[Federal Register Volume 65, Number 42 (Thursday, March 2, 2000)]
[Rules and Regulations]
[Pages 11215-11222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4844]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 301 and 602

[TD 8876]
RIN 1545-AX83


Corporate Tax Shelter Registration

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations requiring the 
registration of confidential corporate tax shelters pursuant to section 
6111(d) as amended by section 1028(a) of the Taxpayer Relief Act of 
1997 (the Act). The temporary regulations affect persons responsible 
for registering confidential corporate tax shelters. The text of these 
temporary regulations also serves as the text of the proposed 
regulations set forth in the notice of proposed rulemaking on this 
subject in REG-110311-98 published elsewhere in this issue of the 
Federal Register.

DATES: Effective date. These temporary regulations are effective 
February 28, 2000.
    Applicability date. For dates of applicability, see Sec. 301.6111-
2T(h) of these regulations.

FOR FURTHER INFORMATION CONTACT: Richard Castanon, (202) 622-3080, or 
Mary Beth Collins, (202) 622-3070; concerning international issues 
Rebecca Rosenberg, (202) 622-3870 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collections of information contained in these 
regulations have been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1687. Responses to these collections of information 
are mandatory.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid OMB control number.
    For further information concerning these collections of 
information, and where to submit comments on the collections of 
information and the accuracy of the estimated burden, and suggestions 
for reducing this burden, please refer to the preamble to the cross-
referencing notice of proposed rulemaking published in the Proposed 
Rules section of this issue of the Federal Register.
    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

    In enacting section 6111(d), Congress added confidential corporate 
tax shelters as a type of tax shelter that must be registered under 
section 6111. Congress intended the provision to improve tax compliance 
by giving the Treasury Department earlier notification of transactions 
that may not comport with Federal tax law and by discouraging taxpayers 
from entering into questionable transactions. See H.R. Rep. No. 148, 
105th Cong., 1st Sess. 469 (1997); S. Rep. No. 33, 105th Cong., 1st 
Sess. 148 (1997).
    Section 1028(e)(1) of the Act provides that the registration 
requirements of section 6111 and the penalty provisions of section 6707 
for failing to comply with the registration requirements apply to 
confidential corporate tax shelters in which interests are offered to 
potential participants after the IRS issues guidance on the 
registration requirements. These regulations provide the guidance 
necessary to activate the registration requirements of section 6111 and 
the penalty provisions of section 6707 for confidential corporate tax 
shelters.
    These temporary regulations relate to disclosure obligations for 
tax shelter organizers and promoters under section 6111. Although the 
terms of section 6111(d)(1)(A), which are part of the definition of a 
confidential corporate tax shelter, are similar to the definition of 
tax shelter under section 6662(d)(2)(C)(iii), these temporary 
regulations are not intended to define a tax shelter for purposes of 
section 6662, which relates to the imposition of penalties.

Explanation of Provisions

I. In General

    Under section 6111(d)(1) and the temporary regulations, a 
confidential corporate tax shelter is any entity, plan, arrangement, or 
transaction that satisfies the following three requirements: (1) A 
significant purpose of the structure of the transaction is the 
avoidance or evasion of Federal income tax for a direct or an indirect 
corporate participant; (2) the transaction is offered to any potential 
participant under conditions of confidentiality; and (3) the tax 
shelter promoters may receive fees in excess of $100,000 in the 
aggregate.

II. Significant Purpose of Tax Avoidance or Tax Evasion

    Under the temporary regulations, there are three categories of 
transactions for which the avoidance or evasion of Federal income tax 
is considered a significant purpose of the structure of the 
transaction.
    First, the avoidance or evasion of Federal income tax is considered 
a significant purpose of the structure of a transaction if the 
transaction is the same as or substantially similar to one of the 
specified types of transactions that the IRS has determined to be a tax 
avoidance transaction and identified by notice, regulation, or other 
form of published guidance as a listed transaction for purposes of 
section 6111.
    Second, the avoidance or evasion of Federal income tax is generally 
considered a significant purpose of the structure of a transaction if 
the present value of the participant's reasonably expected pre-tax 
profit (after taking into account foreign taxes as expenses and 
transaction costs) from the transaction is insignificant relative to 
the present value of the participant's expected net Federal income tax 
savings from the transaction. However, if the substance of the 
transaction is the borrowing of money or the acquisition of financial 
capital by a corporate participant, the transaction falls within this 
second category if the present value of the Federal income tax 
deductions of the taxpayer to whom the loan or financial capital is 
provided significantly exceeds the present value of the pre-tax return 
of the person providing the loan or financial capital.
    Third, the avoidance or evasion of Federal income tax is generally 
considered to be a significant purpose of the structure of a 
transaction if the transaction has been structured to produce Federal 
income tax benefits that constitute an important part of the intended 
results of the transaction and the tax shelter promoter (or other 
person

