Son of Boss Settlement Initiative FAQs - Section 3, Eligibility Requirements

Notice: Historical Content
This is an archival or historical document and may not reflect current law, policies or procedures.

Q-3.1. Can a partner in a TEFRA partnership accept the settlement offer independently of any other partners in the partnership?

A-3.1. Yes, a partner can agree to the adjustments at any stage of the partnership proceedings by signing a waiver and a closing agreement. 

Q-3.2. Can a partner who has received a Notice of Final Partnership Administrative Adjustment on or before June 21, 2004, participate in the settlement initiative?

A-3.2. Partners that have received a Notice of Final Partnership Administrative Adjustment (FPAA) on or before June 21, 2004, may participate in the settlement initiative so long as no partner has petitioned the FPAA in court at the time the partner elects to participate in the settlement. Partners that decide to elect must follow the election procedures in Announcement 2004-46. In the Notice of Election, they should indicate that they have received an FPAA. If the period for obtaining judicial review of the FPAA will expire before the execution of the closing agreement is completed, the partner may preserve the right to judicial review by petitioning a court. In cases in which the taxpayer filed a notice of election to participate before any partner filed a petition (and so long as the partner is otherwise eligible for the settlement initiative), Chief Counsel will accept a settlement offer or recommend that the Department of Justice accept a settlement offer consistent with the terms of this initiative.

Q-3.3. Can a taxpayer who has received a Statutory Notice of Deficiency on or before June 21, 2004, participate in this initiative?

A-3.3. A taxpayer that has received a Statutory Notice of Deficiency (SNOD) on or before June 21, 2004, may participate in the settlement initiative if the taxpayer has not yet filed a petition in the United States Tax Court and has not filed a suit for refund in any other court. The taxpayer must follow the election procedures in Announcement 2004-46. In the Notice of Election, the taxpayer should indicate that the taxpayer has received a SNOD. If within the 90-day period and there is sufficient time remaining on the statute (including if the taxpayer signs a consent to extend the period of limitations on assessment), the revenue agent will consider withdrawing the SNOD in accordance with Rev. Proc. 98-54, 1998-2 C.B. 531. 

Q-3.4. A taxpayer entered into a Son of Boss transaction, but has not claimed any tax benefits from the transaction. Is the taxpayer eligible for the settlement and how would it be applied?

A-3.4. Yes, if the taxpayer incurred net out-of-pocket expenses, the taxpayer may file an election to participate. The taxpayer’s adjusted basis in the appropriate assets will be adjusted in the closing agreement to account for the disallowance of the tax benefit.

Q-3.5. A taxpayer entered into a Son of Boss transaction and put it on his or her return, but received no current benefit due to a net operating loss (NOL). Is the taxpayer eligible for the settlement?

A-3.5. Yes, if the taxpayer received no benefit, the taxpayer may still file an election to participate and claim the out-of-pocket expenses under the terms of the settlement initiative. The NOL will be adjusted in the closing agreement to account for the disallowance of any losses from the Son of Boss transaction.

Q-3.6. Does Section 3(1) preclude a partner from accepting the settlement offer if any other partners in the partnership are described in Section 3(1)?

A-3.6. Under Section 3(1)(i) and (ii), any person who organized or participated directly or indirectly in the sale of any Son of Boss transaction or received fees for organizing, selling, or promoting a Son of Boss transaction is not eligible for the settlement initiative. Under Section 3(1)(iii), if a person, at the time that person participated in the Son of Boss transaction, was a partner in a partnership that organized, sold, or promoted a Son of Boss transaction (including received fees for such activities), that person is not eligible for the settlement initiative. Also under Section 3(1)(iii), if a person, at the time that person participated in the Son of Boss transaction, was an employee of a person that organized, sold, or promoted a Son of Boss transaction (including received fees for such activities), that person (the employee) is not eligible for the settlement initiative.

If an ineligible person (as described in Section 3(1)) is a partner in a TEFRA partnership and that person directly or indirectly claimed tax benefits in a manner described in Notice 2000-44 with respect to that TEFRA partnership, then no partners in the partnership are eligible for the settlement initiative under Section 3(2), except as described in Q&A-3.7 and Q&A-3.8.

Although an ineligible person (as described in Section 3(1)) is a partner in a non-TEFRA partnership and that person directly or indirectly claimed tax benefits in a manner described in Notice 2000-44 with respect to that partnership, other partners in the partnership may be eligible for the settlement initiative under Section 3(2).

Q-3.7.  If a partner in a TEFRA partnership is excluded from the settlement initiative under Section 3(2) of Announcement 2004-46, are there other circumstances in which such partner may participate in the settlement initiative despite the participation in that partnership of a person described in Section 3(1) (an "ineligible person")?  (See Sections 3(1) and 3(2) of Announcement 2004-46 and Q&A-3.6 of this FAQ.)

A-3.7. Yes. In the following circumstances, partners (other than ineligible persons) may participate in the settlement initiative:

(1) Ineligible person claimed a small tax benefit.

