[Federal Register Volume 65, Number 42 (Thursday, March 2, 2000)]
[Rules and Regulations]
[Pages 11211-11215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4846]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 301 and 602

[TD 8875]
RIN 1545-AX80


Requirements To Maintain List of Investors in Potentially Abusive 
Tax Shelters

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations requiring the 
maintenance of lists of investors in potentially abusive tax shelters 
described in section 6112. The temporary regulations affect organizers 
of potentially abusive 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-
103736-00 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 A-22 of 
Sec. 301.6112-1T of these regulations.

FOR FURTHER INFORMATION CONTACT: Richard Castanon, (202) 622-3080, or 
Mary Beth Collins, (202) 622-3070, (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 1545-1686. 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

    This document amends 26 CFR part 301 regarding the requirement to 
maintain lists of investors in potentially abusive tax shelters under 
section 6112. Section 6708 provides penalties for failing to maintain 
the investor list under section 6112.
    The temporary regulations have been drafted in question and answer 
format. No inference should be drawn regarding issues not raised or 
because certain questions and not others are included. The temporary 
regulations contained in this document will remain in effect until 
additional temporary or final regulations are published in the Federal 
Register.

Explanation of Provisions

I. Potentially Abusive Tax Shelter

    Section 6112 provides that any person who organizes or sells any 
interest in a potentially abusive tax shelter must maintain a list 
identifying each person who was sold an interest in such shelter. A 
potentially abusive tax shelter under section 6112 includes any 
investment that is required to be registered with the IRS as a tax 
shelter under section 6111, and any other entity, plan, or arrangement, 
if specified in regulations, that has a potential for tax avoidance or 
evasion. Any person who is required to maintain a list under section 
6112 must make the list available for inspection upon request by the 
Secretary of the Treasury, and generally must retain any information 
required to be included on the list for seven years. References in 
these regulations 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.
    Section 6112 authorizes the Secretary of the Treasury to specify in 
regulations transactions other than those subject to registration under 
section 6111 that have a potential for tax avoidance or evasion. The 
conference report accompanying section 6112 explains that ``in 
designating these other arrangements, the Secretary may, for example, 
specifically identify types of investments, or may provide that any 
investment falling within a modified form of the definition of tax 
shelter for registration purposes is subject to the listing 
requirement.'' H.R. Conf. Rep. No. 861, 98th Cong., 2d Sess. 982 
(1984).
    Concurrent with the addition of these amendments to the temporary 
regulations under section 6112, the Service has issued temporary and 
proposed regulations under section 6111(d) relating to the registration 
of confidential corporate tax shelters. These regulations under section 
6112 follow a modified form of the definition of a confidential 
corporate tax shelter under section 6111(d)(1) for purposes of defining 
the potentially abusive tax shelters that are subject to the list 
requirement under section 6112. Under the modified definition, as under 
section 6111(d)(1)(A), the term ``potentially abusive tax shelter'' 
includes a transaction for which a significant purpose of the structure 
of the transaction is the avoidance or evasion of Federal income tax. 
The rules set forth in the temporary regulations under section 6111(d) 
are applicable in determining whether a significant purpose of the 
structure of a transaction

[[Page 11212]]

is the avoidance or evasion of Federal income tax.
    For purposes of section 6112, the definition of tax shelter under 
section 6111(d)(1) has been modified in two respects: (1) The 
limitation of section 6111(d)(1)(B) to transactions offered to any 
potential participant under conditions of confidentiality does not 
apply for purposes of section 6112; and (2) the limitation of section 
6111(d)(1)(C) to transactions in which the promoters may receive fees 
in excess of $100,000 does not apply for purposes of section 6112. 
Therefore, certain categories of transactions that are not subject to 
registration under section 6111 may be subject to the list requirement 
of section 6112, including any non-confidential transactions offered 
directly or indirectly to corporate participants a significant purpose 
of the structure of which is the avoidance or evasion of Federal income 
tax within the meaning of section 6111(d) and the regulations 
thereunder.
    Section 301.6111-2T provides a procedure for obtaining rulings as 
to whether a transaction is subject to registration under 
Sec. 301.6111-2T. The same procedure shall be available to a person who 
is uncertain whether a transaction constitutes a potentially abusive 
tax shelter for which a list must be maintained under section 6112, and 
the requirement to maintain a list available for inspection by the 
Secretary shall be suspended during the period that such ruling request 
is pending and for sixty days thereafter.

