FROM THE OFFICE OF PUBLIC AFFAIRS

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Today, as part of ongoing efforts to address abusive tax avoidance transactions, the Treasury Department and the Internal Revenue Service released amended disclosure and list-maintenance regulations.  The amended regulations strengthen the rules for the disclosure by taxpayers of their participation in potentially abusive tax avoidance transactions and the maintenance of lists by promoters of taxpayers who have entered into such transactions.

“We are continuing our efforts to identify and shut down abusive tax avoidance transactions as quickly as possible,” stated Treasury Assistant Secretary for Tax Policy Pam Olson.  “The regulations we released today will improve the system by helping us get the information we need to identify questionable transactions.  Getting the information is the first step in speeding up the process of getting out guidance to let taxpayers know that transactions may not work as advertised.  The amended regulations improve the rules requiring taxpayers to disclose potentially questionable transactions on their returns and requiring promoters to maintain customer lists for the same transactions.  The changes will provide greater clarity making it easier for taxpayers and promoters to understand and comply with their obligations.”

By simplifying the definition of a transaction that must be disclosed, these amended regulations carry out one of the Treasury Department’s key proposals for combating abusive tax avoidance transactions, as outlined in the Treasury Department’s March 20, 2002, Enforcement Proposals.  Under current rules, different definitions and different exceptions apply to each of the disclosure requirements for taxpayers and promoters.  A consistent definition will significantly enhance compliance and administration.

Under these amended regulations, taxpayers will be required to disclose, and promoters will be require to maintain investor lists for, six categories of transactions:

(1) Listed transactions (i.e., transaction that have been specifically identified by the IRS as tax avoidance transactions);

(2) Transaction marketed under conditions of confidentiality;

(3) Transactions with contractual protection (e.g., an indemnity in the event that the claimed tax benefits are not sustained);

(4) Transactions generating a tax loss exceeding specified amounts;

(5) Transactions resulting in a book-tax difference exceeding $10 million; and

(6) Transactions generating a tax credit when the underlying asset is held for a brief period of time.

These proposed regulations will amend the existing temporary regulations under sections 6011 (taxpayer disclosure) and 6112 (promoter list maintenance) of the Code.  Pending legislation would permit the Treasury Department to require promoters to register the same types of transactions with the IRS.  The Treasury Department will amend the regulations under section 6111 (promoter registration) when such legislation is enacted. 

The amended regulations generally apply to transactions entered into on or after January 1, 2003.  The existing temporary regulations will continue to apply until that time.  Since the March 2002 announcement of its Enforcement Proposals, the Treasury Department has been soliciting comments on the categories of transactions covered by the amended regulations.

BACKGROUND
On March 20, 2002, after evaluating the effectiveness of the existing rules, Treasury released its Enforcement Proposals for abusive tax avoidance transactions.  The Enforcement Proposals include administrative, regulatory, and legislative actions and proposals.  On June 14, 2002, Treasury and the IRS issued temporary and proposed regulations implementing some of the regulatory proposals, including the proposal that individuals, partnerships, S corporations and trusts be required to disclose on their returns specifically identified tax avoidance transactions.  The prior regulations applied only to corporations.

The regulations are attached .

Related Documents:

• Tax Shelter Requirements
• Tax Shelter Disclosure Statements