[Federal Register Volume 68, Number 42 (Tuesday, March 4, 2003)]
[Rules and Regulations]
[Pages 10161-10178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4958]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 20, 25, 31, 53, 54, 56, 301, and 602

[TD 9046]
RIN 1545-AX81; 1545-BB49; 1545-BB50; 1545-BB48; 1545-BB53; 1545-BB51; 
1545-BB52; 1545-AW26; 1545-AX79


Tax Shelter Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: These regulations finalize the rules relating to the filing by 
certain taxpayers of a disclosure statement with their Federal tax 
returns under section 6011(a), the rules relating to the registration 
of confidential corporate tax shelters under section 6111(d), and the 
rules relating to the list maintenance requirements under section 6112. 
These regulations affect taxpayers participating in reportable 
transactions, persons responsible for registering confidential 
corporate tax shelters, and organizers and sellers of potentially 
abusive tax shelters.

DATES: Effective Date: These regulations are effective February 28, 
2003.
    Applicability Date: For dates of applicability, see Sec.  1.6011-
4(h), Sec.  20.6011-4(b), Sec.  25.6011-4(b), Sec.  31.6011-4(b), Sec.  
53.6011-4(b), Sec.  54.6011-4(b), Sec.  56.6011-4(b), Sec.  301.6111-
2(h), and Sec.  301.6112-1(j).

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

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in these final regulations 
have been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under 
control numbers 1545-1685, 1545-1687, and 1545-1686. Responses to these 
collections of information are mandatory. Form 8886, ``Reportable 
Transaction Disclosure Statement'', reflects the collection of 
information relating to the disclosure of reportable transactions for 
the regulations under Sec.  1.6011-4, and was approved by OMB under 
control number 1545-1800. Form 8264, ``Application for Registration of 
a Tax Shelter'', reflects the collection of information relating to the 
registration of tax shelters for the regulations under Sec.  301.6111-2 
and Sec.  301.6111-1T, and was approved by OMB under control number 
1545-0865.
    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 assigned by the Office 
of Management and Budget.
    The estimated annual burden per respondent/recordkeeper for the 
collection of information in Sec.  1.6011-4 will be reflected on Form 
8886. The estimated annual burden for the collection of information in 
Form 8886 is 3,770 hours and the estimated number of respondents/
recordkeepers is 500. The estimated annual burden per respondent/
recordkeeper for the collection of information in Sec.  301.6111-2 is 
reflected on Form 8264. The estimated annual burden for the collection 
of information in Form 8264 is 14,382 hours and the estimated number of 
respondents/recordkeepers is 350. The estimated annual burden per 
recordkeeper for the collection of information in Sec.  301.6112-1 is 
100 hours and the estimated number of recordkeepers is 500.
    Comments concerning the accuracy of these burden estimates and 
suggestions for reducing these burdens should be sent to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:T:T:SP, 
Washington, DC 20224, and to the Office of Management and Budget, Attn: 
Desk Officer for the Department of the Treasury, Office of Information 
and Regulatory Affairs, Washington, DC 20503.
    Books and records relating to these collections 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 1 to provide rules relating to the 
disclosure of reportable transactions by certain taxpayers on their 
Federal tax returns under section 6011, and also amends 26 CFR parts 
20, 25, 31, 53, 54, and 56 to provide rules for purposes of estate, 
gift, employment, and pension and exempt organizations excise taxes 
requiring the disclosure of listed transactions by certain taxpayers on 
their Federal tax returns under section 6011. This document amends 26 
CFR part 301 to provide rules regarding the registration of 
confidential corporate tax shelters under section 6111(d) and rules 
relating to the list maintenance requirements under section 6112.
    On February 28, 2000, the IRS issued temporary and proposed 
regulations regarding sections 6011, 6111, and 6112 (TD 8877, REG-
103735-00; TD 8876, REG-110311-98; TD 8875, REG-103736-00) (the 
February 2000 regulations). The February 2000 regulations were 
published in the Federal Register (65 FR 11205, 65 FR 11269; 65 FR 
11215, 65 FR 11272; 65 FR 11211, 65 FR 11271) on March 2, 2000. On 
August 11, 2000, the IRS issued temporary and proposed regulations 
modifying the rules under sections 6011, 6111, and 6112 (TD 8896, REG-
103735-00, REG-110311-98, REG-103736-00) (the August 2000 regulations). 
The August 2000 regulations were published in the Federal Register (65 
FR 49909, 65 FR 49955) on August 16, 2000. On August 2, 2001, the IRS 
issued temporary and proposed regulations modifying the rules under 
sections 6011 and 6111 (TD 8961, REG-103735-00, REG-110311-98) (the 
August 2001 regulations). The August 2001 regulations were published in 
the Federal Register (66 FR 41133, 66 FR 41169) on August 7, 2001. On 
June 14, 2002, the IRS issued temporary and

[[Page 10162]]

proposed regulations modifying the rules under sections 6011 and 6111 
(TD 9000, REG-103735-00, REG-110311-98) (the June 2002 regulations). 
The June 2002 regulations were published in the Federal Register (67 FR 
41324, 67 FR 41362) on June 18, 2002. On October 17, 2002, the IRS 
issued temporary and proposed regulations modifying the rules under 
sections 6011, 6111, and 6112 (TD 9017, REG-103735-00, REG-154117-02, 
REG-154116-02, REG-154115-02, REG-154429-02, REG-154423-02, REG-154426-
02, REG-110311-98; TD 9018, REG-103736-00) (the October 2002 
regulations). The October 2002 regulations were published in the 
Federal Register (67 FR 64799, 67 FR 64840; 67 FR 64807, 67 FR 64842) 
on October 22, 2002. On December 11, 2002, and on January 7, 2003, the 
IRS and Treasury Department held a public hearing on these regulations. 
Written and electronic comments responding to the temporary regulations 
and the notices of proposed rulemaking were received. After 
consideration of all the statements and comments, the proposed 
regulations are adopted as amended by this Treasury decision, and the 
corresponding temporary regulations are removed. The revisions are 
discussed below.

Explanation and Summary of Comments

1. In General

    These regulations finalize the rules for disclosure of reportable 
transactions, registration of confidential corporate tax shelters, and 
list maintenance of potentially abusive tax shelters. Sections 20.6011-
4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, 56.6011-4, and 301.6111-
2 finalize each corresponding proposed regulation with few, if any, 
changes. Sections 1.6011-4 and 301.6112-1 modify and finalize each 
corresponding proposed regulation.
    The IRS and Treasury Department received numerous comments relating 
to the October 2002 temporary regulations regarding disclosure under 
Sec.  1.6011-4T and list maintenance under Sec.  301.6112-1T. All 
comments were reviewed thoroughly. In particular, the IRS and Treasury 
Department reviewed the commentators' suggested clarifications to the 
rules pertaining to loss transactions and transactions with a 
significant book-tax difference, and to the rules pertaining to who 
must disclose transactions under section 6011. The IRS and Treasury 
Department also focused specifically on the comments relating to the 
rules pertaining to material advisors and the rules pertaining to the 
persons who must be included on lists under section 6112. In response 
to the commentators' suggested clarifications, the final regulations 
have been revised to tailor more narrowly the scope of the transactions 
for which disclosure and maintenance of information under sections 6011 
and 6112 is required. The major changes to the regulations are 
described below.

2. Section 6011--Participants

    The definition of participation has been clarified in the final 
regulations. Reporting of transactions by RICs and reporting of certain 
leasing transactions have been excluded from the requirements under 
Sec.  1.6011-4, provided that the transactions are not listed 
transactions.

