[Federal Register Volume 67, Number 204 (Tuesday, October 22, 2002)]
[Rules and Regulations]
[Pages 64807-64812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26726]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9018]
RIN 1545-BB33


Requirement To Maintain a List of Investors in Potentially 
Abusive Tax Shelters

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: These temporary regulations relate to the preparation, 
maintenance, and furnishing of lists of persons in potentially abusive 
tax shelters under section 6112. These regulations apply to organizers 
and sellers 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 the Proposed Rules section of this issue of the Federal 
Register.

DATES: Effective Date: These temporary regulations are effective 
January 1, 2003.
    Applicability Date: For dates of applicability, see Sec.  301.6112-
1T(j).

FOR FURTHER INFORMATION CONTACT: Charlotte Chyr, Tara P. Volungis, or 
Danielle M. Grimm, 202-622-3070 (not a toll-free number).

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 and 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 persons for potentially abusive tax shelters under 
section 6112. Section 6708 provides penalties for failing to maintain a 
list under section 6112.
    On February 28, 2000, the IRS issued temporary and proposed 
regulations regarding section 6112 (TD 8875, REG-103736-00). The 
February regulations were published in the Federal Register (65 FR 
11211; 65 FR 11271) on March 2, 2000. On August 11, 2000, the IRS 
issued temporary and proposed regulations regarding section 6112 (TD 
8896, REG-103736-00). The August 2000 regulations were published in the 
Federal Register (65 FR 49909; 65 FR 49955) on August 16, 2000, 
modifying the previous regulations.
    The list maintenance rules under section 6112, along with the rules 
relating to disclosure of reportable transactions under section 6011 
and the rules for registration of tax shelters under section 6111, are 
intended to provide the IRS and Treasury with information needed to 
evaluate potentially abusive transactions. The IRS and Treasury have 
considered and evaluated compliance with these rules and have 
determined that certain additional changes to the current temporary and 
proposed regulations are necessary to improve compliance and to carry 
out the purposes of sections 6011, 6111, and 6112. On March 20, 2002, 
Treasury released its Plan to Combat Abusive Tax Avoidance Transactions 
(PO-2018), which describes changes to the rules under sections 6011, 
6111, and 6112 that will establish a more effective disclosure regime 
and improve compliance. See http://www.treas.gov/press/releases/po2018.htm.
    These amendments to the temporary regulations under section 6112 
generally require organizers and sellers (material advisors) to 
maintain lists of persons for transactions required to be registered 
under section 6111 and for reportable transactions defined in Sec.  
1.6011-4T(b) of the Income Tax Regulations.
    Concurrent with these amended temporary regulations under section 
6112, the IRS and Treasury are publishing elsewhere in this issue of 
the Federal Register amended temporary regulations under section 6011. 
The amended temporary regulations under section 6011 revise the 
categories of transactions that must be disclosed on returns.
    Pending legislation would modify section 6111 to require 
registration of transactions that are required to be disclosed under 
section 6011. The IRS and Treasury intend to revise the regulations 
under section 6111 when such legislation is enacted.

Explanation of Provisions

A. 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 and 
containing any other information required by regulations. A potentially 
abusive tax shelter under section 6112 includes any tax shelter that is 
required to be registered with the IRS as a tax shelter under section 
6111, and any transaction that has a potential for tax avoidance or 
evasion.
    Under these regulations, a transaction has the potential for tax 
avoidance or evasion if it is a listed transaction or if a potential 
material advisor, at the time the transaction is entered into, knows or 
has reason to know that the transaction is otherwise a reportable 
transaction as defined in Sec.  1.6011-4T. For purposes of section 
6112, listed transactions that involve Federal estate, gift, 
employment, and pension and exempt organizations excise taxes are also 
potentially abusive tax shelters that require list maintenance. If a 
transaction that involves Federal income taxes becomes a listed 
transaction on or after January 1, 2003, it is a potentially abusive 
tax shelter for purposes of section 6112 and, whether or not the 
material advisor is already required to maintain a list, the material 
advisor must begin, at the time of listing, to

[[Page 64808]]

include on the list those persons who acquired an interest in the 
transaction after February 28, 2000.

