LMSB-04-1107-076
Revised 12/2007
NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.
Each chapter in this Audit Techniques Guide (ATG) can be printed individually. Please follow the links at the beginning or end of this chapter to return to either the previous chapter or the Table of Contents or to proceed to the next chapter.
Chapter 8 | Table of Contents | Chapter 13
Chapter 9 - Table of Contents
INTRODUCTION
In recent years, there has been a continuous growth of the use of partnerships in tax shelters. Several steps have been taken to address tax shelters and the abuse of the partnership entity. Treas. Reg. section 1.701-2, proposed in 1994 and finalized in 1995, provides two anti-abuse tests for partnerships.
In February 2000, Treasury and the Internal Revenue Service issued temporary and proposed regulations under IRC sections 6011, 6111, and 6112 that imposed new disclosure, registration, and list maintenance requirements with respect to certain tax shelters. These regulations were subsequently modified on a number of occasions and final regulations were issued on February 28, 2003. The key concept in the regulations is that of the “reportable transaction.” Under the final regulations, all taxpayers, not just corporations, must disclose participation in reportable transactions.
The American Jobs Creation Act of 2004 (AJCA) made significant changes to the disclosure, registration and list maintenance rules. The object of the changes in the AJCA was to conform rules for taxpayer disclosure (IRC section 6011) with new rules under reporting transactions (IRC section 6111) and list maintenance rules of material advisors (IRC section 6112). Registration of a “tax shelter,” under prior IRC section 6111 rules was eliminated and a new disclosure regime was substituted in its place. Upon passage of the AJCA, both “material advisors” (formerly “promoters”) and taxpayers have obligations to disclose “reportable transactions.”
It is important to note that prior to the enactment of the AJCA in October 2004, there were no specific penalties for failing to file a disclosure statement for a reportable transaction. The failure to file a required disclosure statement, however, could have an impact on the taxpayer's ability to satisfy IRC section 6664 "reasonable cause and in good faith" defense to the IRC section 6662 accuracy-related penalty.
If disclosure, registration, and/or list maintenance is required under these regulations, the transaction is not per se abusive. Listed transactions, however, are transactions that have been determined by the IRS to be tax avoidance transactions. Examples of listed transactions that specifically use partnerships are Notice 2000-44 (“Son of BOSS”) and Notice 2002-50 (“Eliminator”), but other listed transactions use partnerships also. Additionally, the area of emerging issues has become increasingly important in the partnership arena.
This chapter will cover:
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OFFICE OF TAX SHELTER ANALYSIS
The Office of Tax Shelter Analysis (OTSA) was created in February 2000. OTSA is the focal point for IRS tax shelter initiatives across divisions and is responsible for planning, coordinating, and providing assistance to examiners working potentially abusive tax shelters.
Reportable transactions disclosed by material advisors (Form 8264 or Form 8918 for returns required to be filed after October 31, 2007) and by taxpayers (Form 8886) are filed with OTSA at their Ogden office. A copy of the taxpayer’s disclosure (Form 8886) should also be attached to the taxpayer’s tax return for each year the transaction took place. A team coordinated by OTSA makes periodic reviews of these disclosures with the intent of identifying potential abusive transactions either before the tax returns have been filed (Forms 8264), or shortly thereafter (Forms 8886). Penalties under IRC sections 6707 and 6707A can be imposed on material advisors and taxpayers who fail to disclose in accordance with the regulations.
Not all disclosures of reportable transactions disclosed to the Service are abusive. Taxpayers have the option to file “protective” disclosures per Treas. Reg. section 1.6011-4(f)(2) if they are uncertain about whether the transaction should be disclosed. Taking this step protects the taxpayer from penalties if it is later determined that the transaction is a reportable transaction. Per the 6111 regulations, the IRS will not treat disclosure statements filed on a protective basis any differently than other disclosure statements filed under this section.
Additionally, OTSA maintains a Tax Shelter Hotline. The Tax Shelter Hotline was established primarily for external use in reporting potentially abusive transactions to the Service.
OTSA’s major program areas include:
- The Promoter Program
- The Disclosure Program
- The Registration/Material Advisor Program
- The Emerging Issue Program
Technical Advisors have been selected to coordinate many of the transactions that are being marketed by shelter promoters. In some instances, more than one Technical Advisor is assigned to a transaction, such as both a Financial Products Technical Advisor and a Partnership Technical Advisor.