3. Section 6011--Confidential Transactions

    A confidential transaction is a transaction that is offered under 
conditions of confidentiality. The regulations generally provide a 
presumption of non-confidentiality if the taxpayer receives written 
authorization to disclose the tax treatment and tax structure of the 
transaction. Some commentators suggested the following changes to the 
regulations: (1) clarification regarding when the written authorization 
to disclose has to be effective, (2) clarification regarding whether 
proprietary transactions are confidential if there is a written 
authorization to disclose, and (3) an exception for certain merger and 
acquisition transactions. In response to those comments, the IRS and 
Treasury Department have made modifications to the factors for a 
confidential transaction in the final regulation.
    The final regulations delete the clarification, under the 
definition of a confidential transaction for purposes of both section 
6011 and section 6111, that a privilege held by the taxpayer does not 
cause a transaction to be confidential. The IRS and Treasury Department 
believe that this clarification is not necessary because the attorney-
client privilege (or the confidentiality privilege of section 7525(a)) 
does not affect whether a transaction is confidential. A claim of 
privilege does not restrict the taxpayer's ability to disclose the tax 
treatment or tax structure of a transaction.

4. Section 6011--Transactions with Contractual Protection

    Commentators indicated that it is inappropriate to require the 
reporting of a transaction for which the taxpayer obtains tax 
insurance. Other commentators suggested that the contractual protection 
factor would require the reporting of numerous non-abusive types of 
transactions, such as legitimate business transactions with tax 
indemnities or rights to terminate the transaction in the event of a 
change in tax law. In response to these comments, the IRS and Treasury 
Department changed the focus of the contractual protection factor to 
whether fees are refundable or contingent. However, if it comes to the 
attention of the IRS and Treasury Department that other types of 
contractual protection, including tax insurance or tax indemnities, are 
being used to facilitate abusive transactions, changes to the 
regulations will be considered.

5. Section 6011--Loss Transactions

    Many commentators suggested that the loss transaction factor was 
over broad and would require disclosure of a significant number of 
transactions occurring in the ordinary course of business. In response 
to these comments, exceptions to the loss transaction factor will be 
issued in separate published guidance.

6. Section 6011--Transactions with a Significant Book-Tax Difference

    The IRS and Treasury Department received many comments on the use 
of U.S. GAAP, the manner in which gross assets are to be calculated, 
and the potential exclusion of items for purposes of the book-tax 
difference factor. In response, the final regulations revise the book-
tax difference factor to provide that if a taxpayer in the ordinary 
course of its business keeps books on a basis other than U.S. GAAP and 
does not use U.S. GAAP for any purpose, then the taxpayer may determine 
the treatment of a book item by using the books maintained by the 
taxpayer, provided the books are kept on the same basis consistently 
from year to year. In addition, the final regulations increase the 
requisite gross asset amount to $250 million or more and specify that 
the amount of gross assets is determined by ascertaining whether the 
gross assets equaled or exceeded $250 million for book purposes at the 
end of any financial accounting period that ends with or within the 
entity's taxable year in which the transaction occurs.
    In response to comments that the scope of the book-tax difference 
factor was over broad, the IRS and Treasury Department have revised the 
exceptions to this factor. The exceptions to the book-tax difference 
factor have been removed from the regulations and will

[[Page 10163]]

be issued in separate published guidance.

7. Section 6011--Form 8886

    Taxpayers will disclose reportable transactions under the final 
regulations on Form 8886. Reportable transactions entered into on or 
after January 1, 2003, and prior to February 28, 2003, for which the 
taxpayer does not choose to apply the final regulations, may be 
disclosed on Form 8886 or as provided in Sec.  1.6011-4T(c) as 
published in the Federal Register (67 FR 41324) on June 18, 2002. Form 
8886 will allow taxpayers to aggregate substantially similar 
transactions on one form for disclosure purposes.

8. Section 6112

    Commentators requested clarification on the definition of a 
material advisor and the threshold fee requirement. In response to 
those comments, the final regulations provide that a person is a 
material advisor if the person is required to register a transaction 
under section 6111, or the person receives at least a minimum fee with 
respect to the transaction and makes a tax statement to certain 
taxpayers. In addition, the IRS and Treasury Department have clarified 
that fees are defined as all fees for services for advice (whether or 
not tax advice) or for the implementation of a transaction that is a 
potentially abusive tax shelter.
    In the final regulations, the IRS and Treasury Department have 
clarified that the procedures for asserting a privilege claim apply to 
information required to be maintained in Sec.  301.6112-1(e)(3)(i)(I) 
that might be privileged. This change reflects the IRS and Treasury 
Department's belief that the other information covered by these 
regulations is not privileged. These procedures neither expand nor 
contract the scope of items that may be privileged.

Effective Date

    Regulations Sec. Sec.  1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 
53.6011-4, 54.6011-4, 56.6011-4, 301.6111-2, and 301.6112-1 apply to 
transactions entered into on or after February 28, 2003.

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. With regard to disclosure and registration, this 
certification is based upon the fact that the time required to prepare 
or retain the disclosure or registration is not lengthy and will not 
have a significant impact on those small entities that are required to 
provide disclosure or to register. With regard to list maintenance, 
this certification is based upon the fact that the number of 
respondents is small, those persons responsible for maintaining the 
list described in the regulations are principally sophisticated 
businesses, including accounting firms and law firms, and very few 
respondents, if any, are likely to be small businesses. 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, the notice of proposed rulemaking preceding 
these regulations was 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 Tara P. Volungis and 
Charlotte Chyr of the 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

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 20

    Estate tax, Reporting and recordkeeping requirements.

26 CFR Part 25

    Gift taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping requirements, Social security, 
Unemployment compensation.

26 CFR Part 53

    Excise taxes, Foundations, Investments, Lobbying, Reporting and 
recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Pensions, Reporting and recordkeeping requirements.

26 CFR Part 56

    Excise taxes, Lobbying, Nonprofit organizations, Reporting and 
recordkeeping requirements.

26 CFR Part 301

    Administrative practice and procedure, 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 1, 20, 25, 31, 53, 54, 56, 301, and 602 
are amended as follows:

PART 1--INCOME TAXES

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

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

    Par. 2. Section 1.6011-4 is added to read as follows:


Sec.  1.6011-4  Requirement of statement disclosing participation in 
certain transactions by taxpayers.