II. Organizer Also Includes Promoter

    The regulations provide that for purposes of the list requirement, 
an organizer includes a promoter as defined in section 6111(d)(2), as 
well as any person designated as an organizer under the existing 
temporary regulations. A promoter is any person who participates in the 
organization, management, or sale of the tax shelter or any related 
person (within the meaning of section 267 or 707).

III. Information To Be Included on List

    Section 6112 authorizes the Secretary of the Treasury to specify 
the information that organizers and sellers of interests in potentially 
abusive tax shelters are required to include as part of the lists of 
persons who were sold interests in the tax shelters. The temporary 
regulations modify the information that must be included as part of the 
lists and made available for inspection by the IRS. The regulations 
provide that in addition to the information currently required under A-
17 of Sec. 301.6112-1T, each list must include (1) a detailed 
description of the tax shelter that describes both the structure of the 
tax shelter and the intended tax benefits for participants in the tax 
shelter, (2) the amount of money invested or to be invested by each 
person who is required to be included on the list, (3) a summary or 
schedule of the tax benefits that each such person is intended or 
expected to derive from participation in the tax shelter, if known by 
the organizer or seller, and (4) copies of any additional written 
materials, including tax analyses and opinions, relating to the tax 
shelter that have been given to any potential participant in the tax 
shelter or to any representatives, tax advisors, or agents of potential 
participants by the organizer or seller or by any other person who has 
participated in the offering of the tax shelter (excluding any written 
materials that the organizer or seller has never possessed).
    Generally, a separate list must be maintained for each potentially 
abusive tax shelter. Moreover, the temporary regulations provide that 
interests in substantially similar tax shelter transactions that are 
sold to different persons generally are to be treated as interests in 
the same tax shelter for purposes of section 6112. To ensure that the 
IRS is able to identify all of the tax shelters that have been offered 
by an organizer or seller and that are structured in a similar manner, 
the regulations further provide that the list for each tax shelter must 
identify each other tax shelter (if any) that the organizer or seller 
has offered that has not been treated as part of the same tax shelter, 
but that utilizes a similar structure or is intended to produce similar 
tax benefits.
    It is recognized that, in the absence of a limitation on the 
disclosure obligation under section 6112, there could be situations in 
which section 6112 and the temporary regulations would require an 
organizer or a seller of a potentially abusive tax shelter to disclose 
information that is otherwise protected by the common law attorney-
client privilege or by the privilege for confidential tax advice under 
section 7525(a). The temporary regulations provide that, in any case in 
which an organizer or a seller of a potentially abusive tax shelter 
believes that information required to be maintained as part of the list 
for that tax shelter is protected by the attorney-client privilege or 
constitutes confidential tax advice protected under section 7525(a), 
such information may be withheld from disclosure to the Service, 
provided that the organizer or seller provides the Service with a 
statement signed under penalties of perjury with information and 
representations required in that statement that are the same as those 
required by the regulations under section 6111(d) if the promoter of a 
confidential corporate tax shelter asserts that information required to 
be included with Form 8264, ``Application for Registration of a Tax 
Shelter,'' is privileged.

IV. Effective Date

    An organizer or a seller must maintain a list with respect to any 
interest acquired by an investor in a potentially abusive tax shelter 
after February 28, 2000. If a transaction becomes a potentially abusive 
tax shelter after interests are acquired by investors, an organizer or 
a seller must maintain a list with respect to any interest in the 
transaction acquired after the transaction becomes a potentially 
abusive tax shelter. Additionally, the IRS will not ask to inspect any 
list for a potentially abusive tax shelter, other than a tax shelter 
described in section 6111(c), until August 29, 2000. The lists required 
by the preceding two sentences with regard to interests acquired in 
potentially abusive tax shelters must contain the information required 
by A-17 of this section as it relates to such interests. The rules that 
apply with respect to interests acquired in potentially abusive tax 
shelters on or before February 28, 2000, are contained in 26 CFR part 
301 revised as of April 1, 1999.