[[Page 11216]]

who would be responsible for registration under this section) 
reasonably expects the transaction to be presented (in the same or 
substantially similar form) to more than one potential participant. 
However, a transaction does not come within this third category if the 
promoter reasonably determines that the potential participant is 
expected to participate in the transaction in the ordinary course of 
its business in a form consistent with customary commercial practice, 
and the promoter reasonably determines that there is a long-standing 
and generally accepted understanding that the expected Federal income 
tax benefits from the transaction (taking into account any combination 
of intended tax consequences) are allowable under the Code for 
substantially similar transactions.
    Except for listed transactions, the avoidance or evasion of Federal 
income tax will not be considered a significant purpose of the 
structure of a transaction if the tax shelter promoter (or other person 
who would be responsible for registration under this section) 
reasonably determines that there is no reasonable basis under Federal 
tax law for denial of any significant portion of the expected Federal 
income tax benefits from the transaction.
    The IRS may make a determination, by published guidance, individual 
ruling, or otherwise, that a transaction is not required to be 
registered under the temporary regulations. If a tax shelter promoter 
(or other person who would be responsible for registration under this 
section) is uncertain whether a transaction is properly classified as a 
confidential corporate tax shelter or is otherwise uncertain whether 
registration is required under this section, that person may, on or 
before the date that registration would otherwise be required under 
this section, submit a request to the IRS for a ruling as to whether 
the transaction is subject to the registration requirements of this 
section. If the request fully discloses all relevant facts relating to 
the transaction, that person's potential obligation to register the 
transaction will be suspended during the period that the ruling request 
is pending and, if the Service subsequently concludes that the 
transaction is a confidential corporate tax shelter subject to 
registration under this section, until the sixtieth day after the 
issuance of the ruling (or, if the request is withdrawn, sixty days 
from the date that the request is withdrawn). In the alternative, that 
person may register the transaction in accordance with the requirements 
of this section and append a statement to the Form 8264, ``Application 
for Registration of a Tax Shelter,'' which states that the person is 
uncertain whether the transaction is required to be registered as a 
confidential corporate tax shelter, and that the Form 8264 is being 
filed on a protective basis.

III. Conditions of Confidentiality

    Section 6111(d)(2) describes when an offer is made under conditions 
of confidentiality. The determination of whether an offer is made under 
conditions of confidentiality is based on all the facts and 
circumstances surrounding the offer, including prior conduct of the 
parties. If an offeree's disclosure of the structure or tax aspects of 
the transaction is limited in any way by an express or implied 
understanding or agreement with or for the benefit of a tax shelter 
promoter, an offer is considered made under conditions of 
confidentiality, whether or not such understanding or agreement is 
legally binding. An offer will also be considered made under conditions 
of confidentiality in the absence of any such understanding or 
agreement if any tax shelter promoter knows or has reason to know the 
transaction is protected from disclosure or use in any other manner, 
such as where the transaction is claimed to be proprietary to the tax 
shelter promoter or any party other than the offeree. An offeree's 
privilege to maintain the confidentiality of a communication relating 
to a tax shelter in which the taxpayer might participate or has agreed 
to participate, including an offeree's confidential communication with 
the offeree's attorney, is not itself a condition of confidentiality.
    The temporary regulations provide that, unless facts and 
circumstances clearly indicate otherwise, an offer is not considered 
made under conditions of confidentiality if the tax shelter promoter 
enters into a written agreement with each person who participates or 
discusses participation in the transaction and such agreement expressly 
authorizes such persons to disclose every aspect of the transaction to 
any and all persons, without limitation of any kind.

IV. Fees

    The third requirement that must be satisfied for a transaction to 
be treated as a confidential corporate tax shelter is that the tax 
shelter promoters, whether or not related, may receive fees in excess 
of $100,000 in the aggregate. In determining whether the tax shelter 
promoters may receive fees in excess of $100,000, all the facts and 
circumstances surrounding the transaction are considered. For this 
purpose, all consideration that may be received by the tax shelter 
promoters is taken into account, including contingent fees, fees in the 
form of equity interests, and fees the promoters may receive for other 
transactions as consideration for promoting the tax shelter.
    For example, if a tax shelter promoter may receive a fee for 
arranging a transaction that is a confidential corporate tax shelter 
and/or a separate fee for another transaction that is not a 
confidential corporate tax shelter, part or all of the fee paid with 
respect to the other transaction may be treated as a fee paid with 
respect to the confidential corporate tax shelter if the facts and 
circumstances indicate that the fee paid for the other transaction is 
in consideration for the confidential corporate tax shelter. For 
purposes of determining whether the tax shelter promoters may receive 
fees in excess of $100,000, the fees from all substantially similar 
transactions are considered part of the same tax shelter and must be 
aggregated.

V. Registration Requirements

    To register a confidential corporate tax shelter, the person 
responsible for registering the tax shelter must file Form 8264, 
``Application for Registration of a Tax Shelter.'' (Form 8264 is also 
used to register tax shelters defined in section 6111(c).) The 
exemptions from the registration requirements contained in the 
instructions to the current Form 8264 apply only to tax shelters 
defined in section 6111(c). Form 8264 will be revised and will include 
specific requirements and instructions for registering confidential 
corporate tax shelters. Until that time, persons responsible for 
registering confidential corporate tax shelters should follow the 
registration procedures outlined in these regulations.
    The temporary regulations provide that the person registering a 
confidential corporate tax shelter must provide a detailed description 
of the tax shelter, including the structure of the tax shelter and the 
tax benefits. Any written materials presented in connection with an 
offer to participate in the shelter are required to be submitted with 
the registration form.
    Consistent with the registration requirements for tax shelters 
defined in section 6111(c), the temporary regulations provide that any 
transactions involving similar business assets or similar plans or 
arrangements that are offered to corporate taxpayers by the same person 
or by related persons are aggregated and treated as a single tax 
shelter. However, in contrast with the registration requirements

