[Federal Register Volume 74, Number 193 (Wednesday, October 7, 2009)]
[Proposed Rules]
[Pages 51527-51535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-24112]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG-160871-04]
RIN 1545-BH37
Period of Limitations on Assessment for Listed Transactions Not
Disclosed Under Section 6011
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations relating to the
exception to the general three-year period of limitations on assessment
under section 6501(c)(10) of the Internal Revenue Code (Code) for
listed transactions that a taxpayer failed to disclose as required
under section 6011. These regulations will affect taxpayers who fail to
disclose listed transactions in accordance with section 6011.
DATES: Written or electronic comments and requests for a public hearing
must be received by January 5, 2010.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-160871-04), room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
160871-04), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or sent electronically via the Federal
eRulemaking Portal at http://www.regulations.gov (IRS REG-160871-04).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Audra M. Dineen at (202) 622-4910; concerning submissions of comments
and requests for a public hearing, Oluwafunmilayo Taylor of the
Publications and Regulations Branch at (202) 622-7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been reviewed and approved by the Office of Management
and Budget in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control number 1545-1940. The collection of
information in these proposed regulations is in Sec. 301.6501(c)-
1(g)(5). This information is required to provide the IRS, under
penalties of perjury, with the information necessary to properly
determine the taxpayer's applicable period of limitations. The
collection of information in these proposed regulations is the same as
the collection of information in Revenue Procedure 2005-26 (2005-1 CB
965), which was previously reviewed and approved by the Office of
Management and Budget under control number 1545-1940. The collection of
information in Sec. 301.6501(c)-1(g)(6) is the same as the collection
of information required under section 6112. See Sec.
601.601(d)(2)(ii)(b).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains proposed amendments to the Procedure and
Administration Regulations (26 CFR Part 301) under section 6501(c)
relating to exceptions to the period of limitations on assessment.
Section 6501(a) provides that, except as otherwise provided, if a
return is filed, tax with respect to that return must be assessed
within 3 years from the later of the date the return was filed or the
original due date of the return. Section 6501(c) contains several
exceptions to the general three-year period of limitations on
assessment.
Section 6501(c)(10) was added to the Code by section 814 of the
American Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1418,
1581 (2004)) (AJCA), enacted on October 22, 2004. Section 6501(c)(10)
provides that, if a taxpayer fails to disclose a listed transaction as
required under section 6011, the time to assess tax against the
taxpayer with respect to that transaction will end no earlier than one
year after the earlier of (1) the date on which the taxpayer furnishes
the information required under section 6011, or (2) the date that a
material advisor furnishes to the Secretary, upon written request, the
information required under section 6112 with respect to the taxpayer
related to the listed transaction. Accordingly, if neither the taxpayer
nor a material advisor furnishes the requisite information, the period
of limitations on assessment will remain open, and thus, the tax with
respect to the listed
[[Page 51528]]
transaction may be assessed at any time. Section 6501(c)(10) is
effective for taxable years with respect to which the period of
limitations on assessment did not expire prior to October 22, 2004.
As noted, section 6501(c)(10) applies when a taxpayer does not
properly disclose a listed transaction (as defined in section
6707A(c)(2)) as required under section 6011. Taxpayers are required
under section 6011 and the regulations under section 6011 (collectively
referred to as the ``section 6011 disclosure rules'') to disclose
certain information regarding each reportable transaction in which the
taxpayer participated. See Treas. Reg. Sec. Sec. 1.6011-4; 20.6011-4;
25.6011-4; 31.6011-4; 53.6011-4; 54.6011-4; and 56.6011-4. Among the
transactions that are reportable are ``listed transactions.'' See
Treas. Reg. Sec. 1.6011-4(b)(2). Under the section 6011 disclosure
rules, a listed transaction is a transaction that is the same as, or
substantially similar to, a transaction that the IRS has determined to
be a tax avoidance transaction and identified by notice, regulation, or
other form of published guidance. Treas. Reg. Sec. 1.6011-4(b)(2).
Section 6707A(c)(2) incorporates the same definition of listed
transaction. For a list of transactions the IRS has identified as
listed transactions, see Notice 2009-59, 2009-31 IRB 1. See Sec.
601.601(d)(2).
If the section 6011 disclosure rules require a taxpayer to disclose
a listed transaction, the taxpayer must complete and file a disclosure
statement in accordance with the section 6011 disclosure rules. The
section 6011 disclosure rules currently require that Form 8886,
``Reportable Transaction Disclosure Statement'' (or successor form), be
used as the disclosure statement and be completed in accordance with
the instructions to the form. The Form 8886 (or successor form)
generally must be attached to the taxpayer's original or amended tax
return for each taxable year for which a taxpayer participates in a
listed transaction. Treas. Reg. Sec. 1.6011-4(e)(1). If a listed
transaction results in a loss that is carried back to a prior year,
Form 8886 (or successor form) must be attached to the taxpayer's
application for tentative refund or amended tax return for that prior
year. The taxpayer also must send a copy of Form 8886 (or successor
form) to the IRS Office of Tax Shelter Analysis (OTSA), generally at
the same time that a disclosure statement pertaining to a particular
listed transaction is first filed. Under the current rules, when a
transaction is identified as a listed transaction after the date on
which the taxpayer files a tax return (including an amended return) for
a taxable year reflecting the taxpayer's participation in the listed
transaction and before the end of the period of limitations for
assessment of tax for any taxable year in which the taxpayer
participated in the listed transaction, then the taxpayer must file
Form 8886 (or successor form) with OTSA within 90 calendar days after
the date the transaction became a listed transaction.
If a taxpayer does not disclose its participation in a listed
transaction in accordance with all of the requirements of the section
6011 disclosure rules and section 6501(c)(10) applies, then the time to
assess tax related to the listed transaction will expire no earlier
than the earlier of (1) one year after the date on which the
information described in section 6501(c)(10)(A) is provided, or (2) one
year after the date on which the information described in section
6501(c)(10)(B) is provided.
The IRS and Treasury Department issued Rev. Proc. 2005-26 (2005-1
CB 965) on April 25, 2005, to provide interim guidance on section
6501(c)(10). The revenue procedure prescribes how taxpayers and
material advisors should disclose listed transactions that were not
properly disclosed under section 6011 in order to start the one-year
period under section 6501(c)(10). Taxpayers may continue to rely on
Rev. Proc. 2005-26 until temporary or final regulations are issued
under section 6501(c)(10). See Sec. 601.601(d)(2). In that revenue
procedure, the IRS and Treasury Department also requested comments
concerning the procedures set forth in the revenue procedure,
especially their application to partners and partnerships. One comment
was received but it did not address the limitations period.