B. Organizer and Seller (Material Advisor)

    The regulations provide that a person is an organizer of, or a 
seller of any interest in, a transaction that is a potentially abusive 
tax shelter if that person is a material advisor with respect to that 
transaction. In general, a material advisor is any person who (i) 
receives, or expects to receive, at least a minimum fee in connection 
with a transaction that is a potentially abusive tax shelter, and (ii) 
who makes or provides any statement, oral or written, to any person as 
to the potential tax consequences of that transaction. The Internal 
Revenue Service and Treasury are considering whether the minimum fee 
requirement should be eliminated with respect to listed transactions.
    The minimum fee is $250,000 for a transaction that is a potentially 
abusive tax shelter if all persons who acquire an interest, directly or 
indirectly, in the transaction are corporations (other than S 
corporations). The minimum fee for any other transaction that is a 
potentially abusive tax shelter is $50,000. In calculating the minimum 
fee, each transaction that is a potentially abusive tax shelter is 
evaluated separately to determine whether the minimum fee threshold is 
satisfied with respect to that particular transaction. If the minimum 
fee threshold is satisfied with respect to one transaction that is a 
potentially abusive tax shelter, but not with respect to another 
separate transaction (whether or not it is substantially similar), a 
person is a material advisor with respect to only the transaction for 
which the minimum fee threshold is satisfied. Accordingly, the list 
required to be maintained includes only those persons who are 
participants in the transaction for which the minimum fee threshold is 
satisfied.

C. Preparing, Maintaining and Furnishing Lists

    In general, a material advisor must prepare and maintain a separate 
list of persons for each transaction that is a potentially abusive tax 
shelter. However, to ensure that the IRS is able to identify all of the 
persons who are participants in potentially abusive tax shelters that 
are substantially similar, the regulations further provide that the 
material advisor must keep one list for all transactions that are 
substantially similar and are potentially abusive tax shelters.
    Any person to whom a material advisor makes or provides a 
statement, oral or written, as to the potential tax consequences of a 
transaction that is a potentially abusive tax shelter must be included 
on a list if the material advisor knows or has reason to know that the 
person, or any related party, participated or will participate in the 
transaction. A person (including any related party) is treated as 
having participated in a transaction that is a potentially abusive tax 
shelter if the material advisor knows or has reason to know that the 
person sold or transferred, or will sell or transfer to another person 
(subsequent participant) an interest in that type of transaction that, 
if entered into, would be a potentially abusive tax shelter. The 
material advisor also must list any subsequent participant if the 
material advisor knows or has reason to know the identity of that 
subsequent participant and the material advisor knows or reasonably 
expects that the subsequent participant will participate in, or sell or 
transfer to another subsequent participant an interest in that type of 
transaction that, if entered into, would be a potentially abusive tax 
shelter.
    The required list must be maintained for ten years following the 
date on which the material advisor last made a statement, oral or 
written, as to the potential tax consequences that may result from the 
transaction that is a potentially abusive tax shelter. If a material 
advisor that is an entity dissolves or liquidates before the expiration 
of the ten-year period, the person responsible under state law for 
winding up the affairs of the material advisor is (or if state law does 
not specify any person, then each of the directors of the corporation, 
the general partners of the partnership, or the trustees, owners, or 
members of the entity are) responsible for preparing, maintaining, and 
furnishing the list, unless the dissolved or liquidated entity submits 
the list to the Office of Tax Shelter Analysis (OTSA) within 60 days 
after the dissolution or liquidation. The responsible person must also 
provide notice to OTSA of such dissolution or liquidation within 60 
days after the dissolution or liquidation.
    Each material advisor must, upon written request by the IRS, 
furnish the list of persons to the IRS within 20 business days after 
the date of the request. The list may be furnished to the IRS in any 
form that enables the IRS to determine without undue delay or 
difficulty the information required to be contained in the list.
    As a general rule, the name of a participant in a transaction that 
is a potentially abusive tax shelter is not protected by either the 
attorney-client privilege or by the tax practitioner privilege under 
section 7525. No participant in a transaction that is a potentially 
abusive tax shelter should have a reasonable expectation of 
confidentiality with respect to that person's identity. Moreover, a 
claim of privilege that is not based on a reasonable belief that the 
privilege applies may subject the material advisor to penalties under 
section 6708.