[[Page 11217]]

applicable to tax shelters defined in section 6111(c), the temporary 
regulations allow the tax shelter promoter to file a single Form 8264 
with respect to any such aggregated tax shelter, provided an amended 
Form 8264 is filed to reflect any material changes and to include any 
additional or revised written materials presented in connection with an 
offer to participate in the shelter. Furthermore, the temporary 
regulations require all transactions that are part of the same tax 
shelter and that are to be carried out by the same corporate 
participant (or one or more other members of the same affiliated group 
within the meaning of section 1504) to be registered on the same Form 
8264.
    The temporary regulations provide that in cases in which an 
attorney or federally authorized tax practitioner acts as a tax shelter 
promoter with respect to a client's participation in a confidential 
corporate tax shelter and believes that information which would 
otherwise be required to be disclosed on Form 8264 is protected by the 
common law attorney-client privilege or the confidentiality privilege 
under section 7525(a), such promoter may omit the information believed 
to be privileged from Form 8264 if the promoter attaches a statement to 
the Form 8264 as described in these temporary regulations.
    Section 6111(a)(1) requires a tax shelter to be registered not 
later than the day on which the first offering for sale of interests in 
such shelter occurs. Section 6111(d)(4) provides that an offer to 
participate in a confidential corporate tax shelter shall be treated as 
an offer for sale.
    Registration under these temporary regulations will be limited to 
confidential corporate tax shelters that are offered for sale after 
February 28, 2000. If interests in a confidential corporate tax shelter 
were first offered for sale on or before February 28, 2000, the first 
offer for sale of interests in the shelter that occurs after February 
28, 2000 shall be considered the first offer for sale under this 
section. The temporary regulations provide that the IRS will consider a 
registration as timely made for a confidential corporate tax shelter in 
which interests are offered for sale after February 28, 2000 if the 
confidential corporate tax shelter is registered no later than August 
29, 2000.
    If a transaction becomes a confidential corporate tax shelter 
(e.g., because of a change in the law or factual circumstances, or 
because the transaction becomes a listed transaction) subsequent to the 
first offering for sale after February 28, 2000, and the transaction 
was not previously required to be registered as a confidential 
corporate tax shelter under this section, the transaction must be 
registered under this section if interests are offered for sale after 
the transaction becomes a confidential corporate tax shelter. The 
transaction must be registered by the later of the next offering for 
sale of interests in the shelter or August 29, 2000. However, because 
transactions identified as listed transactions are generally considered 
to have been structured for a significant tax avoidance purpose, such 
transactions ordinarily will have been subject to registration under 
this section before becoming listed transactions.
    The temporary regulations provide that if an interest in a 
confidential corporate tax shelter is first offered for sale after 
February 28, 2000 and that shelter is also a tax shelter under section 
6111(c), the person responsible for registering the shelter may either 
(1) complete and file Form 8264, including the information required by 
these temporary regulations for confidential corporate tax shelters, 
not later than the day on which an interest in the shelter is first 
offered for sale after February 28, 2000, or (2) complete and file Form 
8264 for the section 6111(c) tax shelter not later than the day on 
which an interest in the tax shelter is first offered for sale under 
section 6111(a) and then file an amended Form 8264 with the information 
required by these temporary regulations not later than August 29, 2000.

VI. Tax Shelter Promoter and Person Required to Register

    The temporary regulations provide that the term ``tax shelter 
promoter'' as described in section 6111(d)(2) includes a tax shelter 
organizer under section 6111(e)(1) and Sec. 301.6111-1T(Q&A-26 through 
Q&A-32) and any other person who participates in the organization, 
management or sale of a tax shelter (other than a person who merely 
performs services of the kind described in Q&A-33 of Sec. 301.6111-1T) 
or any person related (within the meaning of section 267 or 707) to 
such tax shelter organizer or such other person.
    In addition to the registration rules in section 6111, the rules in 
Sec. 301.6111-1T(Q&A-34 through Q&A-39) apply for determining who must 
register a confidential corporate tax shelter.
    The temporary regulations specify that, if all of the tax shelter 
promoters of a confidential corporate tax shelter are foreign persons 
and none of such promoters registers the shelter, any person who 
discusses participation in the shelter must register the shelter under 
section 6111(a). Pursuant to the authority in section 6111(f)(4), under 
limited circumstances, the temporary regulations apply to foreign as 
well as United States persons. For example, a foreign corporation that 
participates in a tax shelter with a significant purpose of reducing 
its United States taxes would be required to register the tax shelter 
if there were no U.S. promoters and the other requirements of the 
temporary regulations were satisfied.
    Under the temporary regulations, if all the tax shelter promoters 
of a confidential corporate tax shelter are foreign persons, any person 
who discusses participation in the confidential corporate tax shelter 
with a tax shelter promoter must register the shelter within 90 days of 
beginning such discussions unless one or more of the following occurs: 
(1) the person does not participate in the shelter and notifies the 
promoter in writing, within the 90-day period, that the person will not 
participate; or (2) within the 90-day period, the person obtains and 
reasonably relies on both a written statement from one of the tax 
shelter promoters that such promoter has registered the tax shelter 
under this section and a copy of the registration.
    To prevent avoidance of the purposes of section 6111(d)(3), the 
temporary regulations treat any person that participates in a shelter 
as having discussed that participation. Such discussion will be treated 
as occurring on the date of the agreement to participate or, if 
earlier, any other date the person is treated as having discussed 
participation under any other provision of these regulations. Thus, the 
participant is treated as having discussed participation in the shelter 
even if the agreement to participate is made without direct discussions 
by the participant. This might occur, for example, if participation is 
agreed to through an intermediary acting on the participant's behalf.
    The temporary regulations also state that a person (first person) 
will be treated as participating indirectly in (and therefore as 
discussing) a tax shelter if a foreign person in which the first person 
has at least a 10 percent interest participates in the shelter with a 
significant purpose of avoiding or evading the first person's Federal 
income tax. For example, if a foreign corporation participates in a 
confidential corporate tax shelter with a significant purpose of 
reducing its 10 percent corporate shareholder's Federal income taxes, 
the temporary regulations would require the shareholder to register the 
tax shelter if all promoters are foreign.

