 2007FED ¶37,001D
Code Sec. 6112
CCH Reference - 2007FED ¶37,021
Tax Research Consultant
CCH Reference - TRC FILEBUS: 3,052.20
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