How to contact OTSA:
Hotline Telephone:
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(202) 283-8740
(866) 775-7474
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Facsimile:
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(202) 283-8406
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Address:
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Internal Revenue Service
LMSB:PFTG:OTSA
Office of Tax Shelter Analysis
Mint Building M3-320
1111 Constitution Avenue, NW
Washington, DC 20224
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Email:
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irs.tax.shelter.hotline@irs.gov
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EMERGING ISSUES
Emerging Issues are potentially abusive transactions that may arise from a new or novel set of facts and are not appropriately addressed by published legal guidance or administrative pronouncements of the Service. Emerging Issues can be identified by examiners, managers, field specialists, or technical advisors.
Examiners who come across potential emerging issues should endeavor to gather as much information as possible concerning the fact pattern, the names of promoter(s) or advisor(s), and the existence of legal opinions and/or promotional material. The examiner should describe the transaction details on the Potentially Abusive Transaction “PATS” form, which may be downloaded from the Emerging Issue site on the OTSA webpage. This PATS form should then be e-mailed to the location referenced at this site. An experienced examiner and counsel will review these PATS forms to determine whether there is potential for widespread abuse. If the transaction involves partnership taxation, the examiner may also wish to contact one of the Partnership Technical Advisors. Additionally, the examiner should check the Internal Revenue Manual (IRM) for the most recent information concerning the issue management process as it affects emerging issues.
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TAX SHELTER DISCLOSURE REGIME
Background
On February 28, 2000, the IRS issued temporary regulations regarding rules which were intended to provide the Service with information necessary to evaluate potentially abusive transactions, known as “reportable transactions.” Under the original system, only corporate taxpayers had to disclose reportable transactions. A reportable transaction was either a) a listed transaction, or b) a transaction that met two of five characteristics, satisfied a projected tax effect test, and did not satisfy any of the exceptions provided in the regulations.
The original system was found to be less effective than hoped for. Although disclosure was mandatory, there was no independent penalty for failing to disclose a reportable transaction. In addition, while taxpayers interpreted the five characteristics in an overly narrow manner, they sought to ensure that the exceptions were read broadly so that one of the exceptions would apply.
On the date the final regulations were issued, February 28, 2003, the disclosure requirements were broadened to apply to all classes of taxpayers, rather than only to corporations. The disclosure regulations were redefined to create six categories of reportable transactions. The six categories appeared in temporary regulations that were effective on January 1, 2003, and were subsequently finalized in Treas. Reg. section 1.6011-4(b) on February 28, 2003.
Reportable Transactions under the Final Regulations
Effective for transactions entered into after January 1, 2003, final regulations provided any taxpayer that is required to file a tax return, including a partnership and has participated in a reportable transaction must file Form 8886, Reportable Transaction Disclosure Statement. The disclosure statement must be attached to the tax return in each year in which the taxpayer participated in a reportable transaction, in addition to each amended return that reflects participation in a reportable transaction. Additionally, in the first year a disclosure is made, the taxpayer must send a copy of the disclosure statement to OTSA.
The 2003 regulations created six categories of reportable transactions:
- Listed transactions;
- Confidential transactions;
- Transactions with contractual protections;
- Loss transactions;
- Transactions with significant book/tax differences, and
- Transactions involving a brief asset holding period.
It should be noted that for returns timely filed on or after January 6, 2006, there is no longer a requirement to file Form 8886 in order to report significant book-tax differences. See Notice 2006-6.
The category of transactions with a brief asset holding period was removed as a reportable transaction effective August 3, 2007. Transactions of Interest became a reportable transaction category as of August 3, 2007, requiring taxpayers to disclose participation in these transactions after November 2, 2006.
The following is a brief overview of the six categories of reportable transactions:
Listed Transactions :
A listed transaction is a transaction that is the same as or substantially similar to one of the types of transactions that the Service has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction.
The term “substantially similar” includes any transaction that is expected to obtain the same or similar types of tax consequences and that is either factually similar or based on the same or similar tax strategy. Further, the term “substantially similar” must be broadly construed in favor of disclosure.