[[Page 11218]]

    For purposes of the registration requirements under section 
6111(d)(3), it is presumed that the tax shelter promoters may receive 
fees in excess of $100,000 in the aggregate unless the person who would 
be responsible for registering the tax shelter can show otherwise.

VII. Investor List Requirement of Section 6112

    Any person who organizes or sells an interest in a confidential 
corporate tax shelter must maintain a list of persons who were sold an 
interest in the tax shelter and such other information as required by 
section 6112. See Sec. 301.6112-1T. Amendments to the temporary 
regulations under section 6112 have been published concurrently with 
the temporary regulations under section 6111(d). Among other things, 
the amended temporary regulations under section 6112 require lists to 
be maintained with respect to transactions for which the avoidance or 
evasion of Federal income tax is considered to be a significant purpose 
of the structure of the transaction, as determined in these temporary 
regulations under section 6111(d)(1)(A), whether or not the 
transactions are offered under conditions of confidentiality.

VIII. Effective Date

    The regulations apply to confidential corporate tax shelters in 
which any interests are offered for sale after February 28, 2000.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also 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 the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based upon the fact that the persons 
responsible for promoting and registering the transactions described in 
these regulations are principally large publicly traded corporations, 
and the burden is not significant as described earlier in the preamble. 
Therefore, a Regulatory Flexibility Analysis under the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to 
section 7805(f) of the Internal Revenue Code, these temporary 
regulations will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on their impact on small 
business.

Drafting Information

    The principal authors of these regulations are Mary Beth Collins 
and Richard Castanon, Office of Chief Counsel (Passthroughs and Special 
Industries) and Rebecca Rosenberg, Office of Chief Counsel 
(International). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 301 and 602 are amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 is amended by 
adding an entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 301.6111-2T also issued under 26 U.S.C. 6111(f)(4). * * *

    Par. 2. Section 301.6111-2T is added to read as follows:


Sec. 301.6111-2T  Confidential corporate tax shelters (Temporary).

    (a) In general--(1) Under section 6111(d) and this section, a 
confidential corporate tax shelter is treated as a tax shelter subject 
to the requirements of sections 6111(a) and (b).
    (2) A confidential corporate tax shelter is any transaction--
    (i) A significant purpose of the structure of which is the 
avoidance or evasion of Federal income tax, as described in paragraph 
(b) of this section, for a direct or indirect corporate participant;
    (ii) That is offered to any potential participant under conditions 
of confidentiality, as described in paragraph (c) of this section; and
    (iii) For which the tax shelter promoters may receive fees in 
excess of $100,000 in the aggregate, as described in paragraph (d) of 
this section.
    (3) For purposes of this section, references to the term 
transaction include all of the factual elements necessary to support 
the tax benefits that are expected to be claimed with respect to any 
entity, plan, or arrangement, including any series of related steps 
carried out as part of a prearranged plan.
    (4) A transaction described in paragraph (b) of this section is for 
a direct or an indirect corporate participant if it is expected to 
provide Federal income tax benefits to any corporation (U.S. or 
foreign) whether or not that corporation participates directly in the 
transaction.
    (b) Transactions structured for avoidance or evasion of Federal 
income tax--(1) In general. The avoidance or evasion of Federal income 
tax will be considered a significant purpose of the structure of a 
transaction if the transaction is described in paragraph (b)(2), (3), 
or (4) of this section. However, a transaction described in paragraph 
(b)(3) or (4) of this section need not be registered if the transaction 
is described in paragraph (b)(5) of this section. For purposes of this 
section, Federal income tax benefits include deductions, exclusions 
from gross income, nonrecognition of gain, tax credits, adjustments (or 
the absence of adjustments) to the basis of property, and any other tax 
consequences that may reduce a taxpayer's Federal income tax liability 
by affecting the timing, character, or source of any item of income, 
gain, deduction, loss, or credit.
    (2) Listed transactions. A transaction is described in this 
paragraph (b)(2) if the transaction is the same as or substantially 
similar to one of the types of transactions that the Internal Revenue 
Service (IRS) has determined to be a tax avoidance transaction and 
identified by notice, regulation, or other form of published guidance 
as a listed transaction for purposes of section 6111. If a transaction 
becomes a listed transaction after the date on which registration would 
otherwise be required under this section, and if the transaction 
otherwise satisfies the confidentiality and fee requirements of 
paragraphs (a)(2)(ii) and (iii) of this section, registration shall in 
all events be required with respect to any interests in the transaction 
that are offered for sale after the transaction becomes a listed 
transaction. However, because a transaction identified as a listed 
transaction is generally considered to have been structured for a 
significant tax avoidance purpose, such a transaction ordinarily will 
have been subject to registration under this section before becoming a 
listed transaction if the transaction previously satisfied the 
confidentiality and fee requirements of

