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64496 Federal Register / Vol. 71, No.

212 / Thursday, November 2, 2006 / Proposed Rules

§ 56.6011–4 Requirement of statement Tara P. Volungis or Charles Wien, 202– one and which was: (1) Required to be
disclosing participation in certain 622–3070; concerning the submissions registered under a Federal or State law
transactions by taxpayers. of comments and requests for hearing, regulating securities; (2) sold pursuant
* * * * * Kelly Banks, 202–622–0392 (not toll- to an exemption from registration
(b) Effective date. This section applies free numbers). requiring the filing of a notice with a
to listed transactions entered into on or SUPPLEMENTARY INFORMATION: Federal or State agency regulating the
after January 1, 2003. Upon the offering or sale of securities; or (3) a
publication of final regulations, this Background substantial investment (the aggregate
section will apply to transactions of This document proposes to amend 26 amount which may have been offered
interest entered into on or after CFR part 301 by providing rules relating for sale exceeded $250,000 and the
November 2, 2006. to the disclosure of reportable expected involvement of five or more
transactions by material advisors under investors). Under former section
Mark E. Matthews,
section 6111. 6111(d), for purposes of section 6111(a),
Deputy Commissioner for Services and The American Jobs Creation Act of
Enforcement. the term tax shelter included any entity,
2004, Public Law 108–357, 118 Stat. plan, arrangement or transaction; (1) A
[FR Doc. E6–18319 Filed 11–1–06; 8:45 am] 1418, (AJCA) was enacted on October significant purpose of the structure of
BILLING CODE 4830–01–P 22, 2004. Section 815 of the AJCA which is the avoidance or evasion of
amended section 6111 to require each Federal income tax for a direct or
material advisor with respect to any indirect participant which is a
DEPARTMENT OF THE TREASURY reportable transaction to make a return corporation; (2) which is offered to any
(in such form as the Secretary may potential participant under conditions
Internal Revenue Service
prescribe) setting forth: (1) Information of confidentiality; and (3) for which the
identifying and describing the tax shelter promoters may receive fees
26 CFR Part 301 transaction; (2) information describing in excess of $100,000 in the aggregate.
[REG–103039–05] any potential tax benefits expected to In response to the AJCA, the IRS and
result from the transaction; and (3) such Treasury Department issued interim
RIN 1545–BE26
other information as the Secretary may guidance on section 6111 in Notice
AJCA Modifications to the Section prescribe. Section 6111(a), as amended, 2004–80, 2004–2 C.B. 963; Notice 2005–
6111 Regulations also provides that the return must be 17, 2005–1 C.B. 606; Notice 2005–22,
filed not later than the date specified by 2005–1 C.B. 756; and Notice 2006–6,
AGENCY: Internal Revenue Service (IRS), the Secretary. Section 6111(b)(1), as 2006–5 I.R.B. 385 (see § 601.601(d)(2)).
Treasury. amended, provides a definition for the The IRS and Treasury Department have
ACTION: Notice of proposed rulemaking term material advisor and includes as received various comments and
by cross-reference to temporary part of that definition a requirement that questions regarding the application of
regulations. the material advisor derive certain section 6111. Consequently, the IRS and
threshold amounts of gross income that Treasury Department propose new rules
SUMMARY: This document contains the Secretary may prescribe. The AJCA relating to the disclosure of reportable
proposed regulations under section amendments to section 6111 also transactions by material advisors under
6111 of the Internal Revenue Code authorize the Secretary to prescribe section 6111.
which provide the rules relating to the regulations that provide: (1) That only
disclosure of reportable transactions by one person shall be required to meet the Explanation of Provisions
material advisors. These regulations requirements of section 6111(a) in cases A. In General
affect material advisors responsible for in which two or more persons would
disclosing reportable transactions under otherwise be required to meet such These proposed regulations are being
section 6111 and material advisors requirements; (2) exemptions from the issued concurrently with proposed
responsible for keeping lists under requirements of section 6111; and (3) regulations under § 301.6112–1 and
section 6112. rules as may be necessary or appropriate § 1.6011–4 published elsewhere in the
DATES: Written or electronic comments to carry out the purposes of section Federal Register. Under these proposed
and requests for a public hearing must 6111. Section 815 of the AJCA is regulations, each material advisor with
be received by January 31, 2007. effective for transactions with respect to respect to any reportable transaction (as
which material aid, assistance, or advice defined in § 1.6011–4(b)(1)) must file a
ADDRESSES: Send submissions to:
is provided after October 22, 2004. return by the date prescribed in the
CC:PA:LPD:PR (REG–103039–05), room regulations. For this purpose, a person
Prior to these amendments, section
5203, Internal Revenue Service, PO Box is a material advisor with respect to a
6111(a) required an organizer of a tax
7604, Ben Franklin Station, Washington, transaction if the person provides any
shelter to register the tax shelter with
DC 20044. Submissions may be hand material aid, assistance, or advice with
the Secretary not later than the day on
delivered Monday through Friday respect to organizing, managing,
which interests in the tax shelter were
between the hours of 8 a.m. and 4 p.m. promoting, selling, implementing,
first offered for sale. Under former
to CC:PA:LPD:PR (REG–103039–05), section 6111(c), the term tax shelter was insuring, or carrying out any reportable
Courier’s Desk, Internal Revenue defined as any investment with respect transaction, and directly or indirectly
Service, Crystal Mall 4 Building, 1901 S. to which any person could reasonably derives gross income in excess of the
Bell St., Arlington, VA, or sent infer from the representations made or threshold amount for the material aid,
electronically, via the IRS Internet site
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to be made, in connection with the assistance, or advice. A person provides


