Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations relating to the disclosure of reportable transactions and maintenance of lists required to be kept by material advisors of such transactions. The proposed regulations would add a new category of reportable transaction under Code Sec. 6011 to address the patenting of tax advice or tax strategies.
The IRS previously issued proposed, temporary and final regulations under Code Secs. 6011, 6111
and 6112 in November 2006 (NPRM REG-103038-05, NPRM REG-103039-05, NPRM REG-103043-05, T.D. 9295; TAXDAY, 2006/11/02, I.1). In the preamble to the proposed regulations, the IRS expressed concern regarding the patenting of tax advice or tax strategies that have the potential for tax avoidance and requested comments regarding the creation of a new category of reportable transaction to address those concerns.
After consideration of the comments received, the IRS has issued proposed regulations that would add "patented transactions", a new category of reportable transaction, to the Code Sec. 6011 regulations. The proposed regulations are intended to assist the IRS and Treasury Department in obtaining disclosures of tax-avoidance transactions and in providing effective tax administration.
Under the proposed regulations, a patented transaction is any transaction for which a taxpayer pays a fee to a patent holder or the patent holder's agent for the legal right to use a tax-planning method that the taxpayer knows or has reason to know is the subject of the patent. A patented transaction is also a transaction for which a patent holder or the patent holder's agent has the right to payment for another person's use of a tax-planning method that is the subject of the patent. The proposed regulations would include as a tax-planning method any plan, strategy, technique or structure designed to affect federal income, estate, gift, generation-skipping transfer, employment or excise tax. However, the proposed regulations would exclude patents issued solely for tax-preparation software or other tools used to perform or model mathematical calculations or to provide mechanical assistance in the preparation of tax or information returns.
The proposed regulations provide that a taxpayer has participated in a patented transaction if the taxpayer's tax return reflects a tax benefit from the transaction (including a deduction for fees paid to the patent holder or patent holder's agent). If the taxpayer is the patent holder or patent holder's agent, the taxpayer has participated in a patented transaction if the taxpayer's tax return reflects a tax benefit in relation to obtaining a patent for a tax-planning method or reflects income from a payment received from another person for use of the tax-planning method.
The proposed regulations also describe when a person is a material advisor with respect to a patented transaction under Code Sec. 6111. Because of the nature of patented transactions and how those transactions are marketed, the proposed regulations would reduce the threshold amounts in Reg. §301.6111-3(b)(3)(i)(A) from $50,000 to $250 and from $250,000 to $500.
The IRS and Treasury Department request comments on the proposed regulations. Written or electronic comments must be received by December 26, 2007. A public hearing will be scheduled if requested in writing by any person that submits timely comments.
Proposed Regulations, NPRM REG-129916-07, 2007FED ¶49,764
Proposed Regulations, NPRM REG-129916-07, FINH ¶41,129
Other References:
Code Sec. 6011
CCH Reference - 2007FED ¶35,125BB
CCH Reference - FINH ¶20,062
Code Sec. 6111
CCH Reference - 2007FED ¶37,001G
Tax Research Consultant
CCH Reference - TRC FILEBUS: 3,052.20
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