What's New:
- Intermediary Transaction Tax Shelters
On December 1, 2008, the Internal Revenue Service released Notice 2008-111 which clarifies Notice 2001-16 that identified and described the intermediary transaction tax shelter as a listed transaction and supersedes Notice 2008-20 (2008-6 I.R.B. 406). The revised guidance defines an intermediary transaction in terms of its plan and of more objective components. Under the guidance, a transaction is treated as an intermediary transaction for a particular person only if that person engages in the transaction as pursuant to a plan (as defined in sections 2 and 4), the transaction contains the four objective components indicative of an intermediary transaction set forth in section 3; and no safe harbor exception in section 5 applies to that person. A transaction must have all four components to be the same or substantially similar to the listed transaction described in Notice 2001-16, even if the transaction is engaged in as part of a plan. The guidance specifies when a person is engaged in a transaction as part of a plan and clarifies that a transaction may be an intermediary transaction for one person and not another.
- New Transaction of Interest - Potential for Avoidance of Tax Through Sale of Charitable Remainder Trust Interests
Notice 2008-99 identifies a transaction of interest in which a sale or other disposition of all interests in a charitable remainder trust (subsequent to the contribution of appreciated assets to and their reinvestment by the trust), results in the grantor or other noncharitable recipient receiving the value of that person's trust interest while claiming to recognize little or no taxable gain. Persons entering into these transactions on or after November 2, 2006, must disclose the transaction as described in section 1.6011-4. Material advisors who make a tax statement on or after November 2, 2006, with respect to transactions entered into on or after November 2, 2006, have disclosure and list maintenance obligations under sections 6111 and 6112. Persons required to disclose these transactions and/or maintain lists of advisees who fail to do so may be subject to the penalties under sections 6707A, 6707, 6708, 6662, and/or 6662A.
- LILO/SILO SETTLEMENT INITIATIVE - On August 6, 2008, IRS Commissioner Douglas Shulman announced that settlements would be offered to taxpayers who participated in Lease-In/Lease-Out (LILO) and Sale-In/Sale-Out (SILO) transactions. IRS sent out letters giving taxpayers 30 days to make a decision on whether to accept the offer terms.
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Form 13976, Itemized Statement Component of Advisee List (April 2008), may be used by material advisors for the purpose of preparing and maintaining lists with respect to reportable transactions under § 6112 of the Internal Revenue Code. The Form is not required to be used under § 301.6112-1 of the Procedure and Administration Regulations, but is offered as an option for maintaining the list.
- Revenue Procedure 2008-20 provides guidance relating to the obligation of material advisors to prepare and maintain lists with respect to reportable transactions under § 6112 and provides that material advisors may use the Form 13976, “Itemized Statement Component of Advisee List” (or successor form) to maintain the itemized statement component of the list.
New Tax Law Provisions Enacted to Combat Abusive Tax Shelters
The American Jobs Creation Act of 2004 (P.L. 108-357) was signed into law by the President on October 22, 2004. This new legislation contains many provisions that will affect abusive tax shelter promotions, advisors and investors.
Listed Abusive Tax Shelters and Transactions
IRS, the Office of Chief Counsel and Treasury issue formal guidance on certain tax avoidance transactions that are referred to as "listed transactions". Taxpayers are required to disclose their participation in listed transactions. To date, 34 listed transactions have been identified and addressed in formal guidance.
Regulations on Abusive Tax Shelters and Transactions
Treasury regulations require that certain tax shelters and transactions be registered and that lists of investors be maintained by parties who organize or sell interests in the shelter(s). Investors in certain shelters and transactions are required to disclose their participation on their tax returns.
Mandatory Tax Shelter Information Document Request
The Abusive Tax Shelter Mandatory Information Document Request (IDR) is required for all LMSB return examinations and extends to examination activities that originate from post-filing as well as pre-filing activities such as the Compliance Assurance Program (CAP). This policy is part of LMSB's continuing commitment to the IRS initiative addressing abusive tax shelters.
Tax Accrual Workpapers
IRS policy is to request tax accrual and other financial audit workpapers relating to the tax reserve for deferred tax liabilities, and to footnotes disclosing contingent tax liabilities appearing in audited financial statements.
IRS Initiatives to Resolve and Identify Abusive Tax Shelters and Transactions
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Taxpayers were afforded the opportunity to participate in a "Son-of-Boss" settlement initiative announced in May, 2004. Taxpayers who qualified for the offer paid outstanding tax, interest and applicable penalty.
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IRS conducted a settlement initiative from October 2002 through March 2003 to allow taxpayers engaged in certain abusive transactions to resolve the tax consequences arising from their participation in the transactions. The transactions covered by the initiative were §302 / 318 Basis Shifting, §351 Contingent Liabilities, and Corporate Owned Life Insurance (COLI).
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A prior Tax Shelter Disclosure Initiativeconducted from December 2001 to April 2002 resulted in 1,690 transaction disclosures from 1,212 taxpayers. The transactions disclosed involved $30 billion in claimed losses and deductions.
Office of Tax Shelter Analysis
The Office of Tax Shelter Analysis (OTSA) in the LMSB Division collects and analyzes information about abusive tax shelters and transactions, and coordinates LMSB’s tax shelter planning and operations.
IRS maintains a hotline that people can use to provide information (anonymously if preferred) about abusive tax shelters.
- Toll free (866) 775-7474
- Fax (202) 283-8406
- Email IRS Tax Shelter Hotline
- Mail:
Internal Revenue Service
Office of Tax Shelter Analysis
Mint Building M3-340
1111 Constitution Ave. NW
Washington, DC 20224
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Other Abusive Tax Schemes
In addition to the highly complex abusive technical transactions covered on this page, IRS is combating other types of abusive tax schemes, such as offshore tax avoidance schemes. Click here for information on steps IRS is taking to combat these other schemes:
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