Transactions of Interest
Transactions of Interest
The new reportable transaction category Transaction of Interest (TOI) is defined as a transaction that the IRS and the Treasury Department believe is a transaction that has the potential for tax avoidance or evasion, but lack sufficient information to determine whether the transaction should be identified specifically as a tax avoidance transaction. The TOI category of reportable transactions will apply to transactions entered into on or after November 2, 2006.
The following transactions have been identified and classified by the Internal Revenue Service as “Transactions of Interest”. Transactions that are the same as, or substantially similar to, these transactions are subject to the disclosure requirements of § 6011 (§ 1.6011-4), the material advisor disclosure statement requirements of § 6111 (§§ 301.6111-1, 301.6111-2, 301.6111-3), and the list maintenance requirements of § 6112 (§ 301.6112-1).
Persons required to file material advisor disclosure statements under § 6111 who have failed to do so may be subject to the penalty under § 6707(a). Persons required to maintain lists of investors under § 6112 who have failed to do so (or who fail to provide such lists when requested by the IRS) may be subject to the penalty under § 6708(a). In addition, the IRS may impose penalties on parties involved in these or substantially similar transactions, including the accuracy-related penalty under § 6662.
Notice 2007-72 - August 14, 2007 Contribution of Successor Member Interest - This transaction involves a taxpayer directly or indirectly acquiring certain rights in real property or in an entity that directly or indirectly holds real property, transfers the rights more than one year after the acquisition to an organization described in § 170(c) of the Internal Revenue Code, and claims a charitable contribution deduction under § 170 that is significantly higher than the amount that the taxpayer paid to acquire the rights.
Notice 2007-73 - This transaction uses a grantor trust, and the purported termination and subsequent re-creation of the trust’s grantor trust status, for the purpose of allowing the grantor to claim a tax loss greater than any actual economic loss sustained by the taxpayer or to avoid inappropriately the recognition of gain.
Notice 2008-99 - October 31, 2008 - Potential for Avoidance of Tax Through Sale of Charitable Remainder Trust Interests - This transaction involves 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.
Notice 2009-7 - On December 29, 2008 IRS and Treasury identified a new transaction of interest that uses a domestic partnership to prevent the inclusion of subpart F income. In this transaction a U.S. taxpayer that owns controlled foreign corporations (CFCs) that hold stock of a lower-tier CFC through a domestic partnership takes the position that subpart F income of the lower-tier CFC or an amount determined under section 956(a) of the Internal Revenue Code (Code) related to holdings of United States property by the lower-tier CFC does not result in income inclusions under section 951(a) for the U.S. taxpayer.
Notice 2015-74 - Basket Contracts. This notice describes certain transactions denominated as an option, notional principal contract, forward contract, or other derivative contract to receive a return based on the performance of a basket of referenced assets (the “reference basket”). The assets that comprise the reference basket may include (1) interests in entities that trade securities, commodities, foreign currency, or similar property (“hedge fund interests”), (2) securities, (3) commodities, (4) foreign currency, or (5) similar property (or positions in such property). The Basket Contracts attempt to defer income recognition and may attempt to convert short-term capital gain and ordinary income to long-term capital gain. This notice was published in the Internal Revenue Bulletin on November 16, 2015.
Notice 2016-66 – Section 831(b) Micro-Captive Insurance. This notice describes transactions in which a taxpayer attempts to reduce the aggregate taxable income of the taxpayer, related persons, or both, using contracts that the parties treat as insurance contracts and a related company that the parties treat as a captive insurance company. Each entity that the parties treat as an insured entity under the contracts claims deductions for premiums for insurance coverage. The related company that the parties treat as a captive insurance company elects under § 831(b) of the Internal Revenue Code (the “Code”) to be taxed only on investment income and therefore excludes the payments directly or indirectly received under the contracts from its taxable income. The manner in which the contracts are interpreted, administered, and applied is inconsistent with arm’s length transactions and sound business practices.