[[Page 11219]]

paragraphs (a)(2)(ii) and (iii) of this section.
    (3) Transactions lacking economic substance--(i) Except as provided 
in paragraph (b)(3)(ii) of this section, a transaction is described in 
this paragraph (b)(3) if the present value of the participant's 
reasonably expected pre-tax profit (after taking into account foreign 
taxes as expenses and transaction costs) from the transaction is 
insignificant relative to the present value of the participant's 
expected net Federal income tax savings from the transaction.
    (ii) If the substance of the transaction is the borrowing of money 
or the acquisition of financial capital by a corporate participant, the 
transaction is described in this paragraph (b)(3) only if the present 
value of the Federal income tax deductions of the taxpayer to whom the 
loan or financial capital is provided significantly exceeds the present 
value of the pre-tax return of the person providing the loan or 
financial capital.
    (4) Other tax-structured transactions. A transaction is described 
in this paragraph (b)(4) if it has been structured to produce Federal 
income tax benefits that constitute an important part of the intended 
results of the transaction and the tax shelter promoter (or other 
person who would be responsible for registration under this section) 
reasonably expects the transaction to be presented in the same or 
substantially similar form to more than one potential participant, 
unless the promoter reasonably determines that--
    (i) The potential participant is expected to participate in the 
transaction in the ordinary course of its business (including 
transactions described in Sec. 1.6011-4T(b)(3)(iii)) in a form 
consistent with customary commercial practice; and
    (ii) There is a long-standing and generally accepted understanding 
that the expected Federal income tax benefits from the transaction 
(taking into account any combination of intended tax consequences) are 
allowable under the Internal Revenue Code for substantially similar 
transactions.
    (5) Excepted transactions. The avoidance or evasion of Federal 
income tax will not be considered a significant purpose of the 
structure of a transaction if the transaction is described in either 
paragraph (b)(5)(i) or (ii) of this section.
    (i) In the case of a transaction other than a transaction described 
in paragraph (b)(2) of this section, the tax shelter promoter (or other 
person who would be responsible for registration under this section) 
reasonably determines that there is no reasonable basis under Federal 
tax law for denial of any significant portion of the expected Federal 
income tax benefits from the transaction. Such a determination must 
take into account the entirety of the transaction and any combination 
of tax consequences that are expected to result from any component 
steps of the transaction, must not be based on any unreasonable or 
unrealistic factual assumptions, and must take into account all 
relevant aspects of Federal tax law, including the statute and 
legislative history, treaties, authoritative administrative guidance, 
and judicial decisions that establish principles of general application 
in the tax law (e.g., Gregory v. Helvering, 293 U.S. 465 (1935)).
    (ii) The IRS makes a determination, by published guidance, 
individual ruling under paragraph (b)(6) of this section, or otherwise, 
that the transaction is not subject to the registration requirements of 
this section.
    (6) Requests for ruling. If a tax shelter promoter (or other person 
who would be responsible for registration under this section) is 
uncertain whether a transaction is properly classified as a 
confidential corporate tax shelter or is otherwise uncertain whether 
registration is required under this section, that person may, on or 
before the date that registration would otherwise be required under 
this section, submit a request to the IRS for a ruling as to whether 
the transaction is subject to the registration requirements of this 
section. If the request fully discloses all relevant facts relating to 
the transaction, that person's potential obligation to register the 
transaction will be suspended during the period that the ruling request 
is pending and, if the IRS subsequently concludes that the transaction 
is a confidential corporate tax shelter subject to registration under 
this section, until the sixtieth day after the issuance of the ruling 
(or, if the request is withdrawn, sixty days from the date that the 
request is withdrawn). In the alternative, that person may register the 
transaction in accordance with the requirements of this section and 
append a statement to the Form 8264, ``Application for Registration of 
a Tax Shelter,'' which states that the person is uncertain whether the 
transaction is required to be registered as a confidential corporate 
tax shelter, and that the Form 8264 is being filed on a protective 
basis.
    (7) Examples. The following examples illustrate the application of 
paragraphs (b)(1) through (b)(5) of this section. Assume, for purposes 
of these examples, that the transactions are not the same as or 
substantially similar to any of the types of transactions that the IRS 
has identified as listed transactions for purposes of section 6111 and 
thus are not described in paragraph (b)(2) of this section. The 
examples are as follows:

    Example 1--(i) Facts. Promoter organizes a transaction between 
X, a U.S. corporation, and FC, a foreign entity that is not subject 
to Federal income tax. FC contributes cash to PRS, a partnership, in 
exchange for a 99 percent partnership interest in PRS. Promoter is 
initially the only other partner in PRS. FC will receive a market 
rate of return on its cash contribution and a fee for participating 
in the transaction. PRS purchases personal property and then leases 
it. PRS sells its right to the lease payments in exchange for cash. 
PRS allocates 99 percent of the income from the sale to FC and one 
percent to Promoter. PRS retains the leased property. Shortly after 
PRS's sale of the lease payments, X buys FC's 99 percent partnership 
interest in PRS. The depreciation deductions on the leased property 
are then allocated 99 percent to X and one percent to Promoter.
    (ii) Analysis. The transaction is described in paragraph 
(b)(3)(i) of this section because the present value of X's 
reasonably expected pre-tax profit from the transaction is 
insignificant relative to the present value of X's expected net 
Federal income tax savings from the transaction. Therefore, unless 
Promoter can reasonably determine that the IRS would have no 
reasonable basis for denial of any significant portion of the 
Federal income tax benefits intended for X, the transaction is 
described in paragraph (b)(1) of this section.