D. Substantially Similar Transactions

    For purposes of section 6112, a substantially similar transaction 
includes any transaction that is expected to obtain the same or similar 
types of tax consequences and that is either factually similar or based 
on the same or similar tax strategy. Receipt of an opinion regarding 
the tax consequences of a transaction is not relevant to the 
determination of whether that transaction is the same as or 
substantially similar to another transaction. Further, the term 
substantially similar must be broadly construed in favor of list 
maintenance.

E. Effective Date

    These amended temporary regulations apply to transactions that are 
potentially abusive tax shelters entered into, or interests acquired 
therein, on or after January 1, 2003. However, these regulations shall 
apply to any transaction that was entered into, or in which an interest 
was acquired, after February 28, 2000, if the transaction becomes a 
listed transaction as defined in Sec.  1.6011-4T on or after January 1, 
2003, and is subject to disclosure under Sec.  1.6011-4T.

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. Because no 
notice of proposed rulemaking is required, the provisions of the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant 
to section 7805(f) of the Internal Revenue Code, these 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 Charlotte Chyr, Tara 
P. Volungis, and Danielle M. Grimm,

[[Page 64809]]

Office of the Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 301

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

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 continues to read 
in part as follows:

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


    Par. 2. Section 301.6112-1T is revised to read as follows:


Sec.  301.6112-1T  Requirement to prepare, maintain, and furnish lists 
with respect to potentially abusive tax shelters (temporary).