    (a) In general. Every taxpayer that has participated, as described 
in paragraph (c)(3) of this section, in a reportable transaction within 
the meaning of paragraph (b) of this section and who is required to 
file a tax return must attach to its return for the taxable year 
described in paragraph (e) of this section a disclosure statement in 
the form prescribed by paragraph (d) of this section. The fact that a 
transaction is a reportable transaction shall not affect the legal 
determination of whether the taxpayer's treatment of the transaction is 
proper.
    (b) Reportable transactions--(1) In general. A reportable 
transaction is a transaction described in any of the paragraphs (b)(2) 
through (7) of this section. The term transaction includes all of the 
factual elements relevant to the expected tax treatment of any 
investment, entity, plan, or arrangement, and includes any series of 
steps carried out as part of a plan. There are six categories of 
reportable transactions: listed transactions, confidential 
transactions, transactions with contractual protection, loss 
transactions, transactions with a significant book-tax difference, and

[[Page 10164]]

transactions involving a brief asset holding period.
    (2) Listed transactions. A listed transaction is a transaction that 
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.
    (3) Confidential transactions--(i) In general. A confidential 
transaction is a transaction that is offered to a taxpayer under 
conditions of confidentiality. A transaction is considered offered to a 
taxpayer under conditions of confidentiality if the taxpayer's 
disclosure of the tax treatment or the tax structure of the transaction 
is limited in any manner by an express or implied understanding or 
agreement with or for the benefit of any person who makes or provides a 
statement, oral or written, to the taxpayer (or for whose benefit a 
statement is made or provided to the taxpayer) as to the potential tax 
consequences that may result from the transaction, whether or not such 
understanding or agreement is legally binding. A transaction also will 
be considered offered to a taxpayer under conditions of confidentiality 
if the taxpayer knows or has reason to know that the taxpayer's use or 
disclosure of information relating to the tax treatment or tax 
structure of the transaction is limited in any other manner (such as 
where the transaction is claimed to be proprietary or exclusive) for 
the benefit of any person, other than the taxpayer, who makes or 
provides a statement, oral or written, to the taxpayer (or for whose 
benefit a statement is made or provided to the taxpayer) as to the 
potential tax consequences that may result from the transaction. All 
the facts and circumstances relating to the transaction will be 
considered when determining whether a transaction is offered to a 
taxpayer under conditions of confidentiality, including the prior 
conduct of the parties.
    (ii) Exceptions--(A) Securities law. A transaction is not 
considered offered to a taxpayer under conditions of confidentiality if 
disclosure of the tax treatment or tax structure of the transaction is 
subject to restrictions reasonably necessary to comply with securities 
laws and such disclosure is not otherwise limited.
    (B) Mergers and acquisitions. In the case of a proposed taxable or 
tax-free acquisition of historic assets of a corporation (other than an 
investment company, as defined in section 351(e), that is not publicly 
traded) that constitute an active trade or business the acquirer 
intends to continue, or a proposed taxable or tax-free acquisition of 
more than 50 percent of the stock of a corporation (other than an 
investment company, as defined in section 351(e), that is not publicly 
traded) that owns historic assets used in an active trade or business 
the acquirer intends to continue, the transaction is not considered a 
confidential transaction under this paragraph (b)(3) if the taxpayer is 
permitted to disclose the tax treatment and tax structure of the 
transaction no later than the earlier of the date of the public 
announcement of discussions relating to the transaction, the date of 
the public announcement of the transaction, or the date of the 
execution of an agreement (with or without conditions) to enter into 
the transaction. However, this exception is not available where the 
taxpayer's ability to consult any tax advisor (including a tax advisor 
independent from all other entities involved in the transaction) 
regarding the tax treatment or tax structure of the transaction is 
limited in any way.
    (iii) Presumption. Unless the facts and circumstances indicate 
otherwise, a transaction is not considered offered to a taxpayer under 
conditions of confidentiality if every person who makes or provides a 
statement, oral or written, to the taxpayer (or for whose benefit a 
statement is made or provided to the taxpayer) as to the potential tax 
consequences that may result from the transaction, provides express 
written authorization to the taxpayer in substantially the following 
form: ``the taxpayer (and each employee, representative, or other agent 
of the taxpayer) may disclose to any and all persons, without 
limitation of any kind, the tax treatment and tax structure of the 
transaction and all materials of any kind (including opinions or other 
tax analyses) that are provided to the taxpayer relating to such tax 
treatment and tax structure''. Except as provided in paragraph 
(b)(3)(ii) of this section, this presumption is available only in cases 
in which each written authorization permits the taxpayer to disclose 
the tax treatment and tax structure of the transaction immediately upon 
commencement of discussions with the person providing the authorization 
and each written authorization is given no later than 30 days from the 
day the person providing the written authorization first makes or 
provides a statement to the taxpayer regarding the tax consequences of 
the transaction. A transaction that is claimed to be exclusive or 
proprietary to any party other than the taxpayer will not be considered 
a confidential transaction under this paragraph (b)(3) if written 
authorization to disclose is provided to the taxpayer in accordance 
with this paragraph (b)(3)(iii) and the transaction is not otherwise 
confidential.
    (4) Transactions with contractual protection--(i) In general. A 
transaction with contractual protection is a transaction for which the 
taxpayer or a related party (as described in section 267(b) or 707(b)) 
has the right to a full or partial refund of fees (as described in 
paragraph (b)(4)(ii) of this section) if all or part of the intended 
tax consequences from the transaction are not sustained. A transaction 
with contractual protection also is a transaction for which fees (as 
described in paragraph (b)(4)(ii) of this section) are contingent on 
the taxpayer's realization of tax benefits from the transaction. All 
the facts and circumstances relating to the transaction will be 
considered when determining whether a fee is refundable or contingent, 
including the right to reimbursements of amounts that the parties to 
the transaction have not designated as fees or any agreement to provide 
services without reasonable compensation.
    (ii) Fees. Paragraph (b)(4)(i) of this section only applies with 
respect to fees paid by or on behalf of the taxpayer or a related party 
to any person who makes or provides a statement, oral or written, to 
the taxpayer or related party (or for whose benefit a statement is made 
or provided to the taxpayer or related party) as to the potential tax 
consequences that may result from the transaction.
    (iii) Exceptions--(A) Termination of transaction. A transaction is 
not considered to have contractual protection solely because a party to 
the transaction has the right to terminate the transaction upon the 
happening of an event affecting the taxation of one or more parties to 
the transaction.
    (B) Previously reported transaction. If a person makes or provides 
a statement to a taxpayer as to the potential tax consequences that may 
result from a transaction only after the taxpayer has entered into the 
transaction and reported the consequences of the transaction on a filed 
tax return, and the person has not previously received fees from the 
taxpayer relating to the transaction, then any refundable or contingent 
fees are not taken into account in determining whether the transaction 
has contractual protection. This paragraph (b)(4)(iii)(B) does not 
provide any substantive rules regarding when a person may charge 
refundable or contingent fees with respect to a

[[Page 10165]]

