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Preamble to Prop Reg 09/10/2009; Prop Reg § 26.6011-4, Prop Reg § 301.6111-3, Prop Reg § 301.6112-2 IRS has issued proposed regs that would subject transactions designed to reduce or eliminate the generation-skipping transfer (GST) tax to the tax shelter disclosure rules that apply for listed transactions and transactions of interest under Code Sec. 6011. In addition, the proposed regs would modify and clarify some of the rules relating to the disclosure obligations of material advisors and the list maintenance requirements of material advisors with respect to reportable transactions under Code Sec. 6111 and Code Sec. 6112. Background on disclosure rules Promoting, advising taxpayers about, or participating in, a transaction that is the same as or substantially similar to a transactions determined by IRS to be a tax avoidance transaction and a "listed transaction" triggers numerous disclosure and penalty rules. Taxpayers may need to disclose their participation in the listed transactions under Reg. § 1.6011-4 , and material advisors may need to disclose these transactions under Reg. § 301.6111-3. Taxpayers who fail to disclose may be subject to penalties under Code Sec. 6662A and Code Sec. 6707A . Material advisors who fail to disclose may be subject to penalties under Code Sec. 6707. Material advisors also must maintain lists of advisees and other information with respect to these listed transactions under Reg. § 301.6112-1 or face penalties under Code Sec. 6708. In final regs issued in 2007 (see Federal Taxes Weekly Alert 08/02/2007), IRS added a new category of reportable transactions for purposes of Reg. § 1.6011-4(b)(6), Code Sec. 6111, Code Sec. 6112, Code Sec. 6662A, Code Sec. 6707, Code Sec. 6707A and Code Sec. 6708. The new category is called "transactions of interest," which are so identified in published guidance. (Reg. § 1.6011-4(b)(6)) These are transactions that IRS believes have potential for tax avoidance or evasion, but for which it lacks enough information to determine whether they should be identified specifically as tax avoidance transactions. (Preamble to TD 9350) The change applies for transactions of interest entered into on or after Nov. 2, 2006. RIA observation: IRS recently updated its list of listed transactions and transactions of interest (see Federal Taxes Weekly Alert 07/23/2009).
Background on GST tax A GST tax is imposed on transfers outright or in trust to beneficiaries more than one generation below the transferor's generation at a flat rate, equal to the maximum gift and estate tax rate (45% for individuals dying in 2009). Every individual is allowed a $3.5 million exemption (for transfers in 2009) which may be allocated to any property transferred. Like the estate tax, the GST tax is scheduled to be repealed for individuals dying in 2010 and then return in 2011 with a higher rate and lower exemption. RIA observation: There is a good chance, however, that the one-year repeal will never go into effect. Many expect Congress to eliminate the repeal and extend the estate tax and GST tax at current levels.
Proposed regs would reach GST tax transactions. IRS proposes to amend the regs to provide rules for purposes of the GST tax that require the disclosure of listed transactions and transactions of interest by certain taxpayers on their Federal tax returns under Code Sec. 6011. (Prop Reg § 26.6011-4(a)) IRS says the regs should encompass transactions that purport to reduce or eliminate the GST tax as listed transactions or transactions of interest and require the disclosure of these transactions under Code Sec. 6011. However, IRS does not have any plans to identify any such transaction at this time. (Preamble to Prop Reg 09/10/2009) Clarifying amendments would be made to the regs under Code Sec. 6111 and Code Sec. 6112 as a result of the GST tax rules proposed under Code Sec. 6011. (Prop Reg § 301.6111-3, Prop Reg § 301.6112-1) Other changes IRS also is proposing to amend the regs under Code Sec. 6112 to provide that, before a material advisor must make available to IRS the list as described in Reg. § 301.6112-1(b), he will have a specified period of time to prepare the list after the list maintenance requirement first arises with respect to a reportable transaction. The specified period of time would be 30 calendar days or a period greater than 30 calendar days as may be specifically described in the published guidance designating a transaction as a reportable transaction. A request for a list made during the list preparation time period would be treated as having been made on the day after the list preparation time period ends. (Prop Reg § 301.6112-1(b)(1)) In addition, the regs would make clarifications to the rules regarding designation agreements. A group of material advisors to a reportable transaction may designate by written agreement one material advisor from the group to maintain the list required under Code Sec. 6112. (Reg. § 301.6112-1(f)) The regs would clarify that the existence of a designation agreement, however, does not affect the ability of IRS to request the list from any party to the designation agreement, or the obligation of any party receiving a request from IRS to furnish the list as required under Code Sec. 6112 and the related regs. (Prop Reg § 301.6112-1(f)) RIA Research References: For tax shelter reporting requirements, see FTC 2d/FIN ¶ S-4400; United States Tax Reporter ¶ 61,114; TaxDesk ¶ 817,000. For the GST tax, see Federal Tax Coordinator 2d ¶ R-9500 et seq.; United States Tax Reporter Estate & Gift ¶ 26,014; TaxDesk ¶ 791,000 et seq. (Source: Federal Tax Updates on Checkpoint Newsstand tab 9/11/09) |