Explanation of Provisions
These proposed regulations provide rules reflecting the enactment
of section 6501(c)(10) by the AJCA. They explain how to determine
whether section 6501(c)(10) applies and, if so, the applicable period
of limitations on assessment. As a preliminary matter, the effective
date of section 6501(c)(10) limits its application to taxable years
with respect to which the period of limitations on assessment was open
on or after October 22, 2004 (the date the AJCA was enacted). Thus, for
taxable years for which a return was due prior to October 22, 2004, an
analysis under section 6501 must be conducted to determine if the
period of limitations on assessment was open under the general three-
year period or an exception other than section 6501(c)(10).
1. Application of Section 6501(c)(10)
The general rule for applying section 6501(c)(10) is set forth in
Sec. 301.6501(c)-1(g)(1) of these proposed regulations. The first step
in analyzing whether section 6501(c)(10) applies is to determine
whether the taxpayer failed to comply with any disclosure obligation
under the section 6011 disclosure rules with respect to a listed
transaction (as defined in section 6707A(c)(2)) for any taxable year.
The IRS and Treasury Department have issued several regulations under
section 6011, some of which apply only to certain types of taxpayers.
The disclosure requirements also vary among the regulations. Therefore,
particular attention must be paid to the effective dates of the various
section 6011 disclosure rules in order to determine whether there was a
disclosure obligation.
If there was no obligation to disclose the listed transaction, or
if the taxpayer complied with its disclosure obligations, then section
6501(c)(10) does not apply. If there was a disclosure obligation and a
failure to disclose as required, then section 6501(c)(10) applies.
Section 6501(c)(10) applies to all open years for which the taxpayer
failed to disclose its participation in the transaction as required
under the section 6011 disclosure rules, even if the disclosures
required under section 6011 were not due in, or with a return for, the
year of participation but were due in a later year when the transaction
was subsequently identified as a listed transaction. If section
6501(c)(10) applies because a taxpayer failed to disclose a listed
transaction and the transaction is later removed from the category of
listed transactions, section 6501(c)(10) will continue to apply with
respect to the tax years for which disclosure was required. If section
6501(c)(10) applies, then the period of limitations with respect to the
listed transaction will remain open until at least the earlier of (1)
one year after the date on which the taxpayer provides a disclosure to
satisfy section 6501(c)(10)(A) (as provided in Sec. 301.6501(c)-
1(g)(5) described elsewhere in this preamble), or (2) one year after
the date on which a material advisor provides the IRS with information
concerning the taxpayer's participation in the transaction sufficient
to satisfy section 6501(c)(10)(B) (as provided in Sec. 301.6501(c)-
1(g)(6) described elsewhere in this preamble). If either paragraph
(g)(5) or (g)(6) is satisfied, the period of limitations on assessment
will end under the circumstances described
[[Page 51529]]
in Sec. 301.6501(c)-1(g)(2) of these proposed regulations.
Section 301.6501(c)-1(g)(2) of these proposed regulations also
provides guidance on how section 6501(c)(10) interacts with the
otherwise applicable period of limitations provided in the Internal
Revenue Code. The proposed regulations confirm that section 6501(c)(10)
does not operate to extend a limitations period that expired before the
effective date of section 6501(c)(10) or before the date on which the
failure to disclose occurs. In addition, a taxpayer or material advisor
cannot shorten any other applicable period of limitations on assessment
by following the procedures to begin the one-year period provided under
section 6501(c)(10), including, but not limited to, a limitations
period that has been extended by agreement under section 6501(c)(4), or
the limitations period described in section 6501(c)(1) relating to a
false or fraudulent return.
The terms ``listed transaction,'' ``material advisor,'' and
``taxable year(s) to which the failure to disclose relates'' are
defined in Sec. 301.6501(c)-1(g)(3) of these proposed regulations by
cross-reference to section 6707A and the relevant regulations under
sections 6011 and 6111.
Under section 6501(c)(10), the term ``listed transaction'' is
defined by reference to section 6707A(c)(2), which defines a listed
transaction as ``a reportable transaction that is the same as, or
substantially similar to, a transaction specifically identified by the
Secretary as a tax avoidance transaction for purposes of section
6011.'' Although section 6707A was enacted by section 811 of the AJCA
and is effective for returns and statements due after October 22, 2004,
and which were not filed before that date, its definition of ``listed
transactions'' incorporates transactions identified as listed
transactions in the section 6011 disclosure rules before section 6707A
was enacted. Accordingly, any transactions that were listed
transactions as of October 22, 2004, under the section 6011 disclosure
rules are listed transactions under section 6707A and, thus, for
purposes of section 6501(c)(10). Therefore, section 6501(c)(10) applies
to transactions that were identified as listed transactions prior to
October 22, 2004.
The term ``taxable year(s) to which the failure to disclose
relates'' identifies the years to which section 6501(c)(10) applies.
Clarification is necessary because a taxpayer may participate in a
listed transaction over multiple years, because a transaction may be
identified as a listed transaction after the taxpayer enters into the
transaction, and because the section 6011 disclosure rules may require
disclosure in a year in which the taxpayer did not participate in the
listed transaction. The term ``taxable year(s) to which the failure to
disclose relates'' means each taxable year that the taxpayer
participated (as defined by the regulations under section 6011) in a
transaction that was identified as a listed transaction and for which
there was no proper disclosure when required under the section 6011
disclosure rules. For these purposes, it does not matter whether the
transaction was identified as a listed transaction before or after the
taxpayer filed a tax return for any taxable year in which the taxpayer
participated in the transaction. On occasion, the section 6011
disclosure rule may require that a disclosure be filed in a taxable
year or with a tax return for a taxable year other than the taxable
year in which the taxpayer participated in the listed transaction. In
those circumstances, the taxable year(s) to which the failure to
disclose relates is not the taxable year in which the disclosure is
required to be filed, but each taxable year that the taxpayer
participated in the listed transaction.
Section 301.6501(c)-1(g)(4) of these proposed regulations provides
the rule for application of section 6501(c)(10) in the case of
taxpayers who are partners in partnerships, shareholders in S
corporations, or beneficiaries of trusts. If these taxpayers were
required to disclose their participation in a listed transaction under
the section 6011 disclosure rules, and failed to disclose, then the
period of limitations on assessment with respect to each partner,
shareholder, or beneficiary that failed to disclose will remain open
under section 6501(c)(10) even if the partnership, S corporation, or
trust disclosed in accordance with the section 6011 disclosure rules
and even if another partner, shareholder, or beneficiary disclosed in
accordance with the section 6011 disclosure rules. This rule is as
adopted because the period of limitations on assessment is specific to
each taxpayer. Consistent with the above rule, a failure to disclose by
an entity will not cause section 6501(c)(10) to apply to all of the
taxpayers who are partners, shareholders or beneficiaries of the
entity.