transaction. See Circular 230, 31 CFR Part 10, for the regulations 
governing practice before the IRS.
    (5) Loss transactions--(i) In general. A loss transaction is any 
transaction resulting in the taxpayer claiming a loss under section 165 
of at least--
    (A) $10 million in any single taxable year or $20 million in any 
combination of taxable years for corporations;
    (B) $10 million in any single taxable year or $20 million in any 
combination of taxable years for partnerships that have only 
corporations as partners (looking through any partners that are 
themselves partnerships), whether or not any losses flow through to one 
or more partners; or $2 million in any single taxable year or $4 
million in any combination of taxable years for all other partnerships, 
whether or not any losses flow through to one or more partners;
    (C) $2 million in any single taxable year or $4 million in any 
combination of taxable years for individuals, S corporations, or 
trusts, whether or not any losses flow through to one or more 
shareholders or beneficiaries; or
    (D) $50,000 in any single taxable year for individuals or trusts, 
whether or not the loss flows through from an S corporation or 
partnership, if the loss arises with respect to a section 988 
transaction (as defined in section 988(c)(1) relating to foreign 
currency transactions).
    (ii) Cumulative losses. In determining whether a transaction 
results in a taxpayer claiming a loss that meets the threshold amounts 
over a combination of taxable years as described in paragraph (b)(5)(i) 
of this section, only losses claimed in the taxable year that the 
transaction is entered into and the five succeeding taxable years are 
combined.
    (iii) Section 165 loss. (A) For purposes of this section, in 
determining the thresholds in paragraph (b)(5)(i) of this section, the 
amount of a section 165 loss is adjusted for any salvage value and for 
any insurance or other compensation received. See Sec.  1.165-1(c)(4). 
However, a section 165 loss does not take into account offsetting 
gains, or other income or limitations. For example, a section 165 loss 
does not take into account the limitation in section 165(d) (relating 
to wagering losses) or the limitations in sections 165(f), 1211, and 
1212 (relating to capital losses). The full amount of a section 165 
loss is taken into account for the year in which the loss is sustained, 
regardless of whether all or part of the loss enters into the 
computation of a net operating loss under section 172 or a net capital 
loss under section 1212 that is a carryback or carryover to another 
year. A section 165 loss does not include any portion of a loss, 
attributable to a capital loss carryback or carryover from another 
year, that is treated as a deemed capital loss under section 1212.
    (B) For purposes of this section, a section 165 loss includes an 
amount deductible pursuant to a provision that treats a transaction as 
a sale or other disposition, or otherwise results in a deduction under 
section 165. A section 165 loss includes, for example, a loss resulting 
from a sale or exchange of a partnership interest under section 741 and 
a loss resulting from a section 988 transaction.
    (6) Transactions with a significant book-tax difference--(i) In 
general. A transaction with a significant book-tax difference is a 
transaction where the amount for tax purposes of any item or items of 
income, gain, expense, or loss from the transaction differs by more 
than $10 million on a gross basis from the amount of the item or items 
for book purposes in any taxable year. For purposes of this 
determination, offsetting items shall not be netted for either tax or 
book purposes. For purposes of this paragraph (b)(6), the amount of an 
item for book purposes is determined by applying U.S. generally 
accepted accounting principles (U.S. GAAP) for worldwide income. 
However, if a taxpayer, in the ordinary course of its business, keeps 
books for reporting financial results to shareholders, creditors, or 
regulators on a basis other than U.S. GAAP, and does not maintain U.S. 
GAAP books for any purpose, then the taxpayer may determine the amount 
of a book item for purposes of this paragraph (b)(6) by using the books 
maintained by the taxpayer, provided the books are kept on the same 
basis consistently from year to year. Adjustments to any reserve for 
taxes are disregarded for purposes of determining the book-tax 
difference.
    (ii) Applicability--(A) In general. This paragraph (b)(6) applies 
only to--
    (1) Taxpayers that are reporting companies under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a) and related business entities (as 
described in section 267(b) or 707(b)); or
    (2) Business entities that have $250 million or more in gross 
assets for book purposes at the end of any financial accounting period 
that ends with or within the entity's taxable year in which the 
transaction occurs (for purposes of this determination, the assets of 
all related business entities (as defined in section 267(b) or 707(b)) 
must be aggregated).
    (B) Consolidated returns. For purposes of this paragraph (b)(6), in 
the case of taxpayers that are members of a group of affiliated 
corporations filing a consolidated return, transactions solely between 
or among members of the group will be disregarded. Moreover, where two 
or more members of the group participate in a transaction that is not 
solely between or among members of the group, items shall be aggregated 
(as if such members were a single taxpayer), but any offsetting items 
shall not be netted.
    (C) Foreign persons. In the case of a taxpayer that is a foreign 
person (other than a foreign corporation that is treated as a domestic 
corporation for Federal tax purposes under section 269B, 953(d), 
1504(d) or any other provision of the Internal Revenue Code), only 
assets that are U.S. assets under Sec.  1.884-1(d) shall be taken into 
account for purposes of paragraph (b)(6)(ii)(A)(2) of this section, and 
only transactions that give rise to income that is effectively 
connected with the conduct of a trade or business within the United 
States (or to losses, expenses, or deductions allocated or apportioned 
to such income) shall be taken into account for purposes of this 
paragraph (b)(6).
    (D) Owners of disregarded entities. In the case of an eligible 
entity that is disregarded as an entity separate from its owner for 
Federal tax purposes, items of income, gain, loss, or expense that 
otherwise are considered items of the entity for book purposes shall be 
treated as items of its owner, and items arising from transactions 
between the entity and its owner shall be disregarded, for purposes of 
this paragraph (b)(6).
    (E) Partners of partnerships. In the case of a taxpayer that is a 
member or a partner of an entity that is treated as a partnership for 
Federal tax purposes, items of income, gain, loss, or expense that are 
allocable to the taxpayer for Federal tax purposes, but otherwise are 
considered items of the entity for book purposes, shall be treated as 
items of the taxpayer for purposes of this paragraph (b)(6).
    (7) Transactions involving a brief asset holding period. A 
transaction involving a brief asset holding period is any transaction 
resulting in the taxpayer claiming a tax credit exceeding $250,000 
(including a foreign tax credit) if the underlying asset giving rise to 
the credit is held by the taxpayer for 45 days or less. For purposes of 
determining the holding period, the principles of section 246(c)(3) and 
(c)(4) apply. Transactions resulting in a foreign tax credit for 
withholding taxes or other taxes imposed in respect of a dividend that 
are not disallowed under section 901(k) (including transactions 
eligible for the exception for securities

[[Page 10166]]