at http://www.irs.gov/regs or via the offering for sale of interests in the material aid, assistance, or advice with
Federal eRulemaking Portal at http:// investments that the tax shelter ratio for respect to organizing, managing,
www.regulations.gov (indicate IRS and any investor as of the close of any of the promoting, selling, implementing,
REG–103039–05). first five years ending after the date on insuring, or carrying out any transaction
FOR FURTHER INFORMATION CONTACT: which the investment was offered for if the person makes or provides a tax
Concerning the proposed regulations, sale may have been greater than two to statement to or for the benefit of certain

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Federal Register / Vol. 71, No. 212 / Thursday, November 2, 2006 / Proposed Rules 64497

persons. The IRS and Treasury respect to the transaction, and identify if the designated material advisor fails
Department also may identify other and describe the transaction in to disclose the reportable transaction
types or classes of persons as material sufficient detail for the IRS to be able to under section 6111.
advisors in published guidance. understand the tax structure of the
Further, these proposed regulations E. Post-Filing Advice
reportable transaction and the identity
provide that the threshold amount of of the material advisor(s). An The current regulations under
gross income that a person may derive, incomplete form containing a statement § 301.6112–1 provide that a person will
directly or indirectly, for providing any that information will be provided upon not be considered to be a material
material aid, assistance or advice is request is not considered a complete advisor with respect to a transaction if
$50,000 in the case of a reportable disclosure statement. that person does not make or provide a
transaction, substantially all of the tax tax statement regarding the transaction
benefits from which are provided to C. Tax Result Protection until after the first tax return reflecting
natural persons ($10,000 in the case of Previous comments to the regulations tax benefit(s) of the transaction is filed
a listed transaction). This threshold under § 1.6011–4 stated that it is with the IRS. The IRS and Treasury
amount of gross income is increased to inappropriate to require reporting of Department, however, believe that a
$250,000 in any other case ($25,000 in transactions under the contractual person should be considered a material
the case of a listed transaction). For protection filter of § 1.6011–4(b)(4) for advisor for certain post-filing advice.
transactions of interest, the IRS and which the taxpayer obtains tax result Consequently, the proposed rule
Treasury Department also may identify protection (sometimes referred to as provides that the exception will not
reduced threshold amounts in ‘‘tax result insurance’’) because apply to a person who makes a tax
published guidance. A person will be numerous legitimate business statement with respect to the transaction
treated as becoming a material advisor transactions with tax indemnities would if it is expected that the taxpayer will
when all of the following events have be subject to reporting. The IRS and file a supplemental or amended return
occurred (in no particular order): Treasury Department removed tax result reflecting additional tax benefits from
(A) The person provides material aid, protection from that category of the transaction.
assistance or advice; (B) the person reportable transaction but cautioned
F. Protective Disclosures
directly or indirectly derives gross that if the IRS and Treasury Department
income in excess of the threshold became aware of abusive transactions The IRS receives disclosures filed on
amount; and (C) the transaction is utilizing tax result protection, the issue a protective basis from persons claiming
entered into by the taxpayer. would be reconsidered. that the transactions are not subject to
The disclosure statement for a The IRS and Treasury Department disclosure under section 6111. Some of
reportable transaction must be filed by have since become aware of taxpayers those disclosures fail to provide the IRS