2. One-Year Period Under Section 6501(c)(10)
Guidance on the events that will start the one-year period under
section 6501(c)(10) is provided in Sec. 301.6501(c)-1(g)(5) and (6) of
these proposed regulations.
a. Disclosures by Taxpayers of Required Information
Under section 6501(c)(10)(A), if there is a failure to disclose
information related to a listed transaction as required under the
section 6011 disclosure rules, the time to assess tax will end no
earlier than one year after the date ``the Secretary is furnished the
information so required.'' Section 301.6501(c)-1(g)(5)(i)(A)-(C) of
these proposed regulations sets forth the general procedures for how to
furnish the information to the IRS. These procedures are similar to the
ones required under the section 6011 disclosure rules because failure
to comply with those rules triggers the application of section
6501(c)(10). Because the rules set forth in Sec. 301.6501(c)-
1(g)(5)(i) generally concern annual returns, Sec. 301.6501(c)-
1(g)(5)(ii) provides that the IRS may issue published guidance that
prescribes alternative procedures to address particular listed
transactions, if necessary, in the case of returns other than annual
returns.
Section 301.6501(c)-1(g)(5)(i)(A) of these proposed regulations
provides that to begin the one-year period under section 6501(c)(10)(A)
taxpayers must complete Form 8886 (or successor form) in accordance
with the instructions to the form and these proposed regulations and
submit the completed form with a cover letter (as described in Sec.
301.6501(c)-1(g)(5)(i)(B)) to OTSA. Under the procedures set forth in
Revenue Procedure 2005-26, taxpayers were required to submit the
completed form and cover letter both to OTSA and the Internal Revenue
Service Center where the taxpayer filed its original return in all
cases and, if applicable, to an IRS examiner or Appeals officer. These
proposed regulations simplify the procedures taxpayers need to follow
by only requiring them to submit the information to one IRS office
instead of two, unless the taxpayer also needs to submit a copy to an
IRS examiner or Appeals officer, as discussed later in this Preamble.
Taxpayers must complete the most current version of the form
available at the time the taxpayer attempts to satisfy section
6501(c)(10). In other words, if the Form 8886 (or successor form)
changes between the date that the taxpayer was required to disclose the
listed transaction under the section 6011 disclosure rules and the date
that the taxpayer discloses the listed transaction for purposes of
section 6501(c)(10), then the taxpayer must follow the rules in effect
on the date of the section 6501(c)(10) disclosure.
[[Page 51530]]
The taxpayer also must indicate on the form that the disclosure is
for purposes of section 6501(c)(10) and the tax return(s) and taxable
year(s) for which the taxpayer is making a section 6501(c)(10)
disclosure. The section 6501(c)(10) disclosure will only be effective
for the tax return(s) and taxable year(s) that the taxpayer specifies
he or she is attempting to disclose for purposes of section
6501(c)(10). Thus, for example, if a taxpayer failed to disclose the
taxpayer's participation in a listed transaction in three taxable years
but the taxpayer's section 6501(c)(10) disclosure only specifies one
taxable year, then the period of limitations on assessment for the
other two taxable years will remain open under section 6501(c)(10). If
the Form 8886 (or successor form) contains a line for that purpose,
then taxpayers may use that line, so long as the line is completed in
accordance with the instructions to the form. If no line is provided on
the form, then the taxpayer must include on the top of Page 1 of the
Form 8886, and each copy of the form, the following statement:
``Section 6501(c)(10) Disclosure'' followed by the tax return(s) and
taxable year(s) for which the taxpayer is making a section 6501(c)(10)
disclosure. This information is necessary to place the IRS on notice
that the taxpayer is attempting to remedy its failure to properly
disclose the listed transaction and, thus, the one-year period will
start to run with respect to the tax years identified. Because the IRS
may have as little as one year to determine whether to conduct an
examination and, if it does conduct an examination, to determine
whether any additional tax is due with respect to the listed
transaction, it is important that the IRS receives proper notice that
the one-year period has started.
Taxpayers must submit a separate Form 8886 (or successor form) and
cover letter (discussed elsewhere in this Preamble) for each listed
transaction that the taxpayer did not properly disclose under the
section 6011 disclosure rules. If the taxpayer participated in one
listed transaction over multiple years, then the taxpayer may submit
one Form 8886 (or successor form), so long as the taxpayer indicates on
the Form 8886 all of the tax returns and taxable years for which the
taxpayer is making a section 6501(c)(10) disclosure. If a taxpayer
participated in more than one listed transaction, then the taxpayer
must submit separate Forms 8886 (or successor form) for each listed
transaction, unless the listed transactions are the same or
substantially similar, in which case all the listed transactions may be
reported on one Form 8886.
Section 301.6501(c)-1(g)(5)(i)(B) of these proposed regulations
provides the requirements for the cover letter. The cover letter must
identify the tax return(s) and taxable year(s) for which the taxpayer
is making a section 6501(c)(10) disclosure. In addition, the cover
letter must include the statement provided in Sec. 301.6501(c)-
1(g)(5)(i)(B) signed under penalties of perjury by the taxpayer and, if
applicable, by the paid preparer preparing the Form 8886. The cover
letter is necessary because the Form 8886 does not currently contain a
penalties-of-perjury statement or place for signature.
A special rule for taxpayers under examination or Appeals
consideration by the IRS is provided in Sec. 301.6501(c)-1(g)(5)(i)(C)
of these proposed regulations. If the taxpayer wants to make a section
6501(c)(10) disclosure for a taxable year or a listed transaction under
examination or Appeals consideration, then, in addition to the
otherwise applicable filing obligations set forth in Sec. 301.6501(c)-
1(g)(5)(i)(A), the taxpayer must submit a copy of the submission made
under paragraph (g)(5)(i)(A) to the IRS examiner or Appeals officer
examining or considering the taxable year to which the section
6501(c)(10) disclosure relates. This rule is adopted to ensure that the
IRS personnel who are considering the taxpayer's tax year(s) at issue
are made aware as soon as possible that the one-year period under
section 6501(c)(10) may have started to run, so that whatever action is
necessary can be taken within the one-year period.
Section 301.6501(c)-1(g)(5)(i)(D) provides guidance concerning the
date on which the taxpayer is considered to have furnished the
information to the IRS to satisfy section 6501(c)(10)(A) and start the
running of the one-year period. The one-year period under section
6501(c)(10)(A) will begin on the date that the taxpayer satisfies all
the requirements set forth in Sec. 301.6501(c)-1(g)(5)(i)(A) through
(C). If the required procedures are not completed on the same date, the
one-year period will begin on the date that the last procedure is
satisfied. For example, if a taxpayer mails a completed Form 8886 to
OTSA but not to the IRS examiner or Appeals officer who is examining or
considering the taxable year to which the section 6501(c)(10)
disclosure relates, the one-year period under section 6501(c)(10)(A)
will not begin until both events occur.