dealers under section 901(k)(4)) are excluded from this paragraph 
(b)(7).
    (8) Exceptions--(i) In general. A transaction will not be 
considered a reportable transaction, or will be excluded from any 
individual category of reportable transaction under paragraphs (b)(3) 
through (7) of this section, if the Commissioner makes a determination 
by published guidance that the transaction is not subject to the 
reporting requirements of this section. The Commissioner may make a 
determination by individual letter ruling under paragraph (f) of this 
section that an individual letter ruling request on a specific 
transaction or type of transaction satisfies the reporting requirements 
of this section with regard to that transaction or type of transaction 
for the taxpayer who requests the individual letter ruling.
    (ii) Special rule for RICs. For purposes of this section, a 
regulated investment company (RIC) as defined in section 851 or an 
investment vehicle that is owned 95 percent or more by one or more RICs 
at all times during the course of the transaction are not required to 
disclose a transaction that is described in any of paragraphs (b)(3) 
through (7) of this section unless the transaction is also a listed 
transaction.
    (iii) Special rule for lease transactions. For purposes of this 
section, leasing transactions of the type excepted from the 
registration requirements under section 6111(d) of the Code and the 
list maintenance requirements under section 6112 as described in Notice 
2001-18 (2001-1 C.B. 731) (see Sec.  601.601(d)(2) of this chapter) are 
excluded from paragraphs (b)(3) through (7) of this section.
    (c) Definitions. For purposes of this section, the following terms 
are defined as follows:
    (1) Taxpayer. The term taxpayer means any person described in 
section 7701(a)(1), including S corporations. Except as otherwise 
specifically provided in this section, the term taxpayer also includes 
an affiliated group of corporations that joins in the filing of a 
consolidated return under section 1501.
    (2) Corporation. When used specifically in this section, the term 
corporation means an entity that is required to file a return for a 
taxable year on any 1120 series form, or successor form, excluding S 
corporations.
    (3) Participation--(i) In general--(A) Listed transactions. A 
taxpayer has participated in a listed transaction if the taxpayer's tax 
return reflects tax consequences or a tax strategy described in the 
published guidance that lists the transaction under paragraph (b)(2) of 
this section. A taxpayer also has participated in a listed transaction 
if the taxpayer knows or has reason to know that the taxpayer's tax 
benefits are derived directly or indirectly from tax consequences or a 
tax strategy described in published guidance that lists a transaction 
under paragraph (b)(2) of this section. Published guidance may identify 
other types or classes of persons that will be treated as participants 
in a listed transaction.
    (B) Confidential transactions. A taxpayer has participated in a 
confidential transaction if the taxpayer's tax return reflects a tax 
benefit from the transaction and the taxpayer's disclosure of the tax 
treatment or tax structure of the transaction is limited in the manner 
described in paragraph (b)(3) of this section. If a partnership's, S 
corporation's or trust's disclosure is limited, and the partner's, 
shareholder's, or beneficiary's disclosure is not limited, then the 
partnership, S corporation, or trust, and not the partner, shareholder, 
or beneficiary, has participated in the confidential transaction.
    (C) Transactions with contractual protection. A taxpayer has 
participated in a transaction with contractual protection if the 
taxpayer's tax return reflects a tax benefit from the transaction and, 
as described in paragraph (b)(4) of this section, the taxpayer has the 
right to the full or partial refund of fees or the fees are contingent. 
If a partnership, S corporation, or trust has the right to a full or 
partial refund of fees or has a contingent fee arrangement, and the 
partner, shareholder, or beneficiary does not individually have the 
right to the refund of fees or a contingent fee arrangement, then the 
partnership, S corporation, or trust, and not the partner, shareholder, 
or beneficiary, has participated in the transaction with contractual 
protection.
    (D) Loss transactions. A taxpayer has participated in a loss 
transaction if the taxpayer's tax return reflects a section 165 loss 
and the amount of the section 165 loss equals or exceeds the threshold 
amount applicable to the taxpayer as described in paragraph (b)(5)(i) 
of this section. If a taxpayer is a partner in a partnership, 
shareholder in an S corporation, or beneficiary of a trust and a 
section 165 loss as described in paragraph (b)(5) of this section flows 
through the entity to the taxpayer (disregarding netting at the entity 
level), the taxpayer has participated in a loss transaction if the 
taxpayer's tax return reflects a section 165 loss and the amount of the 
section 165 loss that flows through to the taxpayer equals or exceeds 
the threshold amounts applicable to the taxpayer as described in 
paragraph (b)(5)(i) of this section. For this purpose, a tax return is 
deemed to reflect the full amount of a section 165 loss described in 
paragraph (b)(5) of this section allocable to the taxpayer under this 
paragraph (c)(3)(i)(D), regardless of whether all or part of the loss 
enters into the computation of a net operating loss under section 172 
or net capital loss under section 1212 that the taxpayer may carry back 
or carry over to another year.
    (E) Transactions with a significant book-tax difference. A taxpayer 
has participated in a transaction with a significant book-tax 
difference if the taxpayer's tax treatment of an item from the 
transaction differs from the book treatment of that item as described 
in paragraph (b)(6) of this section. In determining whether a 
transaction results in a significant book-tax difference for a 
taxpayer, differences that arise solely because a subsidiary of the 
taxpayer is consolidated with the taxpayer, in whole or in part, for 
book purposes, but not for tax purposes, are not taken into account.
    (F) Transactions involving a brief asset holding period. A taxpayer 
has participated in a transaction involving a brief asset holding 
period if the taxpayer's tax return reflects items giving rise to a tax 
credit described in paragraph (b)(7) of this section. If a taxpayer is 
a partner in a partnership, shareholder in an S corporation, or 
beneficiary of a trust and the items giving rise to a tax credit 
described in paragraph (b)(7) of this section flow through the entity 
to the taxpayer (disregarding netting at the entity level), the 
taxpayer has participated in a transaction involving a brief asset 
holding period if the taxpayer's tax return reflects the tax credit and 
the amount of the tax credit claimed by the taxpayer exceeds $250,000.
    (G) Shareholders of foreign corporations--(1) In general. A 
reporting shareholder of a foreign corporation participates in a 
transaction described in paragraphs (b)(2) through (5) and (b)(7) of 
this section if the foreign corporation would be considered to 
participate in the transaction under the rules of this paragraph (c)(3) 
if it were a domestic corporation filing a tax return that reflects the 
items from the transaction. A reporting shareholder participates in a 
transaction described in paragraph (b)(6) of this section only if the 
foreign corporation would be considered to participate in the 
transaction under the rules of this paragraph (c)(3) if it were

[[Page 10167]]

a domestic corporation and the transaction reduces or eliminates an 
income inclusion that otherwise would be required under section 551, 
951, or 1293. A reporting shareholder (and any successor in interest) 
is considered to participate in a transaction under this paragraph 
(c)(3)(i)(G) only for its first taxable year with or within which ends 
the first taxable year of the foreign corporation in which the foreign 
corporation participates in the transaction, and for the reporting 
shareholder's five succeeding taxable years.
    (2) Reporting shareholder. The term reporting shareholder means a 
United States shareholder (as defined in section 551(a)) in a foreign 
personal holding company (as defined in section 552), a United States 
shareholder (as defined in section 951(b)) in a controlled foreign 
corporation (as defined in section 957), or a 10 percent shareholder 
(by vote or value) of a qualified electing fund (as defined in section 
1295).
    (ii) Examples. The following examples illustrate the provisions of 
paragraph (c)(3)(i) of this section:

    Example 1. Notice 95-53 (1995-2 C.B. 334) (see Sec.  
601.601(d)(2) of this chapter), describes a lease stripping 
transaction in which one party (the transferor) assigns the right to 
receive future payments under a lease of tangible property and 
receives consideration which the transferor treats as current 
income. The transferor later transfers the property subject to the 
lease in a transaction intended to qualify as a transferred basis 
transaction, for example, a transaction described in section 351. 
The transferee corporation claims the deductions associated with the 
high basis property subject to the lease. The transferor's and 
transferee corporation's tax returns reflect tax positions described 
in Notice 95-53. Therefore, the transferor and transferee 
corporation have participated in the listed transaction. In the 
section 351 transaction, the transferor will have received stock 
with low value and high basis from the transferee corporation. If 
the transferor subsequently transfers the high basis/low value stock 
to a taxpayer in another transaction intended to qualify as a 
transferred basis transaction and the taxpayer uses the stock to 
generate a loss, and if the taxpayer knows or has reason to know 
that the tax loss claimed was derived indirectly from the lease 
stripping transaction, then the taxpayer has participated in the 
listed transaction. Accordingly, the taxpayer must disclose the 
transaction and the manner of the taxpayer's participation in the 
transaction under the rules of this section. If a bank lends money 
to the transferor, transferee corporation, or taxpayer for use in 
their transactions, the bank has not participated in the listed 
transaction because the bank's tax return does not reflect tax 
consequences or a tax strategy described in the listing notice (nor 
does the bank's tax return reflect a tax benefit derived from tax 
consequences or a tax strategy described in the listing notice), nor 
is the bank described as a participant in Notice 95-53.
    Example 2. XYZ is a limited liability company treated as a 
partnership for tax purposes. X, Y, and Z are members of XYZ. X is 
an individual, Y is an S corporation, and Z is a partnership. XYZ 
enters into a confidential transaction under paragraph (b)(3) of 
this section. X is bound by the confidentiality agreement, but Y and 
Z are not bound by the agreement. As a result of the transaction, 
XYZ, X, Y, and Z all reflect a tax benefit on their tax returns. 
Because XYZ's and X's disclosure of the tax treatment and tax 
structure are limited in the manner described in paragraph (b)(3) of 
this section and their tax returns reflect a tax benefit from the 
transaction, both XYZ and X have participated in the confidential 
transaction. Neither Y nor Z has participated in the confidential 
transaction because they are not subject to the confidentiality 
agreement.
    Example 3. Partnership AB has gross assets with a book value of 
over $250 million. Partner A is an SEC reporting company and partner 
B is an individual. AB enters into a transaction that results in a 
book-tax difference for AB of $25 million. The transaction is a 
reportable transaction for AB under paragraph (b)(6) of this section 
because the book-tax difference exceeds $10 million. As a result of 
A's partnership interest in AB and the allocation of items relating 
to the transaction to A, A has a book-tax difference of $11 million. 
The transaction is a reportable transaction for A under paragraph 
(b)(6) of this section because the $11 million book-tax difference 
exceeds $10 million. However, even though $14 million of the book-
tax difference would be allocated to B, the transaction is not a 
reportable transaction for B under paragraph (b)(6) of this section 
because B, an individual, is not subject to paragraph (b)(6) of this 
section.
    Example 4. (i) P corporation, the parent corporation of a group 
of corporations that file a consolidated tax return, owns 60% of the 
stock of T corporation. T files its own tax return and is not 
included as a member of the P group on the P group consolidated tax 
return. For book purposes, some or all of T's income is included by 
the group of corporations that includes P. T engages in a 
transaction that results in items of book income but does not result 
in items of income for tax purposes. P and T are SEC reporting 
companies.