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 also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. It is hereby 
certified that 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 persons 
responsible for maintaining the investor lists described in the 
regulations are principally large publicly traded corporations and the 
burden is not significant, as described 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

[[Page 11213]]

Administration for comment on its 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). 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 in part as follows:

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

    Section 301.6112-1T also issued under 26 U.S.C. 6112.* * *

    Par. 2. Section 301.6112-1T is amended as follows:
    1. The last sentence of A-3 is revised.
    2. A-4 is revised.
    3. Two sentences are added at the end of A-5.
    4. A sentence is added at the end of A-7.
    5. Paragraph (c) of A-8 is revised.
    6. The first sentence of A-9 is removed, and two new sentences are 
added in its place.
    7. The second sentence of the introductory text of A-11 is revised.
    8. Paragraphs (a) and (b) of A-13 are revised.
    9. A-14 is revised.
    10. The first sentence of the introductory text of A-15 is revised.
    11. A-17 is revised.
    12. Two sentences are added at the end of A-18.
    13. A-22 is revised.
    The additions and revisions read as follows:


Sec. 301.6112-1T  Questions and answers relating to the requirement to 
maintain a list of investors in potentially abusive tax shelters 
(temporary).

* * * * *
    A-3. * * * See Sec. 301.6111-1T for rules relating to tax shelter 
registration and Sec. 301.6111-2T for rules relating to confidential 
corporate tax shelter registration.
* * * * *
    A-4. (a) Yes. For purposes of the list requirement, a tax shelter 
includes any tax shelter that is a projected income investment, as 
defined in A-57A of Sec. 301.6111-1T, and any transaction a significant 
purpose of the structure of which is the avoidance or evasion of 
Federal income tax within the meaning of section 6111(d)(1)(A) and 
Sec. 301.6111-2T(b). For this purpose, as under Sec. 301.6111-2T, the 
term transaction includes 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.
    (b) Section 301.6111-2T provides a procedure for obtaining rulings 
as to whether a transaction is subject to registration under 
Sec. 301.6111-2T. The same procedure shall be available to a person who 
is uncertain whether a transaction constitutes a tax shelter for which 
a list must be maintained under this section. The requirement to make a 
list which contains the information required by this section available 
for inspection by the Secretary shall be suspended during the period 
that such ruling request is pending and for sixty days thereafter; 
however, if it is ultimately determined that the transaction is a tax 
shelter, the pendency of such a ruling request shall not affect the 
requirement to maintain the list or limit the participants required to 
be included on the list or the other information required to be 
included as part of the list.
* * * * *
    A-5. * * * An organizer also includes a promoter described in 
section 6111(d)(2). Under section 6111(d)(2), a promoter is any person 
who participates in the organization, management, or sale of the tax 
shelter or any related person (within the meaning of section 267 or 
707).
* * * * *
    A-7. * * * In addition, in any case in which a person has directly 
or indirectly paid consideration to an organizer or seller for the 
right to participate in a tax shelter, for services necessary to the 
organization or structure of such tax shelter, or for information that 
is integral to participation in such tax shelter, the participant shall 
be considered to have acquired an interest in the tax shelter and to 
have been sold an interest in the tax shelter by the organizer or 
seller.
* * * * *
    A-8. * * * (c) Any transfer of an interest made by or through a 
person related (as defined in section 465(b)(3)(C)) to the organizer or 
the tax shelter (provided the organizer is involved in the tax shelter 
on the date of the transfer);
* * * * *
    A-9. An organizer has a duty to make a reasonable inquiry only with 
respect to transfers of interests in the tax shelter made by a seller 
described in paragraph (a) of A-6 of this section who acquired the 
interests from the organizer or a person related (as defined in section 
465(b)(3)(C)) to the organizer, or the tax shelter or a person related 
(as defined in section 465(b)(3)(C)) to the tax shelter (provided the 
organizer is involved in the tax shelter on the date the interest is 
transferred to the seller). See Q&A-8 of this section. * * *
* * * * *
    A-11. * * * Organizers and sellers may not designate one person to 
maintain a list for the tax shelter, however, unless the tax shelter is