Information provided under Sec. 301.6501(c)-1(g)(5) is deemed
furnished on the date the IRS receives the information. Section 7502
does not apply to the mailing of the information detailed in Sec.
301.6501(c)-1(g)(5), because the information is not required to be
filed within a prescribed period or on or before a prescribed date.
Taxpayers can determine the date the IRS receives the information by
using a delivery service that provides a way to track delivery, such as
U.S. registered or certified mail, express or priority mail, or
delivery confirmation from the U.S. post office or a private delivery
service that provides tracking. Moreover, documentation from the post
office or private delivery service showing the date the information was
delivered to the IRS, together with evidence that the envelope was
properly addressed to the office to which the information was required
to be sent, generally will be sufficient proof that the IRS received
the information, unless the IRS can establish that it did not in fact
receive the information. Separate delivery confirmation documentation
should be obtained to establish receipt by OTSA and the appropriate IRS
revenue agent or Appeals officer, if applicable.
b. Disclosures by Material Advisors
Under section 6501(c)(10)(B), if a taxpayer fails to disclose
information related to a listed transaction as required under the
section 6011 disclosure rules, the time to assess tax will end no
earlier than one year after the date ``a material advisor meets the
requirements of section 6112 with respect to a request by the Secretary
under section 6112(b) relating to such transaction with respect to such
taxpayer.'' Section 6112 requires material advisors to maintain lists
of advisees and other information with respect to reportable
transactions, including listed transactions, and to furnish that
information to the IRS upon request. The term ``material advisor'' is
defined in Sec. 301.6111-3(b). The IRS and Treasury Department
finalized regulations under section 6112 in TD 9352 (72 FR 43154)
published on August 3, 2007. Section 6112 and Sec. 301.6112-1 provide
guidance relating to the preparation, content, maintenance, retention,
and furnishing of lists by material advisors.
Section 6501(c)(10)(B) provides that a material advisor must
satisfy the requirements of section 6112 to begin the one-year period.
Information provided in response to another method of inquiry, such as
an Information Document Request in a section 6700 investigation, will
not begin the one-year period. In addition, Sec. 301.6501(c)-
1(g)(6)(i) provides that the material advisor must furnish the
information described in Sec. 301.6112-1(e) with
[[Page 51531]]
respect to the taxpayer that failed to properly disclose the listed
transaction. Thus, if the material advisor furnishes the information
described in Sec. 301.6112-1(e) for some, or even most, of its clients
but not for a particular taxpayer that failed to properly disclose the
listed transaction, then the assessment period for that taxpayer will
remain open under section 6501(c)(10).
Section 301.6501(c)-1(g)(6)(ii) of these proposed regulations
clarifies that the one-year period will begin once the material advisor
furnishes the information in response to an IRS request under section
6112, regardless of whether the material advisor provides the
information within 20 business days of the IRS's request as required by
section 6708. If the material advisor furnishes the required
information over the course of multiple days, the requirements of
paragraph (g)(6) of this section will be deemed satisfied and the one-
year period will begin on the date that the IRS is furnished the
information that, together with prior information, satisfies the
requirements of section 6112 and Sec. 301.6112-1 with respect to the
taxpayer. The information is deemed furnished for purposes of section
6501(c)(10) on the date the material advisor is treated as satisfying
the requirements of section 6112 under the rules applicable to that
section.
3. Taxes That Can Be Assessed Under Section 6501(c)(10)
Section 6501(c)(10) allows the IRS to assess any tax with respect
to a listed transaction for the taxable year(s) to which the failure to
disclose relates. Section 301.6501(c)-1(g)(7) of these proposed
regulations provides that taxes with respect to the listed transaction
include, but are not limited to, (1) adjustments made to the tax
consequences claimed on the return, (2) adjustments to any item to the
extent the item is affected by the listed transaction even if it is
unrelated to the listed transaction, and (3) interest and penalties
that are related to the listed transaction or the adjustments made to
the tax consequences (see I.R.C. Sec. Sec. 6601(e)(1) and 6665(a)(2)).
An example of an item affected by the listed transaction but not
related to the listed transaction is the threshold for the medical
expense deduction under section 213 that varies if there is a change in
an individual's adjusted gross income. Examples of a penalty related to
the adjustments made to the tax consequences are the accuracy-related
penalties under sections 6662 and 6662A. An example of a penalty
related to the listed transaction is the penalty under section 6707A
for failure to file the disclosure statement reporting the taxpayer's
participation in the listed transaction.
4. Examples
Section 301.6501(c)-1(g)(8) of these proposed regulations contains
examples of the application of section 6501(c)(10) to various types of
taxpayers participating in listed transactions. Additional examples
illustrate the application of the one-year period under section
6501(c)(10), the coordination of section 6501(c)(10) with other
limitations periods provided by the Internal Revenue Code, and tax that
can be assessed with respect to a listed transaction.
Proposed Effective/Applicability Date
When adopted as final regulations, these rules will apply to
taxable years with respect to which the period of limitations on
assessment did not expire before the date of publication of a Treasury
decision adopting these rules as final regulations in the Federal
Register. However, taxpayers may rely on these proposed regulations for
taxable years with respect to which the period of limitations on
assessment expired before the publication of the Treasury decision.
Otherwise, Rev. Proc. 2005-26 continues to apply for taxable years to
which these regulations do not apply and for which the period of
limitations on assessment did not expire before April 8, 2005--the
effective date of Rev. Proc. 2005-26.
Effect on Other Documents
Upon the publication of final regulations under section 6501(c)(10)
in the Federal Register, Rev. Proc. 2005-26 (2005-1 CB 965) will be
superseded for taxable years with respect to which the period of
limitations on assessment did not expire before the date of publication
of a Treasury decision adopting these rules as final regulations in the
Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations.
It is hereby certified that these regulations will not have a
significant economic impact on a substantial number of small entities
pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6).
Section 6501(c)(10) applies when taxpayers fail to comply with the
reporting requirements set forth in section 6011. The Treasury
Department and the IRS do not know the exact number and types of
taxpayers that fail to comply with those requirements. However,
although the Treasury Department and the IRS are aware that many tax
avoidance transactions involve pass-through entities, when pass-through
entities are utilized, the entities are not ultimately liable for the
tax; rather, the taxpayers subject to section 6501(c)(10) will be the
individuals and corporations owning, directly or indirectly, the
interests in the pass-though entities. Therefore, the Treasury
Department and the IRS have determined that these proposed regulations
will not affect a substantial number of small entities.