    (ii) T participated in the transaction. T has no items of 
taxable income but has items of book income. If items from the 
transaction result in a book-tax difference determined in accordance 
with paragraph (b)(6) of this section of $10 million in any single 
year, T will be required to file Form 8886. The P group did not 
participate in the transaction, and does not have a book-tax 
difference for purposes of paragraph (b)(6) of this section because, 
even if the P group included $10 million in book income, the book 
tax difference arises solely because T is not part of P's 
consolidated group for tax purposes.
    (iii) If the facts were changed so that P corporation owned 80% 
of the stock of T and T was a member of the P consolidated group for 
tax purposes, the P group would be the taxpayer that participated in 
the transaction. If, in any single year, the transaction produced 
items of income for book purposes of $10 million but no items of 
taxable income, P would be required to file Form 8886. This result 
would not change if T separately reported its items for book 
purposes, if P reported none of T's items on its consolidated 
financial statements, or if the P consolidated financial statements 
included only part of a $10 million book-tax difference relating to 
items from T's transaction.

    Example 5. Domestic corporations X and Y each own 50 percent of 
the voting stock of CFC, a controlled foreign corporation. X, Y, and 
CFC each use the calendar year as their taxable year. CFC is not 
engaged in the conduct of a trade or business within the United 
States and has no U.S. source income. Accordingly, CFC is not 
required to file a U.S. Federal income tax return. See Sec.  1.6012-
2(g). Under paragraph (c)(3)(i)(G)(2) of this section, X and Y are 
reporting shareholders with respect to CFC. CFC purchases a Euro-
denominated bond on June 1, 2003, for 104,400,000 Euros. The bond 
matures on June 7, 2003, and CFC collects 104,500,000 Euros, equal 
to the bond's 100,000,000 Euro face amount plus 5,000,000 Euros of 
accrued but unpaid interest, less a 10% foreign withholding tax of 
500,000 Euros. The average dollar-Euro exchange rate for the year is 
$.80 = 1 Euro, so CFC adds $400,000 to its post-1986 foreign income 
taxes pool as a result of the transaction. See sections 986(a)(1) 
and 902(c)(2). Under paragraph (c)(3)(i)(G)(1) of this section, X 
and Y have each participated in a transaction involving a brief 
asset holding period described in paragraph (b)(7) of this section 
for their taxable years 2003 through 2008 because both X and Y are 
reporting shareholders of CFC, and CFC would have been considered to 
have participated in a reportable transaction if it were a domestic 
corporation.

    (4) 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 disclosure. The following examples 
illustrate situations where a transaction is the same as or 
substantially similar to a listed transaction under paragraph (b)(2) of 
this section. (Such transactions may also be reportable transactions 
under paragraphs (b)(3) through (7) of this section.) The following 
examples

[[Page 10168]]

illustrate the provisions of this paragraph (c)(4):

     Example 1. Notice 2000-44 (2000-2 C.B. 255) (see Sec.  
601.601(d)(2) of this chapter), sets forth a listed transaction 
involving offsetting options transferred to a partnership where the 
taxpayer claims basis in the partnership for the cost of the 
purchased options but does not adjust basis under section 752 as a 
result of the partnership's assumption of the taxpayer's obligation 
with respect to the options. Transactions using short sales, 
futures, derivatives or any other type of offsetting obligations to 
inflate basis in a partnership interest would be the same as or 
substantially similar to the transaction described in Notice 2000-
44. Moreover, use of the inflated basis in the partnership interest 
to diminish gain that would otherwise be recognized on the transfer 
of a partnership asset would also be the same as or substantially 
similar to the transaction described in Notice 2000-44.
     Example 2. Notice 2001-16 (2001-1 C.B. 730) (see Sec.  
601.601(d)(2) of this chapter), sets forth a listed transaction 
involving a seller (X) who desires to sell stock of a corporation 
(T), an intermediary corporation (M), and a buyer (Y) who desires to 
purchase the assets (and not the stock) of T. M agrees to facilitate 
the sale to prevent the recognition of the gain that T would 
otherwise report. Notice 2001-16 describes M as a member of a 
consolidated group that has a loss within the group or as a party 
not subject to tax. Transactions utilizing different intermediaries 
to prevent the recognition of gain would be the same as or 
substantially similar to the transaction described in Notice 2001-
16. An example is a transaction in which M is a corporation that 
does not file a consolidated return but which buys T stock, 
liquidates T, sells assets of T to Y, and offsets the gain 
recognized on the sale of those assets with currently generated 
losses.