the last day of the month that follows who have obtained tax result protection with the information requested under
the end of the calendar quarter in which for the tax benefits of a listed sections 6111 and 6112 and the
the advisor became a material advisor transaction from a third party provider. regulations thereunder that would
with respect to the reportable In the AJCA, Congress expressed enable the IRS to make a determination
transaction. Form 8918, ‘‘Material concern about tax result protection for as to whether the transaction is subject
Advisor Disclosure Statement,’’ will be reportable transactions and included to disclosure. Consequently, the IRS and
published for use by material advisors insuring in the list of activities added to Treasury Department have added
to disclose reportable transactions and the statutory language under section clarifying language in the proposed
will supersede the Form 8264 which is 6111. The IRS, Treasury Department, regulation that allows protective
currently being used for material and Congress have an interest in disclosures to be filed in situations
advisor disclosures. The IRS will issue learning more about the insuring of where a person is unsure of whether the
a reportable transaction number to reportable transactions. Accordingly, transaction should be disclosed under
material advisors who file the Form while a transaction will not be a section 6111. However, the disclosure is
8918. Material advisors must provide reportable transaction simply because effective only if the rules of § 301.6111–
the reportable transaction number there is tax result protection for the 3 and § 301.6112–1 are followed.
issued by the IRS to persons to whom transaction, tax result protection
G. Tolling Provision
the material advisor makes or provides provided for a reportable transaction
tax statements with respect to the may subject a person to the material In response to comments that asked
transaction. Public comment on the advisor disclosure rules under section whether the tolling provisions of
Form 8918 will be solicited in 6111 because a tax statement includes § 1.6011–4(f) would apply to requests
accordance with the Paperwork third party tax result protection that from a potential material advisor for a
Reduction Act of 1995 (44 U.S.C. insures the tax benefits of a reportable letter ruling under section 6111, Notice
3507(d)). transaction. 2005–22 provided that, until further
guidance is issued, if an advisor submits
B. Incomplete Disclosure Statements D. Designation Agreements a request for a letter ruling on or before
Persons who file incomplete The proposed regulations include a the date the return under section 6111
disclosures under section 6111 are provision allowing designation is due and fully discloses all relevant
subject to penalties under section 6707. agreements for disclosure of reportable facts relating to the transaction, the
The proposed regulations include transactions similar to the provision in obligation of the potential material
clarifying language to the regulation the current regulations under advisor to disclose the transaction will
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reminding taxpayers that for a § 301.6112–1 that allows material be suspended as provided in § 1.6011–
disclosure to be considered complete, advisors to have a designation 4(f). The IRS and Treasury Department
the information provided on Form 8918 agreement authorizing one material believe that removing the tolling
must describe the expected tax advisor to maintain a list of investors in provision will promote effective tax
treatment and all potential tax benefits the transaction. However, parties to the administration. Consequently, these
expected to result from the transaction, designation agreement may still be proposed regulations do not include a
describe any tax result protection with liable for the penalty under section 6707 provision to toll the time for providing

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64498 Federal Register / Vol. 71, No. 212 / Thursday, November 2, 2006 / Proposed Rules