In addition, the Treasury Department and the IRS have determined
that any impact on small entities resulting from these proposed
regulations will not be significant. Most of the information required
under these proposed regulations is already required by other
regulations or forms, namely Sec. 1.6011-4, Sec. 301.6112-1, and Form
8886, ``Reportable Transaction Disclosure Statement.'' The only new
information required to be submitted to the IRS is a cover letter,
which must contain a reference to the tax returns and taxable year(s)
at issue and a statement signed under penalty of perjury. The cover
letter should take minimal time and expense to prepare. Therefore, the
additional requirement of the cover letter should not significantly
increase the burden on taxpayers. Based on these facts, the Treasury
Department and the IRS have determined that these proposed regulations
will not have a significant economic impact on a substantial number of
small entities. Pursuant to section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on their impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. The IRS and Treasury Department request comments on the substance
of the proposed regulations, as well as on the clarity of the proposed
rules and how they can be made easier to understand. All comments
submitted by the public will be made available for public
[[Page 51532]]
inspection and copying. A public hearing will be scheduled if requested
in writing by any person that timely submits written comments. If a
public hearing is scheduled, notice of the date, time, and place for
the public hearing will be published in the Federal Register.
Drafting Information
The principal author of these regulations is Audra M. Dineen of the
Office of the Associate Chief Counsel (Procedure and Administration).
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR Part 301 is proposed to be amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6501(c)-1 is amended by adding paragraph (g) to
read as follows:
Sec. 301.6501(c)-1 Exceptions to general period of limitations on
assessment and collection.
(g) Listed transactions--(1) In general. If a taxpayer is required
to disclose a listed transaction under section 6011 and the regulations
under section 6011 and does not do so in the time and manner required,
then the time to assess any tax attributable to that listed transaction
for the taxable year(s) to which the failure to disclose relates (as
defined in paragraph (g)(3)(iii) of this section) will not expire
before the earlier of one year after the date on which the taxpayer
makes the disclosure described in paragraph (g)(5) of this section or
one year after the date on which a material advisor makes a disclosure
described in paragraph (g)(6) of this section.
(2) Limitations period if paragraph (g)(5) or (g)(6) is satisfied.
If one of the disclosure provisions described in paragraphs (g)(5) or
(g)(6) of this section is satisfied, then the tax attributable to the
listed transaction may be assessed at any time before the expiration of
the limitations period that would have otherwise applied under this
section (determined without regard to paragraph (g)(1) of this section)
or the period ending one year after the date that one of the disclosure
provisions described in paragraphs (g)(5) or (g)(6) of this section was
satisfied, whichever is later. If both disclosure provisions are
satisfied, the one-year period will begin on the earlier of the dates
on which the provisions were satisfied. Paragraph (g)(1) of this
section does not apply to any period of limitations on assessment that
expired before the date on which the failure to disclose the listed
transaction under section 6011 occurred.
(3) Definitions--(i) Listed transaction. The term listed
transaction means a transaction described in section 6707A(c)(2) of the
Code and Sec. 1.6011-4(b)(2) of this chapter.
(ii) Material advisor. The term material advisor means a person
described in section 6111(b)(1) of the Code and Sec. 301.6111-3(b) of
this chapter.
(iii) Taxable year(s) to which the failure to disclose relates. The
taxable year(s) to which the failure to disclose relates are each
taxable year that the taxpayer participated (as defined under section
6011 and the regulations under section 6011) in a transaction that was
identified as a listed transaction and the taxpayer failed to disclose
the listed transaction as required under section 6011. If the taxable
year in which the taxpayer participated in the listed transaction is
different from the taxable year in which the taxpayer is required to
disclose the listed transaction under section 6011, the taxable year(s)
to which the failure to disclose relates are each taxable year that the
taxpayer participated in the transaction.
(4) Application of paragraph with respect to pass-through entities.
In the case of taxpayers who are partners in partnerships, shareholders
in S corporations, or beneficiaries of trusts and are required to
disclose a listed transaction under section 6011 and the regulations
under section 6011, paragraph (g)(1) of this section will apply to a
particular partner, shareholder, or beneficiary if that particular
taxpayer does not disclose within the time and in the form and manner
provided by section 6011 and Sec. 1.6011-4(d) and (e), regardless of
whether the partnership, S corporation, or trust or another partner,
shareholder, or beneficiary discloses in accordance with section 6011
and the regulations under section 6011. Similarly, because paragraph
(g)(1) of this section applies on a taxpayer-by-taxpayer basis, the
failure of a partnership, S corporation, or trust that has a disclosure
obligation under section 6011 and does not disclose within the time or
in the form and manner provided by Sec. 1.6011-4(d) and (e) will not
cause paragraph (g)(1) of this section to apply automatically to all
the partners, shareholders or beneficiaries of the entity. Instead, the
application of paragraph (g)(1) of this section will be determined
based on whether the particular taxpayer satisfied their disclosure
obligation under section 6011 and the regulations under section 6011.
(5) Taxpayer's disclosure of a listed transaction that taxpayer did
not properly disclose under section 6011--(i) In general--(A) Method of
disclosure. The taxpayer must complete the most current version of Form
8886, ``Reportable Transaction Disclosure Statement'' (or successor
form), available on the date the taxpayer attempts to satisfy this
paragraph in accordance with Sec. 1.6011-4(d) (in effect on that date)
and the instructions to that form. The taxpayer must indicate on the
Form 8886 that the form is being submitted for purposes of section
6501(c)(10) and the tax return(s) and taxable year(s) for which the
taxpayer is making a section 6501(c)(10) disclosure. The section
6501(c)(10) disclosure will only be effective for the tax return(s) and
taxable year(s) that the taxpayer specifies he or she is attempting to
disclose for purposes of section 6501(c)(10). If the Form 8886 contains
a line for this purpose then the taxpayer must complete the line in
accordance with the instructions to that form. Otherwise, the taxpayer
must include on the top of Page 1 of the Form 8886, and each copy of
the form, the following statement: ``Section 6501(c)(10) Disclosure''
followed by the tax return(s) and taxable year(s) for which the
taxpayer is making a section 6501(c)(10) disclosure. For example, if
the taxpayer did not properly disclose its participation in a listed
transaction the tax consequences of which were reflected on the
taxpayer's Form 1040 for the 2005 taxable year, the taxpayer must
include the following statement: ``Section 6501(c)(10) Disclosure; 2005
Form 1040'' on the form. The taxpayer must submit the properly
completed Form 8886 and a cover letter, which must be completed in
accordance with the requirements set forth in paragraph (g)(5)(i)(B) of
this section, to the Office of Tax Shelter Analysis (OTSA). The
taxpayer is permitted, but not required, to file an amended return with
the Form 8886 and cover letter. Separate Forms 8886 and separate cover
letters must be submitted for each listed transaction the taxpayer did
not properly disclose under section 6011. If the taxpayer participated
in one listed transaction
[[Page 51533]]
over multiple years, the taxpayer may submit one Form 8886 (or
successor form) and cover letter and indicate on that form all of the
tax returns and taxable years for which the taxpayer is making a
section 6501(c)(10) disclosure. If a taxpayer participated in more than
one listed transaction, then the taxpayer must submit separate Forms
8886 (or successor form) for each listed transaction, unless the listed
transactions are the same or substantially similar, in which case all
the listed transactions may be reported on one Form 8886.