    (5) Tax. For purposes of this section, the term tax means Federal 
income tax.
    (6) Tax benefit. A tax benefit includes deductions, exclusions from 
gross income, nonrecognition of gain, tax credits, adjustments (or the 
absence of adjustments) to the basis of property, status as an entity 
exempt from Federal income taxation, and any other tax consequences 
that may reduce a taxpayer's Federal income tax liability by affecting 
the amount, timing, character, or source of any item of income, gain, 
expense, loss, or credit.
    (7) Tax return. For purposes of this section, the term tax return 
means a Federal income tax return and a Federal information return.
    (8) Tax treatment. The tax treatment of a transaction is the 
purported or claimed Federal income tax treatment of the transaction.
    (9) Tax structure. The tax structure of a transaction is any fact 
that may be relevant to understanding the purported or claimed Federal 
income tax treatment of the transaction.
    (d) Form and content of disclosure statement. The IRS will release 
Form 8886, ``Reportable Transaction Disclosure Statement'' (or a 
successor form), for use by taxpayers in accordance with this paragraph 
(d). A taxpayer required to file a disclosure statement under this 
section must file a completed Form 8886 in accordance with the 
instructions to the form. The Form 8886 is the disclosure statement 
required under this section. The form must be attached to the 
appropriate tax returns as provided in paragraph (e) of this section. 
If a copy of a disclosure statement is required to be sent to the 
Office of Tax Shelter Analysis (OTSA) under paragraph (e) of this 
section, it must 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.
    (e) Time of providing disclosure--(1) In general. The disclosure 
statement for a reportable transaction must be attached to the 
taxpayer's tax return for each taxable year for which a taxpayer 
participates in a reportable transaction. In addition, a copy of the 
disclosure statement must be sent to OTSA at the same time that any 
disclosure statement is first filed with the taxpayer's tax return. If 
a reportable transaction results in a loss which is carried back to a 
prior year, the disclosure statement for the reportable transaction 
must be attached to the taxpayer's application for tentative refund or 
amended tax return for that prior year. In the case of a taxpayer that 
is a partnership or S corporation, the disclosure statement for a 
reportable transaction must be attached to the partnership's or S 
corporation's tax return for each taxable year in which the partnership 
or S corporation participates in the transaction under the rules of 
paragraph (c)(3)(i) of this section.
    (2) Special rules--(i) Listed transactions. If a transaction 
becomes a listed transaction after the filing of the taxpayer's final 
tax return reflecting either tax consequences or a tax strategy 
described in the published guidance listing the transaction (or a tax 
benefit derived from tax consequences or a tax strategy described in 
the published guidance listing the transaction) and before the end of 
the statute of limitations period for that return, then a disclosure 
statement must be filed as an attachment to the taxpayer's tax return 
next filed after the date the transaction is listed.
    (ii) Loss transactions. If a transaction becomes a loss transaction 
because the losses equal or exceed the threshold amounts as described 
in paragraph (b)(5)(i) of this section, a disclosure statement must be 
filed as an attachment to the taxpayer's tax return for the first 
taxable year in which the threshold amount is reached and to any 
subsequent tax return that reflects any amount of section 165 loss from 
the transaction.
    (3) Multiple disclosures. The taxpayer must disclose the 
transaction in the time and manner provided for under the provisions of 
this section regardless of whether the taxpayer also plans to disclose 
the transaction under other published guidance, for example, Rev. Proc. 
94-69 (1994-2 C.B. 804) (see Sec.  601.601(d)(2) of this chapter).
    (4) Example. The following example illustrates the application of 
this paragraph (e):

     Example. In January of 2004, F, a domestic calendar year 
corporation, enters into a transaction that is not a listed 
transaction when entered into and is not a transaction described in 
any of the paragraphs (b)(3) through (7) of this section. All the 
tax benefits from the transaction are reported on F's 2004 tax 
return. On March 1, 2008, the IRS publishes a notice identifying the 
transaction as a listed transaction described in paragraph (b)(2) of 
this section. Thus, upon issuance of the notice, the transaction 
becomes a reportable transaction described in paragraph (b) of this 
section. The statute of limitations for F's 2004 taxable year is 
still open. F is required to file Form 8886 for the transaction as 
an attachment to F's next filed Federal income tax return and must 
send a copy of Form 8886 to OTSA. If F's 2007 Federal income tax 
return has not been filed on or before the date the Service 
identifies the transaction as a listed transaction, Form 8886 must 
be attached to F's 2007 return and at that time a copy of Form 8886 
must be sent to OTSA.
    (f) Rulings and protective disclosures--(1) Requests for ruling. A 
taxpayer may, on or before the date that disclosure would otherwise be 
required under this section, submit a request to the IRS for a ruling 
as to whether a transaction is subject to the disclosure requirements 
of this section. If the request fully discloses all relevant facts 
relating to the transaction, the potential obligation of that taxpayer 
to disclose 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 reportable transaction subject to disclosure 
under this section, until the 60th day after the issuance of the ruling 
(or, if the request is withdrawn, 60 days after the date that the 
request is withdrawn). Furthermore, in that taxpayer's individual 
ruling, the Commissioner in his discretion may determine that the 
submission satisfies the disclosure rules under this section for that 
particular transaction or type of transaction.

[[Page 10169]]

    (2) Protective disclosures. If a taxpayer is uncertain whether a 
transaction must be disclosed under this section, the taxpayer may 
disclose the transaction in accordance with the requirements of this 
section, and indicate on the disclosure statement that the taxpayer is 
uncertain whether the transaction is required to be disclosed under 
this section and that the disclosure statement is being filed on a 
protective basis.
    (3) Rulings on the merits of a transaction. If a taxpayer requests 
a ruling on the merits of a specific transaction on or before the date 
that disclosure would otherwise be required under this section, and 
receives a favorable ruling as to the transaction, the disclosure rules 
under this section will be deemed to have been satisfied by that 
taxpayer with regard to that transaction, so long as the request fully 
discloses all relevant facts relating to the transaction which would 
otherwise be required to be disclosed under this section.
    (g) Retention of documents. In accordance with the instructions to 
Form 8886, the taxpayer must retain a copy of all documents and other 
records related to a transaction subject to disclosure under this 
section that are material to an understanding of the tax treatment or 
tax structure of the transaction. The documents must be retained until 
the expiration of the statute of limitations applicable to the final 
taxable year for which disclosure of the transaction was required under 
this section. (This document retention requirement is in addition to 
any document retention requirements that section 6001 generally imposes 
on the taxpayer.) The documents may include the following: marketing 
materials related to the transaction; written analyses used in 
decision-making related to the transaction; correspondence and 
agreements between the taxpayer and any advisor, lender, or other party 
to the reportable transaction that relate to the transaction; documents 
discussing, referring to, or demonstrating the purported or claimed tax 
benefits arising from the reportable transaction; and documents, if 
any, referring to the business purposes for the reportable transaction. 
A taxpayer is not required to retain earlier drafts of a document if 
the taxpayer retains a copy of the final document (or, if there is no 
final document, the most recent draft of the document) and the final 
document (or most recent draft) contains all the information in the 
earlier drafts of the document that is material to an understanding of 
the purported tax treatment or tax structure of the transaction.
    (h) Effective dates. This section applies to Federal income tax 
returns filed after February 28, 2000. However, paragraphs (a) through 
(g) of this section apply to transactions entered into on or after 
February 28, 2003. All the rules in paragraphs (a) through (g) of this 
section may be relied upon for transactions entered into on or after 
January 1, 2003, and before February 28, 2003. Otherwise, the rules 
that apply with respect to transactions entered into before February 
28, 2003 are contained in Sec.  1.6011-4T in effect prior to February 
28, 2003 (see 26 CFR part 1 revised as of April 1, 2002, 2002-28 I.R.B. 
90, and 2002-45 I.R.B. 818 (see Sec.  601.601(d)(2) of this chapter)).


Sec.  1.6011-4T  [Removed]

    Par. 3. Section 1.6011-4T is removed.

PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954

    Par. 4. The authority citation for part 20 continues to read in 
part as follows:

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

    Par. 5. Section 20.6011-4 is added to read as follows:


Sec.  20.6011-4  Requirement of statement disclosing participation in 
certain transactions by taxpayers.

    (a) In general. If a transaction is identified as a listed 
transaction as defined in Sec.  1.6011-4 of this chapter by the 
Commissioner in published guidance (see Sec.  601.601(d)(2) of this 
chapter), and the listed transaction involves an estate tax under 
chapter 11 of subtitle B of the Internal Revenue Code, the transaction 
must be disclosed in the manner stated in such published guidance.
    (b) Effective date. This section applies to transactions entered 
into on or after January 1, 2003.


Sec.  20.6011-4T  [Removed]

    Par. 6. Section 20.6011-4T is removed.

PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

    Par. 7. The authority citation for part 25 continues to read in 
part as follows:

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


    Par. 8. Section 25.6011-4 is added to read as follows:


Sec.  25.6011-4  Requirement of statement disclosing participation in 
certain transactions by taxpayers.

