Tax News

CCH (cch.taxgroup.com) reports:

"Transactions of interest" certainly have been a filter of "much interest," remarked Anita C. Soucy, Attorney-Advisor, Office of Tax Policy (Treasury), who has been involved in the development of the recent tax-shelter disclosure guidance that has been released over the past several weeks (T.D. 9350, T.D. 9351, T.D. 9352; TAXDAY, 2007/08/01, I.3; Notice 2007-72 and Notice 2007-73, TAXDAY, 2007/08/15, I.1). At a Tax Management luncheon held at Buchanan & Ingersoll in Washington, D.C. on August 20, Soucy shared insights behind some of the background analysis that went into the final disclosure regulations that were published on August 03, 2007. Together with former Treasury official Jeffrey H. Paravano, of Baker Hostetler, Soucy also debated the merits behind that first two "transactions of interest" notices that immediately followed the final regulations on August 15.
In reviewing several of the practitioner comments to proposed regulations that Treasury rejected, Soucy emphasized that "the name of the game is flexibility" so that the IRS is not boxed into a position that it cannot revise quickly. For example, the Treasury rejected any need to issue advanced notices of transactions of interests (TOIs) or to issue TOIs that would sunset after a certain period of time. While Soucy said that the IRS has the ability of come out with "yellow light notices," TOIs should be considered more significant. TOIs are not quite at the level of listed transactions because the IRS still lacks the information to determine whether the transaction should be identified specifically as a tax-avoidance transaction. However, TOIs are viewed with a certain suspicion that, somewhere within the parameters of the transaction, there is a potential for abuse.
"A TOI is not designated lightly," Soucy emphasized, "It is a recognition that a certain general transaction has the potential for abuse and we need more information. We have not made a determination that it is not a tax avoidance transaction. A TOI notice indicates that there is some part of the transaction about which the IRS is in the dark and needs more information." Soucy noted that, unlike a listed transaction notice, the TOI notice has a relatively short "analysis section" for the very reason that more information is needed before a proper analysis can be attached to it.
Retroactive Application
The retroactive effect of the final regulations with respect to the transactions of interest category --applicable for all transactions entered into on or after November 2, 2006 --has been another source of controversy that has been heightened by the TOI designations. A TOI announcement is made pursuant to the regulations and, therefore, is effective retroactively to transactions entered into on or after November 2, 2006. Apparently, the only negotiable issue between the proposed and the final regulations was not whether disclosure was required but how soon after a TOI announcement disclosure had to be made.
Soucy reported that the Treasury and IRS listened to many of the criticisms of the proposed regulations, especially in connection with a relatively short deadlines that would have been imposed. Therefore, while the government was unwilling to wait until "the next filed return" for newly announced TOI transactions to be disclosed, it did concede that 60 days was too short and lengthened the disclosure deadline to 90 days. Likewise, the safe harbor for reporting on information set forth on late Schedule K-1s was extended from 45 to 60 days.
Soucy also emphasized that the reporting of listed transactions and TOIs is a serious matter that carries significant penalties for noncompliance, whether or not intentional. "People are making a lot of protective disclosures," she stated, further observing that final regulations allow such action in recognition of the interpretative problems that some taxpayers and advisors have been facing.
Upcoming Guidance
Soucy made several general observations on the probable timetable of certain upcoming guidance:
--Form 8918, Material Advisor Disclosure Statement, which is not out yet, "it should be out shortly."
--Disclosure penalty regulations, on which "the government has a lot to say," will be issued relatively soon.
--The non-shelter piece of Circular 230 will be out "very shortly" and most certainly will precede further guidance on the tax shelter provisions under Circular 230. Of the tax shelter provisions, Soucy stated, "It is being worked on; it isn't something we are putting on the shelf and forgetting about."
By George Jones, CCH News Staff