(B) Cover letter. A cover letter to which a Form 8886 is to be
attached must identify the tax return(s) and taxable year(s) for which
the taxpayer is making a section 6501(c)(10) disclosure and include the
following statement signed under penalties of perjury by the taxpayer
and if the Form 8886 is prepared by a paid preparer, the Form 8886 must
be signed under penalties of perjury by the paid preparer as well:
Under penalties of perjury, I declare that I have examined this
reportable transaction disclosure statement and, to the best of my
knowledge and belief, this reportable transaction disclosure
statement is true, correct, and complete. Declaration of preparer
(other than taxpayer) is based on all information of which the
preparer has any knowledge.
(C) Taxpayer under examination or Appeals consideration. A taxpayer
making a disclosure under paragraph (g)(5) of this section with respect
to a taxable year under examination or Appeals consideration by the IRS
must satisfy the requirements of paragraphs (g)(5)(i)(A) and (B) of
this section and also submit a copy of the submission to the IRS
examiner or Appeals officer examining or considering the taxable
year(s) to which the disclosure under paragraph (g) of this section
relates.
(D) Date the one-year period will begin to run if paragraph (g)(5)
satisfied. Unless an earlier expiration is provided for in paragraph
(g)(6) of this section, the time to assess tax under paragraph (g) of
this section will not expire before one year after the date on which
the Secretary is furnished the information from the taxpayer that
satisfies all the requirements of paragraphs (g)(5)(i)(A) and (B) of
this section and, if applicable, paragraph (g)(5)(i)(C) of this
section. If the taxpayer does not satisfy all of the requirements on
the same date, the one-year period will begin on the date that the IRS
is furnished the information that, together with prior disclosures of
information, satisfies the requirements of paragraph (g)(5) of this
section. For purposes of paragraph (g)(5) of this section, the
information is deemed furnished on the date the IRS receives the
information.
(ii) Exception for returns other than annual returns. The IRS may
prescribe alternative procedures to satisfy the requirements of this
paragraph (g)(5) in a revenue procedure, notice, or other guidance
published in the Internal Revenue Bulletin for circumstances involving
returns other than annual returns.
(6) Material advisor's disclosure of a listed transaction not
properly disclosed by a taxpayer under section 6011--(i) Method of
disclosure. In response to a written request of the IRS under section
6112, a material advisor with respect to a listed transaction must
furnish to the IRS the information described in section 6112 and Sec.
301.6112-1(b) in the form and manner prescribed by section 6112 and
Sec. 301.6112-1(e). If the information the material advisor furnishes
identifies the taxpayer as a person who engaged in the listed
transaction, regardless of whether the material advisor provides the
information before or after the taxpayer's failure to disclose the
listed transaction under section 6011, then the requirements of this
paragraph (g)(6) will be satisfied for that taxpayer. The requirements
of this paragraph (g)(6) will be considered satisfied even if the
material advisor furnishes the information required under section 6112
to the IRS after the date prescribed in section 6708 or published
guidance relating to section 6708.
(ii) Date the one-year period will begin if paragraph (g)(6) is
satisfied. Unless an earlier expiration is provided for in paragraph
(g)(5) of this section, the time to assess tax under paragraph (g) of
this section will expire one year after the date on which the material
advisor satisfies the requirements of paragraph (g)(6)(i) of this
section with respect to the taxpayer. For purposes of paragraph (g)(6)
of this section, information is deemed to be furnished on the date
that, in response to a request under section 6112, the IRS receives the
information from a material advisor that satisfies the requirements of
paragraph (g)(6)(i) of this section with respect to the taxpayer.
(7) Tax assessable under this section. If the period of limitations
on assessment for a taxable year remains open under this section, the
Secretary has authority to assess any tax with respect to the listed
transaction in that year. This includes, but is not limited to,
adjustments made to the tax consequences claimed on the return plus
interest, additions to tax, additional amounts, and penalties that are
related to the listed transaction or adjustments made to the tax
consequences. This also includes any item to the extent the item is
affected by the listed transaction even if it is unrelated to the
listed transaction. An example of an item affected by, but unrelated
to, a listed transaction is the threshold for the medical expense
deduction under section 213 that varies if there is a change in an
individual's adjusted gross income. An example of a penalty related to
the listed transaction is the penalty under section 6707A for failure
to file the disclosure statement reporting the taxpayer's participation
in the listed transaction. Examples of penalties related to the
adjustments made to the tax consequences are the accuracy-related
penalties under sections 6662 and 6662A.
(8) Examples. The rules of paragraph (g) of this section are
illustrated by the following examples:
Example 1. No requirement to disclose under section 6011. P, an
individual, is a partner in a partnership that entered into a
transaction in 2001 that was the same as or substantially similar to
the transaction identified as a listed transaction in Notice 2000-44
(2000-2 CB 255). P claimed a loss from the transaction on his Form
1040 for the tax year 2001. P filed the Form 1040 prior to June 14,
2002. P did not disclose his participation in the listed transaction
because P was not required to disclose the transaction under the
applicable section 6011 regulations (TD 8961). Although the
transaction was a listed transaction and P did not disclose the
transaction, P had no obligation to include on any return or
statement any information with respect to a listed transaction
within the meaning of section 6501(c)(10) because TD 8961 only
applied to corporations, not individuals. Accordingly, section
6501(c)(10) does not apply.
Example 2. Taxable year to which the failure to disclose relates
when transaction is identified as a listed transaction after
taxpayer files a tax return for that year. (i) In January 2009, A, a
calendar year taxpayer, enters into a transaction that at the time
is not a listed transaction. A reports the tax consequences from the
transaction on its individual income tax return for 2009 timely
filed on April 15, 2010. The time for the IRS to assess tax against
A under the general three-year period of limitations for A's 2009
taxable year would expire on April 15, 2013. A only participated in
the transaction in 2009. On March 1, 2012, the IRS identifies the
transaction as a listed transaction. A does not file the Form 8886
with OTSA by May 30, 2012.