Confidential Transactions
Transactions that are offered under conditions of confidentiality by an advisor who is paid a minimum fee are considered to be reportable transactions. The minimum fees are $250,000 if the taxpayer is a corporation and $50,000 for all other transactions. However, if the taxpayer is a partnership or trust, and all of the owners or beneficiaries of which are corporations (looking through any partners or beneficiaries that are themselves partnerships or trusts), the minimum fee is $250,000.
Transactions with Contractual Protections
This category includes transactions in which the taxpayer or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences are not sustained. See IRC section 267(b) or IRC section 707(b) to determine if a party is a related party. Additionally, if the fees are contingent on the taxpayer’s realization of tax benefits from the transaction, the transaction is considered to be a transaction with contractual protection. See Rev. Proc. 2004-65 for a list of exceptions to this category. (This category was removed for transactions entered into after August 2007.)
Loss Transactions
Loss transactions include any transactions that result in the taxpayer’s claiming a loss under IRC section 165 that exceeds certain specified limits. Because many non-abusive transactions could require disclosure under this definition, the Service announced several exceptions in Revenue Procedure 2004-66.
A partner in a partnership has participated in a loss transaction if the partner’s tax return reflects an allocable IRC section 165 loss that equals or exceeds the threshold amount. This is determined without regard to netting at the partnership level.
For partnerships with only C corporations as partners, the loss threshold is $10 million in any single taxable year or $20 million in any combination of tax years, whether or not any losses flow through to one or more partners. In determining if the partners are C corporations, it is necessary to look through any partners which are also partnerships. For all other partnerships, the loss threshold is at least $2 million in any single taxable year or $4 million in any combination of tax years.
Transactions with a Significant Book/Tax Difference
This category includes transactions that result in a book/tax difference of over $10 million in any tax year. This category only applies to:
- Publicly traded companies (reporting companies under the Securities and Exchange Act of 1934) and related business entities as defined by IRC sections 267(b) and 707(b), and
- Entities that have $250 million or more in gross assets, including assets of all related business entities as defined in IRC section 267(b) or 707(b) at the end of any financial accounting period that ends with or within an entity’s taxable year in which a transaction takes place.
Revenue Procedure 2004-67 provides a list of exceptions from this category. Again, note that effective January 6, 2006, taxpayers who otherwise would have had to disclose book/tax differences under Treas. Reg. section 1.6011-4 are no longer required to file Form 8886 for book/tax differences with returns filed on or after January 6, 2006.
Transactions Involving a Brief Asset Holding Period
This category includes any transaction in which the taxpayer claims a tax credit exceeding $250,000 if the underlying asset that generates the credit is held for 45 days or less. A partner has participated in this reportable transaction if the partner’s return reflects an allocation of tax credit of more than $250,000. See Rev. Proc. 2004-68 for a list of exceptions from this category.
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IRC section 6011 - Taxpayer “Reportable Transactions” (post AJCA)
The AJCA amended taxpayer disclosure, promoter registration and list maintenance rules in significant respects, with the object of conforming those rules to the taxpayer disclosure rules of IRC section 6011. Following enactment of AJCA, for the most part the rules providing for taxpayers’ disclosure of reportable transactions continued to be governed by the February 2003 regulations.
Revisions to IRC sections 6111 and 6112 by the AJCA necessitated changes to the rules under IRC section 6011. On November 2, 2006, the IRS and Treasury proposed modifications to the rules regarding the disclosure of reportable transactions under. Treas. Reg. section 1.6011-4. The following are some of the significant clarifications and modifications under the proposed regulations:
1) The elimination of the “transactions with a significant book-tax difference” category of reportable transaction that was in Treas. Reg. section 1.6011-4(b)(6). The IRS determined that this category of reportable transaction was no longer necessary due to the issuance of the new Schedule M-3 reporting requirements.
2) Addition of a new reportable transaction category, “transactions of interest.”
3) The proposed regulation provides clarification regarding the content of the disclosure statement. An incomplete Form 8886 containing a statement that information will be provided upon request is not considered a complete disclosure statement, thus will not be considered to have complied with the disclosure requirements.
As currently proposed, the regulations require disclosure by taxpayers for the following reportable transactions.
- Listed transaction;
- Confidential transactions;
- Transactions with contractual protection;
- Loss transactions;
- Transactions of interest, and
- Transactions involving a brief asset holding period.