    Example 2--(i) Facts. Y has designed a combination of financial 
instruments to be issued as a package by corporations. The financial 
instruments are expected to be treated as equity for financial 
accounting purposes and as debt giving rise to allowable interest 
deductions for Federal income tax purposes. Y reasonably expects to 
present this method of raising capital to more than one potential 
corporate participant. Assume the transaction is not described in 
paragraph (b)(3) of this section. Assume that, because of the 
unusual nature of the combination of financial instruments, Y cannot 
conclude either that the transaction represented by the financial 
instruments is in customary commercial form or that there is a long-
standing and generally accepted understanding that interest 
deductions are available to issuers of substantially similar 
combinations of financial instruments. Further, assume that Y cannot 
reasonably determine that the IRS would have no reasonable basis to 
deny the deductions.
    (ii) Analysis. The transaction represented by this combination 
of financial instruments is a transaction described in paragraph 
(b)(4) of this section. However, if Y is uncertain whether this 
transaction is described in paragraph (b)(4) of this section, or is 
otherwise uncertain whether registration is required, Y may apply 
for a ruling under paragraph (b)(6) of this section, and the 
transaction will not be required to be registered while the ruling 
is pending or for sixty days thereafter.


[[Page 11220]]


    (c) Conditions of confidentiality--(1) In general. All the facts 
and circumstances relating to the transaction will be considered when 
determining whether an offer is made under conditions of 
confidentiality as described in section 6111(d)(2), including prior 
conduct of the parties. Pursuant to section 6111(d)(2)(A), if an 
offeree's disclosure of the structure or tax aspects of the transaction 
is limited in any way by an express or implied understanding or 
agreement with or for the benefit of any tax shelter promoter, an offer 
is considered made under conditions of confidentiality, whether or not 
such understanding or agreement is legally binding. Pursuant to section 
6111(d)(2)(B), an offer will also be considered made under conditions 
of confidentiality in the absence of any such understanding or 
agreement if any tax shelter promoter knows or has reason to know that 
the transaction is protected from disclosure or use in any other 
manner, such as where the transaction is claimed to be proprietary to 
the tax shelter promoter or any party other than the offeree. An 
offeree's privilege to maintain the confidentiality of a communication 
relating to a tax shelter in which the taxpayer might participate or 
has agreed to participate, including an offeree's confidential 
communication with the offeree's attorney, is not itself a condition of 
confidentiality.
    (2) Presumption. Unless facts and circumstances clearly indicate 
otherwise, an offer is not considered made under conditions of 
confidentiality if the tax shelter promoter enters into a written 
agreement with each person who participates or discusses participation 
in the transaction and such agreement expressly authorizes such persons 
to disclose every aspect of the transaction with any and all persons, 
without limitation of any kind.
    (d) Determination of fees. All the facts and circumstances relating 
to the transaction will be considered when determining the amount of 
fees, in the aggregate, that the tax shelter promoters may receive. For 
purposes of this paragraph (d), all consideration that tax shelter 
promoters may receive is taken into account, including contingent fees, 
fees in the form of equity interests, and fees the promoters may 
receive for other transactions as consideration for promoting the tax 
shelter. For example, if a tax shelter promoter may receive a fee for 
arranging a transaction that is a confidential corporate tax shelter 
and a separate fee for another transaction that is not a confidential 
corporate tax shelter, part or all of the fee paid with respect to the 
other transaction may be treated as a fee paid with respect to the 
confidential corporate tax shelter if the facts and circumstances 
indicate that the fee paid for the other transaction is in 
consideration for the confidential corporate tax shelter. For purposes 
of determining whether the tax shelter promoters may receive fees in 
excess of $100,000, the fees from all substantially similar 
transactions are considered part of the same tax shelter and must be 
aggregated.
    (e) Registration--(1) Time for registering--(i) In general. A tax 
shelter must be registered not later than the day on which the first 
offering for sale of interests in the shelter occurs. An offer to 
participate in a confidential corporate tax shelter shall be treated as 
an offer for sale. If interests in a confidential corporate tax shelter 
were first offered for sale on or before February 28, 2000, the first 
offer for sale of interests in the shelter that occurs after February 
28, 2000 shall be considered the first offer for sale under this 
section.
    (ii) Certain registrations deemed timely--(A) In general. The IRS 
will consider a registration as timely made for a confidential 
corporate tax shelter in which interests are offered for sale after 
February 28, 2000, if the tax shelter is registered no later than 
August 29, 2000. If an interest in a confidential corporate tax shelter 
is first offered for sale after February 28, 2000 and the tax shelter 
also constitutes a tax shelter under section 6111(c), the persons 
responsible for registering the tax shelter may either complete and 
file Form 8264, ``Application for Registration of a Tax Shelter'', 
including the information required by paragraph (e)(2) of this section, 
not later than the day on which an interest in the tax shelter is first 
offered for sale after February 28, 2000, or complete and file Form 
8264, ``Application for Registration of a Tax Shelter'', for the 
section 6111(c) tax shelter not later than the day on which an interest 
in the tax shelter is first offered for sale under section 6111(a) and 
then file an amended Form 8264 with the information required by 
paragraph (e)(2) of this section not later than August 29, 2000.
    (B) Special rule. If a transaction becomes a confidential corporate 
tax shelter (e.g., because of a change in the law or factual 
circumstances, or because the transaction becomes a listed transaction) 
subsequent to the first offering for sale after February 28, 2000, and 
the transaction was not previously required to be registered as a 
confidential corporate tax shelter under this section, the transaction 
must be registered under this section if interests are offered for sale 
after the transaction becomes a confidential corporate tax shelter. The 
transaction must be registered by the later of the next offering for 
sale of interests in the shelter or August 29, 2000.
    (2) Procedures for registering--(i) In general. To register a 
confidential corporate tax shelter, the person responsible for 
registering the tax shelter must file Form 8264, ``Application for 
Registration of a Tax Shelter''. (Form 8264 is also used to register 
tax shelters defined in section 6111(c).) The exemptions from the 
registration requirements contained in the instructions to the current 
Form 8264 apply only to tax shelters defined in section 6111(c). 
Similar to the treatment provided under Q&A-22 and Q&A-48 of 
Sec. 301.6111-1T, transactions involving similar business assets and 
similar plans or arrangements that are offered to corporate taxpayers 
by the same person or related persons are aggregated and considered 
part of a single tax shelter. However, in contrast with the requirement 
of Q&A-48 of Sec. 301.6111-1T, the tax shelter promoter may file a 
single Form 8264 with respect to any such aggregated tax shelter, 
provided an amended Form 8264 is filed to reflect any material changes 
and to include any additional or revised written materials presented in 
connection with an offer to participate in the shelter. Furthermore, 
all transactions that are part of the same tax shelter and that are to 
be carried out by the same corporate participant (or one or more other 
members of the same affiliated group within the meaning of section 
1504) must be registered on the same Form 8264.
    (ii) Interim registration procedure. Until Form 8264 and its 
instructions are revised to incorporate the provisions of this 
paragraph (e)(2)(ii), the person responsible for registering a 
confidential corporate tax shelter must--
    (A) Type or legibly print ``Confidential Corporate Tax
    Shelter Filed Under Sec. 301.6111-2T'' at the top of Form 8264 
(Rev. 11-99), ``Application for Registration of a Tax Shelter'';
    (B) Complete Part I and lines 1a, 2, 3, 4, 6, and 12 in Part II of 
Form 8264;
    (C) In the section titled ``Explanation of Items'' on Form 8264, 
provide a detailed description of the tax shelter, including a 
description of the structure of the tax shelter and the intended tax 
benefits;
    (D) Attach any written materials that are presented to potential 
participants in connection with the offering of sales of interests in 
the tax shelter, including