(ii) The period of limitations on assessment for A's 2009
taxable year was open on the date the transaction was identified as
a listed transaction. Under the applicable section 6011 regulations
(TD 9350, 2007-38 IRB 607), A must disclose its participation in the
transaction by filing a completed Form 8886 with OTSA on or before
May 30, 2012, which is 90 days after the date the transaction became
a listed transaction. A did not disclose the transaction as
required. A's failure to disclose relates to taxable year 2009
[[Page 51534]]
even though the obligation to disclose did not arise until 2012.
Section 6501(c)(10) operates to keep the period of limitations on
assessment open for the 2009 taxable year with respect to the listed
transaction until at least one year after the date A satisfies the
requirements of paragraph (g)(5) of this section or a material
advisor satisfies the requirements of paragraph (g)(6) of this
section with respect to A.
Example 3. Requirements of paragraph (g)(6) satisfied. Same
facts as Example 2, except that on April 5, 2013, the IRS hand
delivers to Advisor J, who is a material advisor, a section 6112
request related to the listed transaction. Advisor J furnishes the
required list with all the information required by section 6112 and
Sec. 301.6112-1, including all the information required with
respect to A, to the IRS on May 13, 2013. The submission satisfies
the requirements of paragraph (g)(6) even though Advisor J furnishes
the information outside of the 20-business-day period provided in
section 6708. Accordingly, under section 6501(c)(10), the period of
limitations with respect to A's taxable year 2009 will end on May
13, 2014, one year after the IRS received the required information,
unless the period of limitations remains open under another
exception. Any tax for the 2009 taxable year not attributable to the
listed transaction must be assessed by April 15, 2013.
Example 4. Requirements of paragraph (g)(5) also satisfied.
Same facts as Examples 2 and 3, except that on May 23, 2013, A
files a properly completed Form 8886 and signed cover letter with
OTSA both identifying that the section 6501(c)(10) disclosure
relates to A's Form 1040 for 2009. A satisfied the requirements of
paragraph (g)(5) of this section as of May 23, 2013. Because the
requirements of paragraph (g)(6) were satisfied first as described
in Example 3, under section 6501(c)(10) the period of limitations
will end on May 13, 2014 (one year after the requirements of
paragraph (g)(6) were satisfied) instead of May 23, 2014 (one year
after the requirements of paragraph (g)(5) were satisfied). Any tax
for the 2009 taxable year not attributable to the listed transaction
must be assessed by April 15, 2013.
Example 5. Period to assess tax remains open under another
exception.
Same facts as Examples 2, 3, and 4, except that on April 1,
2013, A signed Form 872, consenting to extend, without restriction,
its period of limitations on assessment for taxable year 2009 under
section 6501(c)(4) until July 15, 2014. In that case, although under
section 6501(c)(10) the period of limitations would otherwise expire
on May 13, 2014, the IRS may assess tax with respect to the listed
transaction at any time up to and including July 15, 2014, pursuant
to section 6501(c)(4). Section 6501(c)(10) can operate to extend the
assessment period but cannot shorten any other applicable assessment
period.
Example 6. Requirements of (g)(5) not satisfied.
In 2009, X, a corporation, enters into a listed transaction. On
March 15, 2010, X timely files its 2009 Form 1120, reporting the tax
consequences from the transaction. X does not disclose the
transaction as required under section 6011 when it files its 2009
return. The failure to disclose relates to taxable year 2009. On
February 12, 2014, X completes and files a Form 8886 with respect to
the listed transaction with OTSA but does not submit a cover letter,
as required. The requirements of paragraph (g)(5) of this section
have not been satisfied. Therefore, the time to assess tax against X
with respect to the transaction for taxable year 2009 remains open
under section 6501(c)(10).
Example 7. Taxable year to which the failure to disclose relates
when transaction is identified as a listed transaction after first
year of participation.
(i) On December 30, 2003, Y, a corporation, enters into a
transaction that at the time is not a reportable transaction. On
March 15, 2004, Y timely files its 2003 Form 1120, reporting the tax
consequences from the transaction. On April 1, 2004, the IRS issues
Notice 2004-31 that identifies the transaction as a listed
transaction. Y also reports tax consequences from the transaction on
its 2004 Form 1120, which it timely filed on March 15, 2005. Y did
not attach a completed Form 8886 to its 2004 Form 1120 and did not
send a copy of the form to OTSA. The general three-year period of
limitations on assessment for Y's 2003 and 2004 taxable years would
expire on March 15, 2007, and March 17, 2008, respectively.
(ii) The period of limitations on assessment for Y's 2003
taxable year was open on the date the transaction was identified as
a listed transaction. Under the applicable section 6011 regulations
(TD 9108), Y should have disclosed its participation in the
transaction with its next filed return, which was its 2004 Form
1120, but Y did not disclose its participation. Y's failure to
disclose with the 2004 Form 1120 relates to taxable years 2003 and
2004. Section 6501(c)(10) operates to keep the period of limitations
on assessment open for the 2003 and 2004 taxable years with respect
to the listed transaction until at least one year after the date Y
satisfies the requirements of paragraph (g)(5) of this section or a
material advisor satisfies the requirements of paragraph (g)(6) of
this section with respect to Y.
Example 8. Section 6501(c)(10) applies to keep one partner's
period of limitations on assessment open.
T and S are partners in a partnership, TS, that enters into a
listed transaction in 2010. T and S each receive a Schedule K-1 from
TS on April 11, 2011. On April 15, 2011, TS, T and S each file their
2010 returns. Under the applicable section 6011 regulations, TS, T,
and S each are required to disclose the transaction. TS attaches a
completed Form 8886 to its 2010 Form 1065 and sends a copy of Form
8886 to OTSA. Neither T nor S files a disclosure statement with
their respective returns nor sends a copy to OTSA on April 15, 2011.
On May 17, 2011, T timely files a completed Form 8886 with OTSA
pursuant to Sec. 1.6011-4(e)(1). T's disclosure is timely because T
received the Schedule K-1 within 10 calendar days before the due
date of the return and, thus, T had 60 calendar days to file Form
8886 with OTSA. TS and T properly disclosed the transaction in
accordance with the applicable regulations under section 6011, but S
did not. S's failure to disclose relates to taxable year 2010. The
time to assess tax with respect to the transaction against S for
2010 remains open under section 6501(c)(10) even though TS and T
disclosed the transaction.
Example 9. Section 6501(c)(10) satisfied before expiration of
three-year period of limitations under section 6501(a).