    (a) In general. Each organizer and seller, as described in 
paragraph (c) of this section, of a transaction that is a potentially 
abusive tax shelter, as described in paragraph (b) of this section, 
shall prepare and maintain a list of persons in accordance with 
paragraph (e) of this section and upon request shall furnish such list 
to the Internal Revenue Service in accordance with paragraph (g) of 
this section.
    (b) Potentially abusive tax shelters. For purposes of this section, 
a potentially abusive tax shelter is any transaction that is a section 
6111 tax shelter, as described in paragraph (b)(1) of this section, or 
that has a potential for tax avoidance or evasion, as described in 
paragraph (b)(2) of this section. The term ``transaction'' includes all 
of the factual elements relevant to support the expected tax treatment 
of any investment, entity, plan, or arrangement, and includes any 
series of steps carried out as part of a plan.
    (1) Transaction that is a section 6111 tax shelter. A section 6111 
tax shelter is any transaction that is required to be registered with 
the Internal Revenue Service under section 6111, regardless of whether 
that tax shelter is properly registered pursuant to section 6111.
    (2) Transaction that has a potential for tax avoidance or evasion. 
A transaction that has a potential for tax avoidance or evasion is any 
transaction that is a listed transaction as defined in Sec.  1.6011-4T 
of this chapter and is subject to disclosure under Sec.  1.6011-4T, 
20.6011-4T, 25.6011-4T, 31.6011-4T, 53.6011-4T, 54.6011-4T, or 56.6011-
4T of this chapter, or any transaction that a potential material 
advisor knows or has reason to know, at the time the transaction is 
entered into or an interest is acquired, meets one of the categories of 
a reportable transaction under Sec.  1.6011-4T(b)(3) through (7) of 
this chapter.
    (i) The determination of whether a transaction has the potential 
for tax avoidance or evasion does not depend upon whether the 
transaction is properly disclosed pursuant to Sec.  1.6011-4T, 20.6011-
4T, 25.6011-4T, 31.6011-4T, 53.6011-4T, 54.6011-4T, or 56.6011-4T of 
this chapter.
    (ii) If a transaction becomes a listed transaction as defined in 
Sec.  1.6011-4T of this chapter and is subject to disclosure under 
Sec.  1.6011-4T of this chapter, after the transaction is entered into 
or an interest in the transaction is acquired, this section shall apply 
with respect to any interests acquired after February 28, 2000. If a 
transaction becomes a listed transaction as defined in Sec.  1.6011-4T 
of this chapter and is subject to disclosure under Sec.  20.6011-4T, 
25.6011-4T, 31.6011-4T, 53.6011-4T, 54.6011-4T, or 56.6011-4T of this 
chapter, after the transaction is entered into or an interest in the 
transaction is acquired, this section shall apply with respect to any 
interests acquired on or after January 1, 2003.
    (c) Organizer and seller--(1) In general. A person is an organizer 
of, or a seller of an interest in, a transaction that is a potentially 
abusive tax shelter if that person is a material advisor, as described 
in paragraph (c)(2) of this section, with respect to that transaction.
    (2) Material advisor. A material advisor is any person who (or 
through its employees, shareholders, partners, or agents) receives, or 
expects to receive, at least a minimum fee, as defined in paragraph 
(c)(3) of this section, in connection with a transaction that is a 
potentially abusive tax shelter and who makes or provides any 
statement, oral or written, to any person as to the potential tax 
consequences of that transaction. A person shall be treated as a 
material advisor if that person forms or avails of an entity with the 
purpose of avoiding the rules of section 6111 or 6112 or the penalties 
under section 6707 or 6708.
    (3) Minimum fee--(i) In general. For purposes of this paragraph 
(c), the minimum fee is $250,000 for a transaction that is a 
potentially abusive tax shelter if all persons who acquire an interest, 
directly or indirectly, are corporations (other than S corporations), 
and $50,000 for any other transaction that is a potentially abusive tax 
shelter.
    (ii) Determination of fees. In determining whether the minimum fee 
threshold is satisfied, all fees for advice (whether or not tax advice) 