[[Page 11221]]

any analyses or opinions relating to the intended tax benefits of the 
shelter; and
    (E) Sign the Form 8264 and send it to the Internal Revenue Service 
Center, Kansas City, MO 64999.
    (iii) Use of subsequent versions of Form 8264. If a person who is 
required to register a confidential corporate tax shelter under section 
6111 uses a subsequent version of the Form 8264, the person must 
complete the appropriate parts of the revised form and follow the 
applicable instructions.
    (iv) Tax shelters that constitute both section 6111(c) and section 
6111(d) tax shelters. If a person is registering an arrangement that is 
both a confidential corporate tax shelter and a section 6111(c) tax 
shelter, the person must follow the requirements of this section and 
the instructions for Form 8264. In such a situation, the taxpayer must 
complete the entire form because the tax shelter is a section 6111(c) 
tax shelter and, if using Form 8264 (Rev. 11-99), type or legibly print 
``Confidential Corporate Tax Shelter filed under Sec. 301.6111-2T'' at 
the top of Form 8264 and include the information required in paragraphs 
(e)(2)(ii)(C) and (D) of this section because the tax shelter is also a 
confidential corporate tax shelter. If an arrangement is both a section 
6111(c) tax shelter and a confidential corporate tax shelter and is a 
transaction described in the ``Exemptions from Registration'' section 
of the instructions for Form 8264 (Rev. 11-99), the person registering 
the arrangement must comply with the requirements of this section to 
register the arrangement as a confidential corporate tax shelter.
    (3) Claims of privilege. (i) In any case in which an attorney or 
federally authorized tax practitioner within the meaning of section 
7525 is the person required to register a confidential corporate tax 
shelter, and that person believes that information required to be 
disclosed under paragraph (e)(2) of this section is protected by the 
attorney-client privilege or by the confidentiality privilege of 
section 7525(a), any information omitted from the Form 8264 on the 
basis of such a claim must be supported by a statement attached to Form 
8264 which satisfies the requirements set forth in paragraph (e)(3)(ii) 
of this section.
    (ii) A statement supporting a claim of privilege must be signed by 
the attorney or federally authorized tax practitioner under penalties 
of perjury, must identify each document or category of information for 
which a claim of privilege is made, and must include the following 
representations with respect to each document or category of 
information for which the privilege is claimed--
    (A) Specifically represent that the information was a confidential 
practitioner-client communication and, in the case of information which 
a federally authorized tax practitioner claims is privileged under 
section 7525, that the omitted information was not part of tax advice 
that constituted the promotion of a tax shelter within the meaning of 
section 7525(b);
    (B) Specifically represent that the person required to register 
(and, to the best of such person's knowledge and belief, all others in 
possession of the omitted information) did not disclose the omitted 
information to any person whose receipt of such information would 
result in a waiver of the privilege.
    (f) Definition of tax shelter promoter. For purposes of section 
6111(d)(2) and this section, the term ``tax shelter promoter'' includes 
a tax shelter organizer as defined in section 6111(e)(1) and 
Sec. 301.6111-1T(Q&A-26 through Q&A-32) and any other person who 
participates in the organization, management or sale of a tax shelter 
(other than a person who merely performs services of the kind described 
in Q&A-33 of Sec. 301.6111-1T) or any person related (within the 
meaning of section 267 or 707) to such tax shelter organizer or such 
other person. Any person that satisfies this requirement must comply 
with the requirements under section 6112.
    (g) Person required to register--(1) Tax shelter promoters. In 
addition to the rules in section 6111, taxpayers must use the rules of 
Sec. 301.6111-1T (Q&A-34 through Q&A-39) in determining the 
circumstances under which a tax shelter promoter must register a 
confidential corporate tax shelter described in section 6111(d).
    (2) Persons who discuss the transaction; all promoters are foreign 
persons--(i) In general. If all of the tax shelter promoters of a 
confidential corporate tax shelter are foreign persons, any person who 
discusses participation in the transaction must register the shelter 
under this section within 90 days after beginning such discussions.