It should be noted that several significant notices were issued in 2006 to further clarify the reporting requirements of reportable transactions:
- Notice 2006-6, issued January 6, 2006, removed transactions with significant book-tax difference as transactions that otherwise would have to be disclosed by taxpayers on Forms 8886 and material advisors on Forms 8264. Notice 2006-06 does not relieve taxpayers of any obligations to file Schedule M-3.
- Notice 2006-65, issued July 31, 2006, provides guidance on new code section 4965 (created by the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”)) which imposes excise taxes with respect to prohibited tax shelter transactions to which tax-exempt entities are parties and related disclosure requirements. In addition to new excise taxes, TIPRA, enacted on May 17, 2006, amended disclosure rules that target certain potentially abusive tax shelter transactions to which a tax-exempt entity is a party. Tax exempt entities will use Form 8886-T to report abusive tax shelter transactions.
A list of transactions that taxpayers are not required to disclose is available on the OTSA Website.
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Reportable Transactions under the Temporary Regulations
Under the temporary regulations first issued in February 2000, corporate taxpayers who participate, directly or indirectly, in “reportable transactions” are required to file a disclosure statement with their corporate tax return. Indirect participation includes participation though a partnership. Temp. Treas. Reg. section 1.6011-4T(a).
Treas. Reg. section 1.6011-4T defines the term “reportable transaction” as:
- Listed transactions, and
- Other reportable transactions.
In addition to being either a listed transaction or another reportable transaction, a reportable transaction must also meet the projected tax effect test in Treas. Reg. section 1.6011-4T(b)(4).
Listed Transactions
For Federal corporate income tax returns filed after February 28, 2000, a listed transaction is one which is the same as or substantially similar to a transaction that the IRS has identified by notice, regulation, or other published guidance to be a tax avoidance transaction. See Notice 2001-51, 2001-34 I.R.B. However, a listed transaction is not treated as a reportable transaction if it has affected the taxpayer’s Federal income tax liability as reported on any tax return filed on or before February 28, 2000.
A listed transaction will satisfy the projected tax effect test if the corporate taxpayer expects the transaction to reduce corporate tax by more than $1 million in any single year, or $2 million during any combination of taxable years in which the transaction is expected to reduce the Federal tax liability.
Other Reportable Transactions
For Federal corporate income tax returns filed after February 28, 2000, a transaction is considered to be a reportable transaction if it has at least two of the following five characteristics:
- The taxpayer has participated in the transaction under conditions of confidentiality as defined in Treas. Reg. section 301.6111-2T(c).
- The taxpayer has obtained or been provided with contractual protection against the loss of the intended tax benefits. This includes the right to a full or partial refund of fees paid to a promoter or fees that are contingent on the taxpayer’s successfully securing the transaction’s projected benefits.
- The transaction was promoted, solicited, or recommended to the taxpayer by one or more persons who received fees or other consideration in excess of $100,000, and such person’s entitlement to such fees or consideration was contingent on the taxpayer’s participation in the transaction.
- The transaction produces or is expected to produce a book/tax difference of over $5 million in any taxable year.
- The transaction involves a tax-indifferent party whose participation is intended to provide the taxpayer with benefits that could not otherwise have been obtained.
The projected tax effect test will be satisfied if the taxpayer reasonably expects the transaction to reduce Federal income tax by more than $5 million in any single taxable year or by a total of more than $10 million in any combination of years in which the transaction reduces tax.
Even if the transaction has two of the above five characteristics and meets the projected tax effect test, it will not be subject to the disclosure requirements if it meets any one of the following four exceptions:
- The taxpayer has participated in the transaction in the ordinary course of its business in a form consistent with customary commercial practice, and the taxpayer reasonably determines that it would have participated in the same transaction on substantially the same terms irrespective of the expected Federal income tax benefits. Treas. Reg. section 1.6011-4T(b)(3)(ii)(A).
- The taxpayer has participated in the transaction in the ordinary course of its business in a form consistent with customary commercial practice, and the taxpayer reasonably determines that there is a generally accepted understanding that the taxpayer’s intended tax treatment of the transaction (taking into account any combination of intended tax consequences) is properly allowable under the Internal Revenue Code for substantially similar transactions. There is no minimum period of time for which such a generally accepted understanding must exist. In general, however, a taxpayer cannot reasonably determine whether the intended tax treatment of a transaction has become generally accepted unless information relating to the structure and tax treatment of such transactions has been in the public domain (for example, rulings, published articles, etc.) and widely known for a sufficient period of time (ordinarily a period of years) to provide knowledgeable tax practitioners and the IRS reasonable opportunity to evaluate the intended tax treatment. The mere fact that the taxpayer may have received an opinion or advice from one or more knowledgeable tax practitioners to the effect that the taxpayer’s intended tax treatment of the transaction should or will be sustained, if challenged by the IRS, is not sufficient to satisfy the requirements of this paragraph. Treas. Reg. section 1.6011-4T(b)(3)(ii)(B).