regarding, or for implementation of, a transaction that is a 
potentially abusive tax shelter are taken into account. For purposes of 
this section, fees include consideration in whatever form paid, whether 
in cash or in kind, and whether paid or denominated as fees for tax 
advice or for some other function such as the preparation of 
documentation or tax return preparation. The Internal Revenue Service 
will scrutinize carefully all of the facts and circumstances in 
determining whether consideration received in connection with a 
transaction that is a potentially abusive tax shelter constitutes fees 
for purposes of this section.
    (d) Definitions. For purposes of this section, the following terms 
are defined as follows:
    (1) Interest. The term interest includes, but is not limited to, 
any right to participate in a transaction by reason of a partnership 
interest, a shareholder interest, or a beneficial interest in a trust; 
any interest in property (including a leasehold interest); the entry 
into a leasing arrangement or a consulting, management or other 
agreement for the performance of services; or any interest in any other 
investment, entity, plan, or arrangement. The term interest includes 
any interest that purportedly entitles the direct or indirect holder of 
the interest to any tax consequence (including, but not limited to, a 
deduction, loss, or adjustment to tax basis in an asset) arising from 
the transaction. An interest also includes the receipt of information 
or services regarding the organization or structure of the transaction 
if the information or services are relevant to the potential tax 
consequences of the transaction.
    (2) Substantially similar. The term substantially similar includes 
any transaction that is expected to obtain the same or similar types of 
tax consequences and that is either factually similar or based on the 
same or similar tax strategy. Receipt of an opinion regarding the tax 
consequences of the transaction is not relevant to the determination of 
whether the transaction is the same as or substantially similar to 
another transaction. Further, the term substantially similar must be 
broadly construed in favor of list maintenance.
    (3) Person. The term person means any person described in section 
7701(a)(1), including an affiliated group of corporations that join in 
the filing of

[[Page 64810]]

a consolidated return under section 1501.
    (4) Related party. A person is a related party with respect to 
another person if such person bears a relationship to such other person 
described in section 267 or 707.
    (e) Preparation and maintenance of lists--(1) In general. A 
separate list of persons must be prepared and maintained for each 
transaction that is a potentially abusive tax shelter. However, one 
list must be maintained for substantially similar transactions that are 
potentially abusive tax shelters.
    (2) Persons required to be included on lists. (i) A material 
advisor is required to list each person to whom the material advisor 
makes or provides a statement, oral or written, as to the potential tax 
consequences of a transaction that is a potentially abusive tax 
shelter, if the material advisor knows or has reason to know that the 
person or any related party participated in or will participate in the 
transaction (or a substantially similar transaction that is a 
potentially abusive tax shelter).
    (ii) A material advisor shall treat a person (including any related 
party) as having participated in a transaction that is a potentially 
abusive tax shelter if the material advisor knows or has reason to know 
that the person sold or transferred, or will sell or transfer, to 
another person (subsequent participant) an interest in that type of 
transaction that, if entered into, would be a potentially abusive tax 
shelter. The material advisor also must list any subsequent participant 
if the material advisor knows or has reason to know the identity of 
that subsequent participant, and the material advisor knows or 
reasonably expects that the subsequent participant will participate in, 
or sell or transfer to another subsequent participant an interest in 
that type of transaction that, if entered into, would be a potentially 
abusive tax shelter.
    (iii) The following examples illustrate the provisions of this 
section:

    Example 1. An investment firm provides a statement describing 
the potential tax consequences of a type of transaction to three 
taxpayers: Corporation X, Corporation Y, and Corporation Z. Each 
taxpayer agrees to pay the investment firm $300,000 in connection 
with the transaction, and each taxpayer engages in a separate 
transaction (transaction X, transaction Y, and transaction Z, 
respectively). At the time the transactions are entered into, the 
investment firm knows, or has reason to know, that the transactions 
will result in a single taxable year loss of $9 million for 
Corporation X, $15 million for Corporation Y, and $12 million for 
Corporation Z. The transactions do not satisfy the definitions of a 
reportable transaction under Sec.  1.6011-4T(b)(2), (3), (4), (6) or 
(7) of this chapter. All the persons who acquired an interest 
directly or indirectly in the transactions are C corporations.
    (i) Transaction X. At the time transaction X is entered into, 
the investment firm does not know, or have reason to know, that the 
transaction is a reportable transaction, because the $9 million loss 
does not satisfy the $10 million threshold under Sec.  1.6011-
4T(b)(5) of this chapter (relating to loss transactions). 
Accordingly, transaction X is not a potentially abusive tax shelter. 
The investment firm is not required to maintain a list with respect 
to transaction X.
    (ii) Transactions Y and Z. The investment firm satisfies the 
three requirements for being a material advisor with respect to 
transaction Y and with respect to transaction Z. First, both of the 
transactions are potentially abusive tax shelters with respect to 
the investment firm because the investment firm knows, or has reason 
to know, at the time the transactions are entered into, that the 
losses for each of Corporation Y and Z are expected to exceed the 
$10 million threshold and, thus, the transactions are reportable 
transactions under Sec.  1.6011-4T(b)(5) of this chapter (relating 
to loss transactions). Second, the investment firm provides a 
statement as to the potential tax consequences of the transactions. 
Third, the investment firm receives $300,000 in connection with each 
transaction, which exceeds the minimum fee with respect to each 
transaction ($250,000). Accordingly, the investment firm must 
maintain a list with respect to transactions Y and Z. Because 
transactions Y and Z are based on the same or similar tax strategy, 
transactions Y and Z are substantially similar transactions, and the 
investment firm must keep one list with respect to both 
transactions. The list must contain information about Corporation Y 
and Corporation Z (see paragraph (e)(2)(i) of this section).
    Example 2. (i) Corporation M provides a statement to Corporation 
N describing the potential tax consequences of a type of 
transaction. Corporation N pays Corporation M $90,000 for the 
information about that type of transaction. Corporation M knows that 
Corporation N will sell the information to Taxpayer O (a 
corporation) and Taxpayer P (an individual), and reasonably expects 
Taxpayer O and Taxpayer P to participate in transactions of the type 
that Corporation M described to Corporation N. Corporation N, in 
turn, provides a statement as to the potential tax consequences of 
that type of transaction to Taxpayer O and Taxpayer P. Each taxpayer 
agrees to pay Corporation N $80,000 in connection with their 
respective transactions, and each taxpayer engages in a separate 
transaction (transaction O and transaction P, respectively). At the 
time the transactions are entered into, both Corporation M and 
Corporation N know, or have reason to know, that the transactions 
are reportable transactions under Sec.  1.6011-4T(b) of this 
chapter. All the persons who acquire an interest directly or 
indirectly in transaction O are C corporations.
    (ii) Corporation N is not a material advisor with respect to 
transaction O because Corporation N receives only $80,000 in 
connection with transaction O, which is less than the minimum fee 
for that transaction ($250,000). Corporation N is a material advisor 
with respect to transaction P. First, at the time transaction P is 
entered into, Corporation N knows, or has reason to know, that 
transaction P is a reportable transaction and, thus, is a 
potentially abusive tax shelter. Second, Corporation N provides a 
statement as to the potential tax consequences of transaction P. 
Third, Corporation N receives $80,000 in connection with transaction 
P, which exceeds the minimum fee for that transaction ($50,000). 
Accordingly, Corporation N must keep a list with respect to 
transaction P. The list must contain information about Taxpayer P 
(see paragraph (e)(2)(ii) of this section).
    (iii) Corporation M is not a material advisor with respect to 
transaction O because Corporation M receives only $90,000 in 
connection with transaction O, which is less than the minimum fee 
for that transaction ($250,000). Corporation M is a material advisor 
with respect to transaction P. First, at the time transaction P is 
entered into, Corporation M knows, or has reason to know, that 
transaction P is a reportable transaction and, thus, is a 
potentially abusive tax shelter. Second, Corporation M provides a 
statement as to the potential tax consequences of transaction P, and 
Corporation M receives $90,000 in connection with transaction P, 
which exceeds the minimum fee for that transaction ($50,000). 
Accordingly, Corporation M must keep a list with respect to 
transaction P. The list must contain information about Corporation N 
(see paragraph (e)(2)(ii) of this section) and Taxpayer P (see 
paragraph (e)(2)(ii) of this section).

