FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department and the Internal Revenue Service today issued a notice to shut down another tax shelter. The shelter involves a series of pre-arranged steps with the purpose of creating an artificially high tax basis in stock, which is sold at a loss.

The Notice is another step in Treasury's efforts to address attempts to evade tax. The Notice warns all taxpayers that engage in the transaction that the IRS intends to challenge the asserted tax benefits. In addition, the Notice informs corporate taxpayers of their obligation to disclose their participation in the transaction and informs promoters of their obligation to register the transaction and keep lists of customers that engage in the transaction.

The Treasury Department is working with the IRS, particularly the Office of Tax Shelter Analysis, to review existing rules and procedures to ensure that all taxpayers pay the appropriate amount of tax.

In the type of transaction described in the Notice, a U.S. taxpayer owns stock options to purchase 50% or more in a foreign corporation ("first corporation"). Therefore the U.S. taxpayer and the first corporation are considered related parties for tax purposes. The U.S. taxpayer and the first corporation each own stock in a second corporation. The second corporation then redeems its stock held by the first corporation and the first corporation treats the redemption as a dividend because it is related to the U.S. taxpayer. The U.S. taxpayer claims that the first corporation's cost for the redeemed stock attaches to the U.S. taxpayer's stock in the second corporation. Then, the U.S. taxpayer sells its stock of the second corporation and claims a loss.