disclosure when a potential material understand, and the administrability of and includes any series of steps carried
advisor requests a ruling on a the rules in the proposed regulations. out as part of a plan.
transaction. Potential material advisors All comments will be available for (2) Material aid, assistance, or
may request a ruling under section 6111 public inspection and copying. A public advice—(i) In general. Except as
on a transaction under the regular hearing will be scheduled if requested provided in paragraph (b)(5) of this
procedures for requesting a ruling, in writing by any person that submits section, a person provides material aid,
provided the ruling request is not timely written or electronic comments. assistance, or advice with respect to
factual or hypothetical, but the time for If a public hearing is scheduled, notice organizing, managing, promoting,
providing disclosure under section 6111 of the date, time, and place for the selling, implementing, insuring, or
will not be tolled. The temporary public hearing will be published in the carrying out any transaction if the
regulations issued concurrently with Federal Register. person makes or provides a tax
these proposed regulations supersede statement to or for the benefit of—
the tolling provision in Notice 2005–22, Drafting Information (A) A taxpayer who either is required
effective for all ruling requests received The principal authors of these to disclose the transaction under
on or after November 1, 2006. regulations are Tara P. Volungis and §§ 1.6011–4, 20.6011–4, 25.6011–4,
Charles Wien, Office of the Associate 31.6011–4, 53.6011–4, 54.6011–4, or
H. Effective Date 56.6011–4 of this chapter because the
Chief Counsel (Passthroughs and
Generally, when these proposed Special Industries). However, other transaction is a listed transaction or a
regulations become final, they will personnel from the IRS and Treasury transaction of interest, or would have
apply to transactions with respect to Department participated in their been required to disclose the transaction
which a material advisor makes a tax development. under §§ 1.6011–4, 20.6011–4, 25.6011–
statement on or after the date the 4, 31.6011–4, 53.6011–4, 54.6011–4, or
regulations are published as final List of Subjects in 26 CFR Part 301 56.6011–4 of this chapter if the
regulations in the Federal Register. Employment taxes, Estate taxes, transaction had become a listed
However, upon publication the final Excise taxes, Gift taxes, Income taxes, transaction or a transaction of interest
regulations will apply to transactions of Penalties, Reporting and recordkeeping within the period of limitations in
interest entered into on or after requirements. § 1.6011–4(e) of this chapter;
November 2, 2006 with respect to which (B) A taxpayer who the potential
a material advisor makes a tax statement Proposed Amendments to the material advisor knows is or reasonably
under § 301.6111–3 on or after Regulations expects to be required to disclose the
November 2, 2006. Accordingly, 26 CFR part 301 is transaction under § 1.6011–4 of this
proposed to be amended as follows: chapter because the transaction is or is
Special Analyses reasonably expected to become a
It has been determined that this notice PART 301—PROCEDURE AND transaction described in § 1.6011–4(b)(3)
of proposed rulemaking is not a ADMINISTRATION through (5) or (7) of this chapter;
significant regulatory action as defined (C) A material advisor who is required
Paragraph 1. The authority citation
in Executive Order 12866. Therefore, a to disclose the transaction under this
for part 301 continues to read, in part,
regulatory assessment is not required. It section because it is a listed transaction
as follows:
also has been determined that section or a transaction of interest; or
553(b) of the Administrative Procedure Authority: 26 U.S.C. 7805 * * * (D) A material advisor who the
Act (5 U.S.C. chapter 5) does not apply Par. 2. Section 301.6111–3 is added to potential material advisor knows is or
to these regulations, and because these read as follows: reasonably expects to be required to
regulations do not impose a collection disclose the transaction under this
of information on small entities, the § 301.6111–3 Disclosure of reportable section because the transaction is or is
provisions of the Regulatory Flexibility transactions. reasonably expected to become a
Act (5 U.S.C. chapter 6) do not apply. (a) In general. Each material advisor, transaction described in § 1.6011–4(b)(3)
The return referenced in these as defined in paragraph (b) of this through (5) or (7) of this chapter.
regulations will be made available for section, with respect to any reportable (ii) Tax statement—(A) In general. A
public comment in accordance with the transaction, as defined in § 1.6011–4(b) tax statement is any statement
Paperwork Reduction Act of 1995 (44 of this chapter, must file a return as (including another person’s statement),
U.S.C. chapter 35). Pursuant to section described in paragraph (d) of this oral or written, that relates to a tax
7805(f) of the Internal Revenue Code, section by the date described in aspect of a transaction that causes the
this notice of proposed rulemaking will paragraph (e) of this section. transaction to be a reportable
be submitted to the Chief Counsel for (b) Material advisor—(1) In general. A transaction as defined in § 1.6011–
Advocacy of the Small Business person is a material advisor with respect 4(b)(2) through (7) of this chapter. A tax
Administration for comment on its to a transaction if the person provides statement under this section includes
impact on small business. any material aid, assistance, or advice tax result protection that insures some
with respect to organizing, managing, or all of the tax benefits of a reportable
Comments and Requests for a Public promoting, selling, implementing, transaction.
Hearing insuring, or carrying out any reportable (B) Confidential transactions. A
Before these proposed regulations are transaction, and directly or indirectly statement relates to a tax aspect of a
adopted as final regulations, derives gross income in excess of the transaction that causes it to be a
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consideration will be given to any threshold amount as defined in confidential transaction if the statement
written comments (a signed original and paragraph (b)(3) of this section for the concerns a tax benefit related to the
eight (8) copies) or electronic comments material aid, assistance, or advice. The transaction and either the taxpayer’s
that are submitted timely to the IRS. The term transaction includes all of the disclosure of the tax treatment or tax
IRS and Treasury Department request factual elements relevant to the structure of the transaction is limited in
comments on the clarity of the proposed expected tax treatment of any the manner described in § 1.6011–
rules, how they can be made easier to investment, entity, plan or arrangement, 4(b)(3) of this chapter by or for the