(a) Participation in the settlement initiative is available for partners (other than an ineligible person) in a TEFRA partnership described in Section 3(2), if no ineligible person claimed more than two percent of the tax benefits described in Notice 2000-44 with respect to the partnership and the total tax benefits claimed by all ineligible persons in the partnership were less than five percent of the tax benefits described in Notice 2000-44 with respect to the partnership.

(b) A partner that believes that these conditions are satisfied should include with the Notice of Election: (i) a statement that the taxpayer was a partner in a partnership in which one or more ineligible persons held an interest; (ii) a statement that, to the best of the taxpayer's knowledge, no ineligible person claimed more than two percent of the tax benefits described in Notice 2000-44 with respect to the partnership and all ineligible persons collectively claimed less than five percent of the tax benefits described in Notice 2000-44 with respect to the partnership; and (iii) as much of the following information for each ineligible person that is known to the taxpayer: name, taxpayer identification number (TIN), current address, daytime telephone number, and claimed percentage of the tax benefits described in Notice 2000-44 with respect to the partnership. The Service will notify the partner by mail whether the partner may participate in the settlement initiative.

(2) Ineligible person waives right to consistent settlement under § 6224(c)(2).

(a) Participation in the settlement initiative is available for partners (other than ineligible persons) in a TEFRA partnership described in Section 3(2), if each ineligible person waives the right under § 6224(c)(2) to a consistent settlement agreement.

(b) A partner that satisfies this requirement should include with the Notice of Election: (i) a statement that the taxpayer was a partner in a partnership in which one or more ineligible persons held an interest; (ii) a statement that, to the best of the taxpayer's knowledge, each ineligible person intends to waive its rights under §6224(c)(2); and (iii) as much of the following information for each ineligible person that is known to the taxpayer: name, taxpayer identification number (TIN), current address, daytime telephone number, and percentage interest held in the partnership. The Service will notify the partner by mail whether the partner may participate in the settlement initiative.

(c) A waiver of § 6224(c)(2) must be in the manner prescribed under Treas. Reg. § 301.6224(b)-1. However, instead of filing the waiver with the service center where the partnership return is filed under Treas. Reg. § 301.6224(b)-1(b)(5), the waiver must be sent to: INTERNAL REVENUE SERVICE, Attn: Announcement 2004-46, 1901 Butterfield Road, Ste. 310, Downer’s Grove, IL 60515. The Service must receive the waiver before the end of the period for Additional Information and Documentation under Section 4(b) of Announcement 2004-46.

(d) If only some ineligible persons waive their consistent settlement rights but the remaining ineligible persons are partners described in (1) of this Q&A-3.7, the partners (other than an ineligible person) can participate in the settlement initiative under this Q&A. 

Q-3.8.  If a partner in a TEFRA partnership is excluded from the settlement initiative under Section 3(2) of Announcement 2004-46 and does not satisfy either (1) or (2) in Q&A-3.7, are there any other circumstances in which such partner may participate in the settlement initiative despite the participation in that partnership of a person described in Section 3(1) (an "ineligible person")?

A-3.8. Yes. The purpose of the settlement initiative is to promote efficient tax administration by offering the maximum number of Son of Boss taxpayers an opportunity to resolve quickly their tax disputes while not allowing ineligible persons the same opportunity. Because of the consistent settlement rule under § 6224(c)(2), partners described in Section 3(2) were excluded from this settlement to prevent ineligible persons from benefiting from the initiative. After further consideration, the Service has decided that in certain circumstances, such as those described in Q&A-3.7, partners described in Section 3(2) may participate in the settlement initiative. In addition, given the potential variety and complexity of Son of Boss transactions, the Service has decided it will review requests to participate by partners and may allow participation on a case-by-case basis. Furthermore, the Service will take steps, where appropriate, to prevent ineligible persons from benefiting from this settlement initiative.

Participation in the settlement initiative is available for partners (other than ineligible persons) in a TEFRA partnership described in Section 3(2) in situations where, after considering the purposes of the settlement initiative, the Service determines such settlement would be in the best interests of tax administration. Partners desiring to participate in the settlement initiative must file the Notice of Election in a timely manner to be considered under this Q&A-3.8. In the Notice of Election, the partner should include: (i) a statement as to why the partner believes that participation in the settlement initiative is appropriate, and (ii) as much of the following information concerning each ineligible person as is known to the taxpayer: name, taxpayer identification number (TIN), current address, daytime telephone number, and percentage interest held in the partnership. To ensure consistent treatment of such elections, the Service will centralize the evaluation of requests to participate filed under this Q&A-3.8. The Service will notify the partner by mail whether the partner may participate in the settlement initiative.

Q-3.9. In a docketed Tax Court case, may the taxpayer elect to participate in the settlement initiative in light of Sec. 3(3)? 

A-3.9. Under Section 3(3), taxpayers who are a party to a court proceeding to determine the tax treatment of the Son of Boss transaction are not eligible to participate in the initiative. However, the taxpayer may propose a settlement on the same terms as in Announcement 2004-46, and the respondent will consider that offer in light of the purposes of the settlement initiative.
 

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