- The taxpayer reasonably determines that there is no reasonable basis under Federal tax law for denial of any significant portion of the expected Federal income tax benefits from the transaction. This paragraph applies only if the taxpayer reasonably determines that there is no basis that would meet the standard applicable to taxpayers under Treas. Reg. section 1.6662-3(b)(3) under which the IRS could disallow any significant portion of the expected Federal income tax benefits of the transaction. Thus, the reasonable basis standard is not satisfied by an IRS position that would be merely arguable or that would constitute merely a colorable claim. However, the taxpayer’s determination of whether the IRS would or would not have a reasonable basis for such a position must take into account the entirety of the transaction and any combination of tax consequences that are expected to result from any component steps of the transaction, must not be based on any unreasonable or unrealistic factual assumptions, and must take into account all relevant aspects of Federal tax law, including the statute and legislative history, treaties, administrative guidance, and judicial decisions that establish principles of general application in the tax law (for example, Gregory v. Helvering, 293 U.S. 465 (1935)). The determination of whether the IRS would or would not have such a reasonable basis is qualitative in nature and does not depend on any percentage or other quantitative assessment of the likelihood that the taxpayer would ultimately prevail if a significant portion of the expected tax benefits were disallowed by the IRS. Treas. Reg. section 1.6011-4T(b)(3)(ii)(C).
- The transaction is identified in published guidance as being excepted from disclosure under this section. Treas. Reg. section 1.6011-4T(b)(3)(ii)(D).
Note: These exceptions do not apply to listed transactions.
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IRC Sections 6111 & 6112 – Promoter/Material Advisor Registration & List Maintenance (prior to AJCA)
Prior to the AJCA, IRC section 6111 required tax shelter promoters (including organizers, managers and sellers of tax shelters) to register tax shelter transactions by filing Form 8264 with IRS. Among other requirements, a tax shelter was any investment which the tax shelter ratio (aggregate deductions / investment) exceeded 2 to 1. See Temp. Reg. section 1.301.6111-1T. Temporary regulations issued on February 28, 2000, expanded the reporting requirements for promoters by requiring registration of “confidential corporate tax shelters.”
For tax shelters that required registration with IRS, promoters also had to maintain lists of investors under IRC section 6112 and provide these lists to IRS when requested. See Temp. Reg. section 301.6112-1T. List maintenance rules were amended on February 28, 2003, to include an expanded definition for tax shelter promoters, now referred to as “material advisors.” Additionally, the same February 2003 final regulations required maintenance of investor lists for the six “reportable transactions” (noted previously) referenced in the taxpayer disclosure rules contained in Treas. Reg. section 1.6011-4.
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IRC Sections 6111 & 6112 – Material Advisor Disclosure & List Maintenance (post AJCA)
The AJCA amended the registration and list maintenance rules in significant respects. The intent of the new rules was to conform IRC sections 6111 and 6112 with rules for taxpayer disclosure under IRC section 6011. The rules with respect to tax shelter registration were repealed. The new IRC section 6111 provided “material advisors” are subject to new disclosure requirements. New list maintenance rules required lists of reportable transactions are maintained by material advisors. The IRS issued interim guidance upon which material advisor could rely until temporary of final regulations were issued. See Notice 2004-80, Notice 2005-17 and Notice 2005-22.
Proposed amendments to regulations, section 301.6111-3, issued November 2, 2006, provide material advisors must file a disclosure statement on a new form (Form 8918) describing the reportable transaction including potential tax benefits. The proposed regulations expanded on persons considered to be material advisors. Finally, the new disclosure reporting rules cross referenced “reportable transactions” to Treas. Reg. section 1.6011-4(b).
Final section 301.6111-3 regulations, effective August 3, 2007, provide the rules relating to the disclosure of reportable transactions by material advisors. These regulations affect material advisors responsible for disclosing reportable transactions under IRC section 6111 and material advisors responsible for keeping lists under IRC section 6112.