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Federal Register / Vol. 71, No. 212 / Thursday, November 2, 2006 / Proposed Rules 64499

benefit of the person making the does not apply to a person who makes For example, a fee does not include
statement, or the person making the a tax statement with respect to the reasonable charges for the use of capital
statement knows the taxpayer’s transaction if it is expected that the or the sale or use of property. The IRS
disclosure of the tax structure or tax taxpayer will file a supplemental or will scrutinize carefully all of the facts
aspects of the transaction is limited in amended return reflecting additional tax and circumstances in determining
the manner described in § 1.6011– benefits from the transaction. whether consideration received in
4(b)(3) of this chapter. (C) Publicly filed statements. A tax connection with a reportable transaction
(C) Transactions with contractual statement with respect to a transaction constitutes gross income derived
protection. A statement relates to a tax that includes only information about the directly or indirectly for aid, assistance,
aspect of a transaction that causes it to transaction contained in publicly or advice. For purposes of this section,
be a transaction with contractual available documents filed with the the threshold amount must be met
protection if the statement concerns a Securities and Exchange Commission no independently for each transaction that
tax benefit related to the transaction and later than the close of the transaction is a reportable transaction and
either— will not be considered a tax statement aggregation of fees among transactions is
(1) The taxpayer has the right to a full to or for the benefit of a person not required.
or partial refund of fees paid to the described in paragraph (b)(2) of this (4) Date a person becomes a material
person making the statement or the fees section. advisor—(i) In general. A person will be
are contingent in the manner described (3) Gross income derived for material treated as becoming a material advisor
in § 1.6011–4(b)(4) of this chapter; or aid, assistance, or advice—(i) Threshold when all of the following events have
(2) The person making the statement amount—(A) In general. The threshold occurred (in no particular order)—
knows or has reason to know that the amount of gross income is $50,000 in (A) The person provides material aid,
taxpayer has the right to a full or partial the case of a reportable transaction assistance or advice as described in
refund of fees (described in § 1.6011– substantially all of the tax benefits from paragraph (b)(2) of this section;
4(b)(4)(ii) of this chapter) paid to which are provided to natural persons (B) The person directly or indirectly
another if all or part of the intended tax (looking through any partnerships, S derives gross income in excess of the
consequences from the transaction are corporations, or trusts). For all other threshold amount as described in
not sustained or that fees (as described transactions, the threshold amount is paragraph (b)(3) of this section; and
in § 1.6011–4(b)(4)(ii) of this chapter) $250,000. (C) The transaction is entered into by
paid by the taxpayer to another are (B) Listed transactions and the taxpayer to whom or for whose
contingent on the taxpayer’s realization transactions of interest. For listed benefit the person provided the tax
of tax benefits from the transaction in transactions described in §§ 1.6011–4, statement, or in the case of a tax
the manner described in § 1.6011– 20.6011–4, 25.6011–4, 31.6011–4, statement provided to another material
4(b)(4) of this chapter. 53.6011–4, 54.6011–4, or 56.6011–4 of advisor, when the transaction is entered
(D) Loss transactions. A statement this chapter, the threshold amounts in into by a taxpayer to whom or for whose