Same facts as Example 8, except that on August 27, 2012, S
satisfies the requirements of paragraph (g)(5) of this section. No
material advisor satisfied the requirements of paragraph (g)(6) of
this section with respect to S on a date earlier than August 27,
2012. Under section 6501(c)(10), the period of time in which the IRS
may assess tax against S with respect to the listed transaction
would expire no earlier than August 27, 2013, one year after the
date S satisfied the requirements of paragraph (g)(5). As the
general three-year period of limitations on assessment under section
6501(a) does not expire until April 15, 2014, the IRS will have
until that date to assess any tax with respect to the listed
transaction.
Example 10. No section 6112 request.
B, a calendar year taxpayer, entered into a listed transaction
in 2010. B did not comply with the applicable disclosure
requirements under section 6011 for taxable year 2010; therefore,
section 6501(c)(10) applies to keep the period of limitations on
assessment open with respect to the tax related to the transaction
until at least one year after B satisfies the requirements of
paragraph (g)(5) of this section or a material advisor satisfies the
requirements of paragraph (g)(6) of this section with respect to B.
In June 2011, the IRS conducts a section 6700 investigation of
Advisor K, who is a material advisor to B with respect to the listed
transaction. During the course of the investigation, the IRS obtains
the name, address, and TIN of all of Advisor K's clients who engaged
in the transaction, including B. The information provided does not
satisfy the requirements of paragraph (g)(6) with respect to B
because the information was not provided pursuant to a section 6112
request. Therefore, the time to assess tax against B with respect to
the transaction for taxable year 2010 remains open under section
6501(c)(10).
Example 11. Section 6112 request but the requirements of
paragraph (g)(6) are not satisfied with respect to B.
Same facts as Example 10, except that on January 2, 2014, the
IRS sends by certified mail a section 6112 request to Advisor L, who
is another material advisor to B with respect to the listed
transaction. Advisor L furnishes some of the information required
under section 6112 and Sec. 301.6112-1 to the IRS for inspection on
January 13, 2014. The list includes information with respect to many
clients of Advisor L, but it does not include any information with
respect to B. The submission does not satisfy the requirements of
paragraph (g)(6) of this section with respect to B. Therefore, the
time to assess tax against B with respect to the transaction for
taxable year 2010 remains open under section 6501(c)(10).
Example 12. Section 6112 submission made before taxpayer failed
to disclose a listed transaction.
[[Page 51535]]
Advisor M, who is a material advisor, advises C, an individual,
in 2010 with respect to a transaction that is not a reportable
transaction at that time. C files its return claiming the tax
consequences of the transaction on April 15, 2011. The time for the
IRS to assess tax against C under the general three-year period of
limitations for C's 2010 taxable year would expire on April 15,
2014. The IRS identifies the transaction as a listed transaction on
November 1, 2013. On December 5, 2013, the IRS hand delivers to
Advisor M a section 6112 request related to the transaction. Advisor
M furnishes the information to the IRS on December 30, 2013. The
information contains all the required information with respect to
Advisor M's clients, including C. C does not disclose the
transaction on or before January 30, 2014, as required under section
6011 and the regulations under section 6011. Advisor M's submission
under section 6112 satisfies the requirements of paragraph (g)(6) of
this section even though it occurred prior to C's failure to
disclose the listed transaction. Thus, under section 6501(c)(10),
the period of limitations to assess tax against C with respect to
the listed transaction will end on December 30, 2014 (one year after
the requirements of paragraph (g)(6) of this section were
satisfied), unless the period of limitations remains open under
another exception.
Example 13. Transaction removed from the category of listed
transactions after taxpayer failed to disclose.
D, a calendar year taxpayer, entered into a listed transaction
in 2011. D did not comply with the applicable disclosure
requirements under section 6011 for taxable year 2011; therefore,
section 6501(c)(10) applies to keep the period of limitations on
assessment open with respect to the tax related to the transaction
until at least one year after D satisfies the requirements of
paragraph (g)(5) of this section or a material advisor satisfies the
requirements of paragraph (g)(6) of this section with respect to D.
In 2016, the IRS removes the transaction from the category of listed
transactions because of a change in law. Section 6501(c)(10)
continues to apply to keep the period of limitations on assessment
open for D's taxable year 2011.
Example 14. Taxes assessed with respect to the listed
transaction.
(i) F, an individual, enters into a listed transaction in 2009.
F files its 2009 Form 1040 on April 15, 2010, but does not disclose
his participation in the listed transaction in accordance with
section 6011 and the regulations under section 6011. F's failure to
disclose relates to taxable year 2009. Thus, section 6501(c)(10)
applies to keep the period of limitations on assessment open with
respect to the tax related to the listed transaction for taxable
year 2009 until at least one year after the date F satisfies the
requirements of paragraph (g)(5) of this section or a material
advisor satisfies the requirements of paragraph (g)(6) of this
section with respect to F.
(ii) On July 1, 2014, the IRS completes an examination of F's
2009 taxable year and disallows the tax consequences claimed as a
result of the listed transaction. The disallowance of a loss
increased F's adjusted gross income. Due to the increase of F's
adjusted gross income, certain credits, such as the child tax
credit, and exemption deductions were disallowed or reduced because
of limitations based on adjusted gross income. In addition, F now is
liable for the alternative minimum tax. The examination also
uncovered that F claimed two deductions on Schedule C to which F was
not entitled. Under section 6501(c)(10), the IRS can timely issue a
statutory notice of deficiency (and assess in due course) against F
for the deficiency resulting from (1) disallowing the loss, (2)
disallowing the credits and exemptions to which F was not entitled
based on F's increased adjusted gross income, and (3) being liable
for the alternative minimum tax. In addition, the IRS can assess any
interest and applicable penalties related to those adjustments, such
as the accuracy-related penalty under sections 6662 and 6662A and
the penalty under section 6707A for F's failure to disclose the
transaction as required under section 6011 and the regulations under
section 6011. The IRS cannot, however, pursuant to section
6501(c)(10), assess the increase in tax that would result from
disallowing the two deductions on F's Schedule C because those
deductions are not related to, or affected by, the adjustments
concerning the listed transaction.
(9) Effective/applicability date. The rules of this paragraph (g)
apply to taxable years with respect to which the period of limitations
on assessment did not expire before the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register. However, taxpayers may rely on the rules of this
paragraph (g) for taxable years with respect to which the period of
limitations on assessment expired before the date of publication of the
Treasury decision. If an individual does not choose to rely on the
rules of this paragraph (g), Rev. Proc. 2005-26 (2005-1 CB 965) will
continue to apply to taxable years with respect to which the period of
limitations on assessment expired on or after April 8, 2005, and before
the date of publication of the Treasury decision adopting these rules
as final regulations in the Federal Register.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E9-24112 Filed 10-6-09; 8:45 am]
BILLING CODE 4830-01-P