Proposed Reg. section 301.6112-1, issued on November 2, 2006, noted each material advisor (defined in IRC section 301.6111-3), with respect to each reportable transaction (defined in Treas. Reg. section 1.6011-4) should prepare and maintain a list and furnish such list to IRS upon request.
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Penalties
IRC 6662 Imposition of Accuracy-Related Penalty on Underpayments
Prior to the Taxpayer Relief Act of 1997, the term “tax shelter” under IRC section 6662 for purposes of imposing the accuracy-related penalty meant a partnership or other entity, plan, or arrangement if the principal purpose was the avoidance or evasion of Federal income tax. Effective for items with respect to transactions entered into after August 5, 1997, the definition of a "tax shelter" for purposes of IRC section 6662 was changed to be any partnership or other entity, plan, or arrangement if a significant purpose is the avoidance or evasion of Federal income tax. Thus, for penalty purposes, the definition of “tax shelter” became more encompassing.
IRC 6707A - Penalty for Taxpayer for Failure to Disclose
Prior to the enactment of the AJCA in October 2004, there were no specific penalties for failing to file a disclosure statement for a reportable transaction. The failure to file a required disclosure statement, however, could have an impact on the taxpayer's ability to satisfy IRC section 6664 "reasonable cause and in good faith" defense to the IRC section 6662 accuracy-related penalty. Pursuant to the AJCA, IRC section 6707A was enacted. This section provides that any person who fails to include on a disclosure statement any information required under IRC section 6011 with respect to a reportable transaction must pay a penalty of $10,000 in the case of a natural person or $50,000 in any other case, unless the transaction is a listed transaction, in which case the penalties increase to $100,000 and $200,000, respectively. There is no authority to rescind the penalty with respect to listed transactions.
IRC Section 6707 - Penalty for Promoter/Material Advisor for Failure to Disclose
Prior to the AJCA, under IRC section 6707, if a promoter failed to register a tax shelter as required under IRC section 6111, then a penalty of the greater of: 1 percent of the aggregate amount invested in the tax shelter or $500, would be imposed with respect to 2 to 1 tax shelters, and a penalty of the greater of: 50 percent of the fees paid to all promoters of the tax shelter or $10,000, would be imposed with respect to confidential corporate tax shelters. Under IRC section 6707 as amended by the AJCA, a material advisor must pay a penalty with respect to each failure to disclose a reportable transaction or with respect to filing false or incomplete information with respect to a reportable transaction. The penalty is $50,000 with respect to any failure, unless the transaction is a listed transaction in which case the penalty is the greater of $200,000 or 50 percent of the gross income derived by the material advisor from the listed transaction. An intentional failure increases the percent to 75. There is no authority to rescind the penalty with respect to listed transactions. The penalty applies to returns whose due dates are after October 22, 2004.
IRC 6708 Failure to Maintain Lists of Advisees with Respect to Reportable Transactions
Prior to the AJCA, under IRC section 6708, if any person who organized or sold any interest in a potentially abusive tax shelter failed to maintain a list identifying each investor as required under IRC section 6112, the penalty that was imposed was $50 per investor with a maximum penalty of $100,000 per calendar year. Under IRC section 6708 as amended by the AJCA, if a material advisor required to maintain a list under IRC section 6112 fails to make the list available upon written request by the Secretary within 20 business days, the material advisor must pay a penalty of $10,000 for each day of the failure after the 20th day. Reasonable cause exceptions may be applied to relieve this penalty. Penalties applied under IRC section 6708 may be assessed in conjunction with any other applicable penalties.
Statute of Limitation
Generally, the period runs 3 years from the date the taxpayer files a return. There are several exceptions, however. The most notable one for purposes of the IRC section 6707A penalty is probably IRC section 6501(c)(10). In cases where a taxpayer does not file a Form 8886 with the return to which it is supposed to be attached, IRC section 6501(c)(10) keeps the limitations period open for assessment of tax and the IRC section 6707A penalty on listed transactions until one year after the earlier of (A) the date on which the Secretary is furnished the information so required, or (B) the date that a material advisor meets the requirements of section6112 with respect to a request by the Secretary under IRC section 6112 relating to such transaction with respect to such taxpayer. Rev. Proc. 2005-26 addresses how (A) or (B) are satisfied.
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