    (3) Contents--(i) In general. Each list must contain the following 
information--
    (A) The name of each transaction that is a potentially abusive tax 
shelter and the registration number, if any, obtained under section 
6111;
    (B) The TIN (as defined in section 7701(a)(41)), if any, of each 
transaction;
    (C) The name, address, and TIN of each person required to be on the 
list;
    (D) If applicable, the number of units (i.e., percentage of 
profits, number of shares, etc.) acquired by each person required to be 
included on the list;
    (E) The date on which each interest was acquired;
    (F) The amount invested in each transaction by each person required 
to be included on the list;
    (G) A detailed description of each transaction that describes both 
the structure and its expected tax consequences;
    (H) A summary or schedule of the tax consequences that each person 
is intended or expected to derive from participation in each 
transaction, if known by the material advisor;
    (I) Copies of any additional written materials, including tax 
analyses or

[[Page 64811]]

opinions, relating to each transaction that have been shown or provided 
to any person who acquired or may acquire an interest in the 
transactions, or to their representatives, tax advisors, or agents, by 
the material advisor or any related party or agent of the material 
advisor; and
    (J) For each person, if the interest in the transaction was not 
acquired from the material advisor maintaining the list, the name of 
the person from whom the interest was acquired.
    (ii) Claims of privilege. In any case in which an attorney or 
federally authorized tax practitioner within the meaning of section 
7525 is required to maintain a list with respect to a transaction that 
is a potentially abusive tax shelter, and that person has a reasonable 
belief that information required to be disclosed under this paragraph 
(e)(3) is protected by the attorney-client privilege or by the 
confidentiality privilege of section 7525(a), the attorney or federally 
authorized tax practitioner must still maintain the list of persons 
pursuant to the requirements of this section. When the list is 
requested by the Internal Revenue Service, as provided in paragraph (g) 
of this section, the material advisor may assert a privilege claim 
subject to the requirements of this paragraph (e)(3)(ii).
    (A) The claimed privilege must be supported by a statement that is 
signed by the attorney or federally authorized tax practitioner under 
penalties of perjury, must identify and describe (as set forth in 
paragraph (e)(3)(ii)(B) of this section) the nature of each document or 
category of information that is not produced which will allow the 
Service to determine the applicability of the privilege or protection 
claimed, without revealing the privileged information itself, and must 
include the following representations with respect to each document or 
category of information for which the privilege is claimed--
    (1) 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 the direct or indirect participation 
of a corporation in any tax shelter (as defined in section 
6662(d)(2)(C)(iii)); and
    (2) Specifically represent that 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.
    (B) Identification and description of a document or category of 
information includes, but is not limited to--
    (1) The date appearing on such document or, if it has no date, the 
date or approximate date that such document was created;
    (2) The general nature, description and purpose of such document 
and the identity of the person who signed such document, and, if it was 
not signed, the identity of each person who prepared it; and
    (3) The identity of each person to whom such document was addressed 
and the identity of each person, other than such addressee, to whom 
such document, or a copy thereof, was given or sent.
    (f) Retention of lists. Each material advisor must maintain the 
list described in paragraph (e) of this section for ten years following 
the date on which the material advisor last made a statement, oral or 
written, as to the potential tax consequences of the transaction. If 
the material advisor required to prepare, maintain, and furnish the 
list is a corporation, partnership, or other entity (entity) that has 
dissolved or liquidated before completion of the ten-year period, the 
person responsible under state law for winding up the affairs of the 
entity must prepare, maintain and furnish the list on behalf of the 
entity, unless the entity submits the list to the Office of Tax Shelter 
Analysis (OTSA) within 60 days after the dissolution or liquidation. If 
state law does not specify any person as responsible for winding up the 
affairs, then each of the directors of the corporation, the general 
partners of the partnership, or the trustees, owners, or members of the 
entity are responsible for preparing, maintaining and furnishing the 
list on behalf of the entity, unless the entity submits the list to the 
Office of Tax Shelter Analysis (OTSA) within 60 days after the 
dissolution or liquidation. The responsible person must also provide 
notice to OTSA of such dissolution or liquidation within 60 days after 
the dissolution or liquidation. The list and the notice provided to 
OTSA may be sent to: Internal Revenue Service LM:PFTG:OTSA, Large & 
Mid-Size Business Division, 1111 Constitution Ave., NW., Washington, DC 
20224, or to such other address as provided by the Commissioner.
    (g) Furnishing of lists. Each material advisor and person 
responsible for maintaining a list of persons must, upon written 
request by the Internal Revenue Service, furnish the list to the 
Internal Revenue Service within 20 business days after the date of the 
request. The request is not required to be in the form of an 
administrative summons. The list may be furnished to the Internal 
Revenue Service on paper, card file, magnetic media, or in any other 
form, provided the method of furnishing the list enables the Internal 
Revenue Service to determine without undue delay or difficulty the 
information required in paragraph (e)(3) of this section.
    (h) Designation agreements. If more than one material advisor is 
required to maintain a list of persons, in accordance with paragraph 
(e) of this section, for a potentially abusive tax shelter, the 
material advisors may designate by written agreement a single material 
advisor to maintain the list or a portion of the list. The designation 
of one material advisor to maintain the list does not relieve the other 
material advisors from their obligation to furnish the list to the 
Internal Revenue Service in accordance with paragraph (g) of this 
section. The fact that a material advisor is unable to obtain the list 
from any designated material advisor, the fact that any designated 
material advisor did not maintain a list, or the fact that the list 
maintained by any designated material advisor is not complete, will not 
relieve any material advisor from the requirements of this section.
    (i) Procedure for obtaining rulings. A person may submit a request 
to the Internal Revenue Service for a ruling as to whether a 
transaction is a potentially abusive tax shelter for purposes of this 
section and whether that person is a material advisor with respect to 
that transaction. If the request fully discloses all relevant facts 
relating to the transaction (including all facts relevant to the 
person's relationship to such transaction), then the requirement to 
maintain a list shall be suspended for that person during the period 
that such ruling request is pending and for 60 days thereafter; 
however, if it is ultimately determined that the transaction is a 
potentially abusive tax shelter, the pendency of such a ruling request 
shall not affect the requirement to maintain the list, nor shall it 
affect the persons required to be included on the list (including 
persons who acquired interests in the potentially abusive tax shelter 
prior to and during the pendency of the ruling request), or the other 
information required to be included as part of the list.
    (j) Effective date. This section applies to any transaction that is 
a potentially abusive tax shelter entered into, or any interest 
acquired therein, on or after January 1, 2003. However, this section 
shall apply to any transaction that was entered into, or in which an 
interest was

[[Page 64812]]

acquired, after February 28, 2000, if the transaction becomes a listed 
transaction as defined in Sec.  1.6011-4T of this chapter on or after 
January 1, 2003, and is subject to disclosure under Sec.  1.6011-4T of 
this chapter. Otherwise, the rules that apply with respect to any other 
transaction that is a potentially abusive tax shelter entered into, or 
any interest acquired therein, on or before December 31, 2002, are 
contained in Sec.  301.6112-1T in effect prior to December 31, 2002 
(see 26 CFR part 301 revised as of April 1, 2002).

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: October 15, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 02-26726 Filed 10-17-02; 3:10 pm]
BILLING CODE 4830-01-P