    (ii) Exceptions. Registration by a person discussing participation 
in a transaction is not required if either--
    (A) The person does not participate, directly or indirectly, in the 
shelter and notifies the tax shelter promoter in writing, within 90 
days of beginning such discussions, that the person will not 
participate; or
    (B) Within 90 days after beginning such discussions, the person 
obtains and reasonably relies on both--
    (1) A written statement from one of the tax shelter promoters that 
such promoter has registered the tax shelter under this section; and
    (2) A copy of the registration.
    (iii) Determination of foreign status. For purposes of this 
paragraph (g)(2), a person must presume that all tax shelter promoters 
are foreign persons unless the person either--
    (A) Discusses participation in the tax shelter with a promoter that 
is a United States person; or
    (B) Obtains and reasonably relies on a written statement from one 
of the promoters that at least one of the promoters is a United States 
person.
    (iv) Discussion. Discussing participation in a transaction includes 
discussing such participation with any person that conveys the tax 
shelter promoter's proposal. For purposes of this paragraph (g)(2), any 
person that participates directly or indirectly in a transaction will 
be treated as having discussed participation in the transaction not 
later than the date of the agreement to participate. Thus, a tax 
shelter participant will be treated as having discussed participation 
in the transaction even if all discussions were conducted by an 
intermediary and the agreement to participate was made indirectly 
through another person acting on the participant's behalf (for example, 
through an intermediary empowered to commit the participant to 
participate in the shelter).
    (v) Special rule for controlled entities. A person (first person) 
will be treated as participating indirectly in a confidential corporate 
tax shelter if a foreign person controlled by the first person 
participates in the shelter, and a significant purpose of the shelter 
is the avoidance or evasion of the first person's Federal income tax. 
For purposes of this paragraph (g)(2)(v), control of a foreign 
corporation or partnership will be determined under the rules of 
section 6038(e)(2) and (3), except that such section shall be applied 
by substituting ``10'' for ``50'' each place it appears and ``at 
least'' for ``more than'' each place it appears. In addition, section 
6038(e)(2) shall be applied for these purposes without regard to the 
constructive ownership rules of section 318 and by treating stock as 
owned if it is owned directly or indirectly. Section 6038(e)(3) shall 
be applied for these purposes without regard to the last sentence of 
section 6038(e)(3)(B). Any beneficiary with a 10 percent or more 
interest in a foreign trust or estate shall be treated as controlling 
that trust or estate for purposes of this paragraph (g)(2)(v).

[[Page 11222]]

    (vi) Other rules--(A) For purposes of the registration requirements 
under section 6111(d)(3), it is presumed that the tax shelter promoters 
will receive fees in excess of $100,000 in the aggregate unless the 
person responsible for registering the tax shelter can show otherwise.
    (B) Any person treated as a tax shelter promoter under section 
6111(d) solely by reason of being related (within the meaning of 
section 267 or 707) to a foreign promoter will be treated as a foreign 
promoter for purposes of this paragraph (g)(2).
    (h) Effective date. This section applies to confidential corporate 
tax shelters in which any interests are offered for sale after February 
28, 2000. If an interest is sold after February 28, 2000, it is treated 
as offered for sale after February 28, 2000 unless the sale was 
pursuant to a written binding contract entered into on or before 
February 28, 2000.

    Par. 3. In Sec. 602.101, paragraph (b) is amended by adding an 
entry for Sec. 301.6111-2T to read as follows:


Sec. 602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
 
                  *        *        *        *        *
301.6111-2T................................................    1545-0865
                                                               1545-1687
 
                  *        *        *        *        *
------------------------------------------------------------------------


Charles O. Rossotti,
Commissioner of Internal Revenue.
    Approved: February 23, 2000.
Jonathan Talisman,
Acting Assistant Secretary of the Treasury.
[FR Doc. 00-4844 Filed 2-28-00; 8:45 am]
BILLING CODE 4830-01-P