relates to a tax aspect of a transaction paragraph (b)(3)(i)(A) of this section are benefit that material advisor provided a
that causes it to be a loss transaction if reduced from $50,000 to $10,000 and tax statement.
the statement concerns an item that from $250,000 to $25,000. For (ii) Determining if the taxpayer
gives rise to a loss described in transactions of interest described in entered into the transaction. Material
§ 1.6011–4(b)(5) of this chapter. §§ 1.6011–4, 20.6011–4, 25.6011–4, advisors, including those who cease
(E) Transactions involving a brief 31.6011–4, 53.6011–4, 54.6011–4, or providing services before the time the
asset holding period. A statement relates 56.6011–4 of this chapter, the threshold transaction is entered into, must make
to a tax aspect of a transaction involving amounts in paragraph (b)(3)(i)(A) of this reasonable and good faith efforts to
a brief asset holding period if the section may be reduced as identified in determine whether the event described
statement concerns an item that gives the published guidance describing the in paragraph (b)(4)(i)(C) of this section
rise to a tax credit described in transaction. has occurred.
§ 1.6011–4(b)(7) of this chapter. (ii) Gross income derived directly or (iii) Listed transactions and
(iii) Special rules—(A) Capacity as an indirectly for the material aid, transactions of interest. If a transaction
employee. A material advisor generally assistance, or advice. In determining the that was not a reportable transaction is
does not include a person who makes a amount of gross income a person identified as a listed transaction or a
tax statement solely in the person’s derives directly or indirectly for transaction of interest in published
capacity as an employee, shareholder, material aid, assistance, or advice, all guidance after the occurrence of the
partner or agent of another person. Any fees for a tax strategy or for services for events described in paragraph (b)(4)(i) of
tax statement made by that person will advice (whether or not tax advice) or for this section, the person will be treated
be attributed to that person’s employer, the implementation of a reportable as becoming a material advisor on the
corporation, partnership or principal. transaction are taken into account. Fees date the transaction is identified as a
However, a person shall be treated as a include consideration in whatever form listed transaction or a transaction of
material advisor if that person forms or paid, whether in cash or in kind, for interest.
avails of an entity with the purpose of services to analyze the transaction (5) Other persons designated as
avoiding the rules of section 6111 or (whether or not related to the tax material advisors. Published guidance
6112 or the penalties under section 6707 consequences of the transaction), for may identify other types or classes of
or 6708. services to implement the transaction, persons as material advisors.
(B) Post-filing advice. A person will for services to document the transaction, (c) Definitions. For purposes of this
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not be considered to be a material and for services to prepare tax returns section, the following definitions apply:
advisor with respect to a transaction if to the extent return preparation fees are (1) Reportable transaction. The term
that person does not make or provide a unreasonable in light of all of the facts reportable transaction is defined in
tax statement regarding the transaction and circumstances. A fee does not § 1.6011–4(b)(1) of this chapter.
until after the first tax return reflecting include amounts paid to a person, (2) Listed transaction. The term listed
tax benefit(s) of the transaction is filed including an advisor, in that person’s transaction is defined in § 1.6011–
with the IRS. However, this exception capacity as a party to the transaction. 4(b)(2) of this chapter. See also

