- New reportable transaction category for “transactions of interest” (TOI) which is a transaction that IRS and Treasury believe has a potential for tax avoidance, but for which they lack enough information to determine whether the transaction should be identified specifically as a tax avoidance transaction.
- A TOI is the same as or substantially similar to one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest.
- No advance notice of TOI will be required. However, in some cases it will be provided.
- TOI category of reportable transaction will apply to transactions entered into on or after November 2, 2006.
- No limit on the length of time a transaction may be designated as a TOI.
- If a taxpayer who is a partner in a partnership, a shareholder in a S corporation, or a beneficiary of a trust receives a timely Schedule K-1 less than 10 calendar days before the due date of the taxpayer’s return (including extensions), the taxpayer determines that the taxpayer participated in a reportable transaction, the disclosure statement will not be considered late if it is filed with the Office of Tax Shelter Analysis (OTSA) within 60 calendar days after the due date of the taxpayer’s return (including extensions).
- Time period for providing disclosure of a transaction that becomes a listed transaction or TOI after the filing of a taxpayer’s tax return (including amended return) is 90 calendar days. Previously this disclosure was due with the next filed return after a transaction became a listed transaction.
- Brief asset holding period reportable transaction category is removed.
- Investors are no longer required to file Forms 8271, “Investor Reporting of Tax Shelter Registration Number”, due on or after August 3, 2007.
- The reportable transaction category for transactions with a significant book-tax difference has been removed as this information is provided on the M-3.
- To be considered complete, the form 8886 must describe the expected tax treatment and all potential tax benefits expected to result from the transaction, describe any tax result protection with respect to the transaction, and identify and describe the transaction in sufficient detail for the IRS to be able to understand the tax structure of the reportable transaction and the identity of all parties involved in the transaction. Where the form 8886 is incomplete, the taxpayer will be considered non-compliant with the disclosure requirements of this section.
- Regulation § 301.6111 has been amended to include § 301.6111-3.
- A material advisor is defined as a person who provides any material aid, assistance or advice with respect to organizing, managing, promoting, selling, implementing, insuring or carrying out any reportable transaction, and directly or indirectly derives gross income in excess of the threshold amount.
- The threshold amount of gross income is $50,000 in the case of a reportable transaction where substantially all of the tax benefits are provided to natural persons ($10,000 for listed transactions). For other than natural persons, the threshold amount is $250,000 ($25,000 for listed transactions).
- In determining whether the lower threshold amount of gross income applies, if 70 percent or more of the tax benefits from a reportable transaction are provided to natural persons (looking through any partnerships, S corporations, or trusts); then substantially all of the tax benefits will be considered to be provided to natural persons. This is the general rule. If facts and circumstances prove otherwise, the higher threshold amount of gross income will be applicable.
- A material advisor is required to provide a reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor. Under the proposed regulations the material advisor was required to provide the reportable transaction number to all persons for whom the material advisor made a tax statement.
- Investors are no longer required to file Forms 8271, “Investor Reporting of Tax Shelter Registration Number,” for returns due on or after August 3, 2007.
- A material advisor must provide the identities of any material advisor(s) who the material advisor knows or has reason to know acted as a material advisor with respect to the transaction. The proposed regulations provided that a material advisor who is required to file a disclosure statement must disclose the identity of other material advisors.
- If more than one material advisor is required to disclose a reportable transaction under § 6111, the material advisors may designate by written agreement a single material advisor to disclose the transaction.
- A material advisor required to file a disclosure statement must file a complete Form 8918, Material Advisor Disclosure Statement.
- To be considered complete, the form must describe the expected tax treatment and all potential tax benefits expected to result from the transaction, describe any tax result protection with respect to the transaction, and identify and describe the transaction in sufficient detail for the IRS to understand the tax structure of the reportable transaction and the identity of the material advisors whom the filer knows or has reason to know acted as a material advisor.
- The Form 8918 must be filed with OTSA by the last day of the month that follows the end of the calendar quarter in which the advisor became a material advisor with respect to the reportable transaction.
The final § 6112 regulations remove the language regarding the period for furnishing an advisee/investor list or the components of the list to the IRS because that period will be addressed in forthcoming published guidance under § 6708. In addition, an alternative schedule for furnishing the list or the components of the list will be addressed in published guidance under § 6708.
Each material advisor must prepare and maintain a list for each reportable transaction, not each potentially abusive tax shelter.
One of the documents required to be maintained by material advisors is the designation agreement entered into with other material advisors for the same or substantially similar reportable transactions.