timely and properly registered under section 6111 or unless the tax 
shelter  is described in Q&A-4 of this

section. * * *
* * * * *
    A-13. (a) If the tax shelter is required to be registered under 
section 6111 at the time an agreement under A-12 of this section is 
signed, a seller or an organizer who signs the agreement shall not be 
subject to penalty under section 6708 for failing to maintain a list 
provided that the seller or organizer--
    (1) Submits to the designated person all of the information that 
the organizer or seller otherwise would be required to maintain on a 
list (as described in A-8, A-10, and A-17 of this section); and
    (2) Provides to each investor (within the meaning of paragraph (c) 
of A-6 of this section) otherwise required to be included on a list 
maintained by such organizer or seller a notice in the form prescribed 
in paragraph (c) of this A-13.
    (b) If the tax shelter is described in A-4 of this section at the 
time an agreement under A-12 of this section is signed, a seller or an 
organizer who signs the agreement shall not be subject to penalty under 
section 6708 for failing to maintain a list provided that the seller or 
organizer submits to the designated person all of the information that 
the organizer or seller otherwise would be required to maintain on a 
list (as described in A-8, A-10, and A-17 of this section). If the tax 
shelter ceases to be a projected income investment

[[Page 11214]]

under A-57G of Sec. 301.6111-1T, or the tax shelter becomes subject to 
the registration requirements under section 6111, the designated person 
must provide to each investor (within the meaning of paragraph (c) of 
A-6 of this section) required to be included on the list an explanation 
that the tax shelter has ceased to be projected income investment or 
that the tax shelter is subject to the registration requirements of 
section 6111, whichever applies, and a notice substantially in the form 
prescribed in paragraph (c) of this A-13.
* * * * *
    A-14. Yes. Any seller described in paragraph (a) of A-6 of this 
section who does not sign a designation agreement under A-12 of this 
section (including organizers who are such sellers) with respect to a 
tax shelter that is required to be registered under section 6111 must 
provide a notice to all investors (within the meaning of paragraph (c) 
of A-6 of this section) who acquire interests in the tax shelter from 
the seller. The notice must be substantially in the form prescribed in 
paragraph (c) of A-13 of this section except that the notice must 
include the name and address of the designated person. In the case of a 
tax shelter described in A-4 of this section, a notice to investors 
need not be provided until such time, if any, as the tax shelter ceases 
to be a projected income investment under A-57G of Sec. 301.6111-1T, or 
the tax shelter becomes subject to the registration requirements under 
section 6111. In such a case, the seller shall provide, with the 
notice, an explanation that the tax shelter has ceased to be a 
projected income investment, or that the tax shelter has otherwise 
become subject to the registration requirements under section 6111, 
whichever applies.
* * * * *
    A-15. An investor who retransfers an interest in a tax shelter that 
is described in A-4 of this section, is not required to maintain a list 
with respect to the retransfer unless prior to the retransfer the tax 
shelter ceases to be a projected income investment under A-57G of 
Sec. 301.6111-1T or otherwise becomes subject to the registration 
requirements under section 6111.
* * * * *
    A-17. (a) A list must contain the following information--
    (1) The name of the tax shelter and the registration number, if 
any, obtained under section 6111;
    (2) The TIN (as defined in section 7701(a)(41)), if any, of the tax 
shelter;
    (3) The name, address, and TIN (as defined in section 7701(a)(41)) 
of each person who is required to be included on the list under A-8 or 
A-10 of this section and, in the case of a tax shelter that is a 
transaction described in section 6111(d)(1)(A) and Sec. 301.6111-2T(b), 
the name, address, and TIN of any indirect corporate participant in the 
shelter if known to the organizer or seller;
    (4) If applicable, the number of units (i.e., percentage of 
profits, number of shares, etc.) acquired by each person who is 
required to be included on the list;