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64500 Federal Register / Vol. 71, No. 212 / Thursday, November 2, 2006 / Proposed Rules

§§ 20.6011–4(a), 25.6011–4(a), 31.6011– transaction, and identify and describe designate by written agreement a single
4(a), 53.6011–4(a), 54.6011–4(a), or the transaction in sufficient detail for material advisor to disclose the
56.6011–4(a) of this chapter. the IRS to be able to understand the tax transaction. The transaction must be
(3) Derive. The term derive means structure of the reportable transaction disclosed by the last day of the month
receive or expect to receive. and the identity of the material following the end of the calendar
(4) Person. The term person means advisor(s). An incomplete form quarter that includes the earliest date on
any person described in section containing a statement that information which a material advisor who is a party
7701(a)(1), including an affiliated group will be provided upon request is not to the agreement became a material
of corporations that join in the filing of considered a complete disclosure advisor with respect to the transaction
a consolidated return under section statement. A material advisor may file a as described in paragraph (b)(4) of this
1501. single form for substantially similar section. The designation of one material
(5) Substantially similar. The term transactions. An amended form must be advisor to disclose the transaction does
substantially similar is defined in filed if information previously provided not relieve the other material advisors of
§ 1.6011–4(c)(4) of this chapter. is no longer accurate, if additional their obligation to disclose the
(6) Tax. The term tax means Federal information that was not disclosed transaction to the IRS in accordance
tax. becomes available, or if there are with this section, if the designated
(7) Tax benefit. A tax benefit includes material changes to the transaction. A material advisor fails to disclose the
deductions, exclusions from gross material advisor is not required to file transaction to the IRS in a timely
income, nonrecognition of gain, tax an additional form for each additional manner.
credits, adjustments (or the absence of taxpayer that enters into the same or (g) Protective disclosures. If a
adjustments) to the basis of property, substantially similar transaction. If the potential material advisor is uncertain
status as an entity exempt from Federal form is not completed in accordance whether a transaction must be disclosed
income taxation, and any other tax with the provisions in this paragraph (d) under this section, the advisor may
consequences that may reduce a and the instructions to the form, the disclose the transaction in accordance
taxpayer’s Federal tax liability by material advisor will not be considered with the requirements of this section
affecting the amount, timing, character, to have complied with the disclosure and comply with all the provisions of
or source of any item of income, gain, requirements of this section. this section, and indicate on the
expense, loss, or credit. (2) Reportable transaction number. disclosure statement that the disclosure
(8) Tax return. The term tax return The IRS will issue to a material advisor statement is being filed on a protective
means a Federal tax return and a a reportable transaction number with basis. The IRS will not treat disclosure
Federal information return. respect to the disclosed reportable statements filed on a protective basis
(9) Tax structure. The tax structure of transaction. Receipt of a reportable any differently than other disclosure
a transaction is any fact that may be transaction number does not indicate statements filed under this section. For
relevant to understanding the purported that the disclosure statement is a protective disclosure to be effective,
or claimed Federal tax treatment of the complete, nor does it indicate that the the advisor must comply with the
transaction. transaction has been reviewed, regulations under this section and
(10) Tax treatment. The tax treatment examined, or approved by the IRS. § 301.6112–1 by providing to the IRS all
of a transaction is the purported or Material advisors must provide the information requested by the IRS under
claimed Federal tax treatment of the reportable transaction number to all these sections.
transaction. taxpayers and material advisors to (h) [The text of the proposed
(11) Taxpayer. The term taxpayer is whom the material advisor makes or § 301.6111–3(h) is the same as the text
defined in § 1.6011–4(c)(1) of this provides tax statements. The reportable for § 301.6111–3T(h) published
chapter. transaction number must be provided at elsewhere in this issue of the Federal
(12) Tax result protection. The term the time the transaction is entered into, Register].
tax result protection includes insurance or, if the transaction is entered into (i) Effective date—(1) In general. In
company and other third party products prior to the material advisor receiving general, this section applies to
commonly described as tax result the reportable transaction number, transactions with respect to which a
insurance. within 60 calendar days from the date material advisor makes a tax statement
(13) Transaction of interest. The term the reportable transaction number is on or after the date these regulations are
transaction of interest is defined in mailed to the material advisor. published as final regulations in the
§ 1.6011–4(b)(6) of this chapter. See also (e) Time of providing disclosure. The Federal Register. However, upon the
§§ 20.6011–4(a), 25.6011–4(a), 31.6011– material advisor’s disclosure statement publication of final regulations, this
4(a), 53.6011–4(a), 54.6011–4(a), or for a reportable transaction must be filed section will apply to transactions of
56.6011–4(a) of this chapter. with the Office of Tax Shelter Analysis interest entered into on or after
(d) Form and content of material (OTSA) by the last day of the month that November 2, 2006 with respect to which
advisor’s disclosure statement—(1) In follows the end of the calendar quarter a material advisor makes a tax statement
general. A material advisor required to in which the advisor became a material under § 301.6111–3 on or after
file a disclosure statement under this advisor with respect to the reportable November 2, 2006.
section must file a completed Form transaction or in which the (2) [The text of the proposed
8918, ‘‘Material Advisor Disclosure circumstances necessitating an amended § 301.6111–3(i)(2) is the same as the text
Statement’’ (or successor form) in disclosure statement occur. The for § 301.6111–3T(i)(2) published
accordance with this paragraph (d) and disclosure statement must be sent to elsewhere in this issue of the Federal
mstockstill on PROD1PC61 with PROPOSALS

the instructions to the form. To be OTSA at the address provided in the Register].
considered complete, the information instructions for Form 8918 (or a
provided on the form must describe the successor form). Mark E. Matthews,
expected tax treatment and all potential (f) Designation agreements. If more Deputy Commissioner for Services and
tax benefits expected to result from the than one material advisor is required to Enforcement.
transaction, describe any tax result disclose a reportable transaction under [FR Doc. E6–18321 Filed 11–1–06; 8:45 am]
protection with respect to the this section, the material advisors may BILLING CODE 4830–01–P

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