Corporate tax shelter regulations: disclosure of reportable transactions - Tax Executives Institute

Tax Executive, The, July, 2000

June 5, 2000

On June 5, 2000, Tax Executives Institute submitted the following comments to the Internal Revenue Services on proposed regulations relating to the disclosure of certain "reportable transactions" under section 6011 of the Internal Revenue Code. The regulations, which were the subject of a public hearing on June 20, 2000, were issued as part of the IRS's efforts to address so- called corporate tax shelters. TEI's comments were prepared under the aegis of the Institute's Corporate Tax Shelter Task Force, whose chair is Philip G. Cohen of the New York Chapter. Mr. Cohen, who is also 1999-2000 chair of TEI's Federal Tax Committee, also represented TEI at the June 20 public hearing, as did TEI Tax Counsel Jeffery P. Rasmussen.

On February 28, 2000, the Treasury Department and Internal Revenue Service issued a plethora of guidance aimed at identifying and curbing tax-motivated transactions. Specifically, the government issued temporary and proposed rules (T.D. 8876, REG-110311-98) requiring the registration of "confidential corporate tax shelters," temporary and proposed rules (T.D. 8877, REG-103735-00) requiring taxpayers to report their participation in certain "reportable transactions," and temporary and proposed rules (T.D. 8875, REG-103736-00) requiring tax shelter promoters to maintain lists of investors in "potentially abusive shelters."(1) The rules were published in the FEDERAL REGISTER (65 Fed. Reg. 11205) and in the Internal Revenue Bulletin (2000-11 I.R.B. 747). A hearing on the temporary and proposed rules will be held on June 20, 2000. In addition to the temporary and proposed rules, the government released Rev. Rul. 2000-12 (curbing certain transactions in debt straddle instruments), Notice 2000-15 (identifying 10 categories of "listed" transactions for purposes of Temp. Reg. [sections] 1.6011-4T(b)(2) and Temp. Reg. [sections] 301.6111-2T(b)(2)), and Announcement 2000-12 (announcing the formation of the IRS Office of Tax Shelter Analysis and describing the government's overall anti-tax-shelter strategy).

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our more than 5,000 members represent 2,800 of the leading corporations in the United States, Canada, and Europe. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and with which taxpayers can comply.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the package of rules released by the government to address tax-motivated transactions. TEI members know all too well that the inherent complexity and nebulous provisions of the Internal Revenue Code make drawing the line between sound tax reduction strategies, on the one hand, and tax shelters, on the other, difficult.(2) Since TEI does not represent tax shelter promoters or their advisers, our comments relate primarily to the temporary regulations under section 6011(a), relating to the requirement that corporate taxpayers file statements with their returns disclosing "reportable transactions." Thus, our comments on the registration regulations (T.D. 8876, REG-110311-98) and the investor list regulations (T.D. 8875, REG-103736-00) are limited in scope.

Overview

Under Temp. Reg. [sections] 1.6011-4T(a), every taxpayer that files a corporate tax return that has participated directly or indirectly in a reportable transaction as defined in Temp. Reg. [sections] 1.6011-4T(b) is required to attach a disclosure statement to its return for each taxable year affected by its participation in the transaction. In addition, a copy of the disclosure statement for the first taxable year for which disclosure is required must be filed with the National Office of the IRS. Under Temp. Reg. [sections] 1.6011-4T(b)(1), a reportable transaction is any transaction described in either paragraph (b)(2) or (b)(3) that meets one of the projected tax effect tests of paragraph (b)(4). The regulations define two categories of reportable transactions. The first category set forth in paragraph (b)(2) ("listed" transactions) includes transactions identified by the Treasury and IRS as "tax avoidance" transactions. The second category in paragraph (b)(3) ("other reportable transactions") includes transactions warranting scrutiny because they possess at least two of six characteristics or factors deemed common in corporate tax shelters.