    (5) The date on which each interest was acquired;
    (6) The amount of money invested in the tax shelter by each person 
required to be included on the list under A-8 or A-10 of this section;
    (7) A detailed description of the tax shelter that describes both 
the structure of the tax shelter and the intended tax benefits for 
participants in the tax shelter;
    (8) A summary or schedule of the tax benefits that each person is 
intended or expected to derive from participation in the tax shelter, 
if known by the organizer or seller;
    (9) Copies of any additional written materials, including tax 
analyses or opinions, relating to the tax shelter that have been given 
to any potential participants in the tax shelter or to any 
representatives, tax advisors, or agents of such potential participants 
by the organizer or seller or by any other person who has participated 
in the offering of the tax shelter (excluding any written materials 
that the organizer or seller has never possessed);
    (10) If the interest was not acquired from the person maintaining 
the list, the name of the person from whom the interest was acquired; 
and
    (11) The name and address of each agent of the person maintaining 
the list who is described in paragraph (b) of A-6 of this section.
    (b) In any case in which an organizer or a seller of a potentially 
abusive tax shelter believes that information required to be maintained 
as part of the list for that tax shelter is protected by the attorney-
client privilege or constitutes confidential tax advice protected under 
section 7525(a), such information may be withheld from disclosure to 
the Service, provided that the organizer or seller provides the Service 
with a statement signed under penalties of perjury with information and 
representations required in that statement that are the same as those 
required by Sec. 301.6111-2T if the promoter of a confidential 
corporate tax shelter asserts that information required to be included 
with Form 8264, ``Application for Registration of a Tax Shelter,'' is 
privileged.
* * * * *
    A-18. * * * Interests in substantially similar tax shelter 
transactions that are sold to different persons generally are to be 
treated as interests in the same tax shelter for purposes of this 
section. Further, the list for each tax shelter must identify each 
other tax shelter (if any) that the organizer or seller has offered 
that has not been treated as part of the same tax shelter, but that 
utilizes a similar structure or is intended to produce similar tax 
benefits.
* * * * *
    A-22. An organizer or seller must maintain a list with respect to 
any interest acquired by an investor (within the meaning of paragraph 
(c) of A-6 of this section) in a potentially abusive tax shelter after 
February 28, 2000. If a transaction becomes a potentially abusive tax 
shelter after interests are acquired by investors, an organizer or a 
seller must maintain a list with respect to any interest in the 
transaction acquired after the transaction becomes a potentially 
abusive tax shelter. Additionally, the Internal Revenue Service will 
not ask to inspect any list for a potentially abusive tax shelter, 
other than a tax shelter described in section 6111(c), until August 29, 
2000. The lists required by the preceding two sentences with regard to 
interests acquired in potentially abusive tax shelters must contain the 
information required by A-17 of this section as it relates to such 
interests. The rules that apply with respect to interests acquired in 
potentially abusive tax shelters acquired on or before February 28, 
2000, are contained in 26 CFR part 301 revised as of April 1, 1999.

    Par. 3. In Sec. 602.101, paragraph (b) is amended by revising the 
entry for Sec. 301.6112-1T to read as follows:


Sec. 602.101  OMB Control numbers.

* * * * *
    (b) * * *
* * * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
 
                  *        *        *        *        *
301.6112-1T................................................    1545-0865
                                                               1545-1686
 
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[[Page 11215]]

    Approved: February 23, 2000.
Charles O. Rossotti,
Commissioner of Internal Revenue.
Jonathan Talisman,
Acting Assistant Secretary of the Treasury.
[FR Doc. 00-4846 Filed 2-28-00; 8:45 am]
BILLING CODE 4830-01-P