    (a) In general. If a transaction is identified as a listed 
transaction as defined in Sec.  1.6011-4 of this chapter by the 
Commissioner in published guidance (see Sec.  601.601(d)(2) of this 
chapter), and the listed transaction involves a gift tax under chapter 
12 of subtitle B of the Internal Revenue Code, the transaction must be 
disclosed in the manner stated in such published guidance.
    (b) Effective date. This section applies to transactions entered 
into on or after January 1, 2003.


Sec.  25.6011-4T  [Removed]

    Par. 9. Section 25.6011-4T is removed.

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE 
SOURCE

    Par. 10. The authority citation for part 31 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Par. 11. Section 31.6011-4 is added to read as follows:


Sec.  31.6011-4  Requirement of statement disclosing participation in 
certain transactions by taxpayers.

    (a) In general. If a transaction is identified as a listed 
transaction as defined in Sec.  1.6011-4 of this chapter by the 
Commissioner in published guidance (see Sec.  601.601(d)(2) of this 
chapter), and the listed transaction involves an employment tax under 
chapters 21 through 25 of subtitle C of the Internal Revenue Code, the 
transaction must be disclosed in the manner stated in such published 
guidance.
    (b) Effective date. This section applies to transactions entered 
into on or after January 1, 2003.


Sec.  31.6011-4T  [Removed]

    Par. 12. Section 31.6011-4T is removed.

PART 53--FOUNDATION AND SIMILAR EXCISE TAXES

    Par. 13. The authority citation for part 53 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 14. Section 53.6011-4 is added to read as follows:


Sec.  53.6011-4  Requirement of statement disclosing participation in 
certain transactions by taxpayers.

    (a) In general. If a transaction is identified as a listed 
transaction as defined in Sec.  1.6011-4 of this chapter by the 
Commissioner in published guidance (see Sec.  601.601(d)(2) of this 
chapter), and the listed transaction involves an excise tax under 
chapter 42 of subtitle D of the Internal Revenue

[[Page 10170]]

Code (relating to private foundations and certain other tax-exempt 
organizations), the transaction must be disclosed in the manner stated 
in such published guidance.
    (b) Effective date. This section applies to transactions entered 
into on or after January 1, 2003.


Sec.  53.6011-4T  [Removed]

    Par. 15. Section 53.6011-4T is removed.

PART 54--PENSION EXCISE TAXES

    Par. 16. The authority citation for part 54 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Par. 17. Section 54.6011-4 is added to read as follows:


Sec.  54.6011-4  Requirement of statement disclosing participation in 
certain transactions by taxpayers.

    (a) In general. If a transaction is identified as a listed 
transaction as defined in Sec.  1.6011-4 of this chapter by the 
Commissioner in published guidance (see Sec.  601.601(d)(2) of this 
chapter), and the listed transaction involves an excise tax under 
chapter 43 of subtitle D of the Internal Revenue Code (relating to 
qualified pension, etc., plans), the transaction must be disclosed in 
the manner stated in such published guidance.
    (b) Effective date. This section applies to transactions entered 
into on or after January 1, 2003.


Sec.  54.6011-4T  [Removed]

    Par. 18. Section 54.6011-4T is removed.

PART 56--PUBLIC CHARITY EXCISE TAXES

    Par. 19. The authority citation for part 56 continues to read in 
part as follows:

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

    Par. 20. Section 56.6011-4 is added to read as follows:


Sec.  56.6011-4  Requirement of statement disclosing participation in 
certain transactions by taxpayers.

    (a) In general. If a transaction is identified as a listed 
transaction as defined in Sec.  1.6011-4 of this chapter by the 
Commissioner in published guidance (see Sec.  601.601(d)(2) of this 
chapter), and the listed transaction involves an excise tax under 
chapter 41 of subtitle D of the Internal Revenue Code (relating to 
public charities), the transaction must be disclosed in the manner 
stated in such published guidance.
    (b) Effective date. This section applies to transactions entered 
into on or after January 1, 2003.


Sec.  56.6011-4T  [Removed]

    Par. 21. Section 56.6011-4T is removed.

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 22. The authority citation for part 301 continues to read in 
part as follows:

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

    Par. 23. Section 301.6111-2 is added as follows:


Sec.  301.6111-2  Confidential corporate tax shelters.

    (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 relevant to the 
expected tax treatment of any investment, entity, plan, or arrangement, 
and include any series of steps carried out as part of a plan. For 
purposes of this section, 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 registration. For examples, see Sec.  
1.6011-4(c)(4) of this chapter.
    (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) or (3) 
of this section. However, a transaction described in paragraph (b)(3) 
of this section need not be registered if the transaction is described 
in paragraph (b)(4) 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, status as an entity 
exempt from Federal income taxation, and any other tax consequences 
that may reduce a taxpayer's Federal income tax liability by affecting 
the amount, timing, character, or source of any item of income, gain, 
expense, 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. 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 
paragraphs (a)(2)(ii) and (iii) of this section.
    (3) Other tax-structured transactions. A transaction is described 
in this paragraph (b)(3) 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)

[[Page 10171]]

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 in a form consistent 
with customary commercial practice (a transaction involving the 
acquisition, disposition, or restructuring of a business, including the 
acquisition, disposition, or other change in the ownership or control 
of an entity that is engaged in a business, or a transaction involving 
a recapitalization or an acquisition of capital for use in the 
taxpayer's business, shall be considered a transaction carried out in 
the ordinary course of a taxpayer's business); and
    (ii) There is a generally accepted understanding that the expected 
Federal income tax benefits from the transaction (taking into account 
any combination of intended tax consequences) are properly allowable 
under the Internal Revenue Code for substantially similar transactions. 
There is no minimum period of time for which such a generally accepted 
understanding must exist. In general, however, a tax shelter promoter 
(or other person who would be responsible for registration under this 
section) cannot reasonably determine whether the intended tax treatment 
of a transaction has become generally accepted unless information 
relating to the tax treatment and tax structure of such transactions 
has been in the public domain (e.g., rulings, published articles, etc.) 
and widely known for a sufficient period of time (ordinarily a period 
of years) to provide knowledgeable tax practitioners and the IRS 
reasonable opportunity to evaluate the intended tax treatment. The mere 
fact that one or more knowledgeable tax practitioners have provided an 
opinion or advice to the effect that the intended tax treatment of the 
transaction should or will be sustained, if challenged by the IRS, is 
not sufficient to satisfy the requirements of this paragraph 
(b)(3)(ii).
    (4) 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)(4)(i), (ii), or (iii) 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. This paragraph (b)(4)(i) 
applies only if the tax shelter promoter (or other person who would be 
responsible for registration under this section) reasonably determines 
that there is no basis that would meet the standard applicable to 
taxpayers under Sec.  1.6662-3(b)(3) of this chapter under which the 
IRS could disallow any significant portion of the expected Federal 
income tax benefits of the transaction. Thus, the reasonable basis 
standard is not satisfied by an IRS position that would be merely 
arguable or that would constitute merely a colorable claim. However, 
the determination of whether the IRS would or would not have a 
reasonable basis for such a position 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, 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)). The determination of 
whether the IRS would or would not have such a reasonable basis is 
qualitative in nature and does not depend on any percentage or other 
quantitative assessment of the likelihood that the taxpayer would 
ultimately prevail if a significant portion of the expected tax 
benefits were disallowed by the IRS.
    (ii) The IRS makes a determination by published guidance that the 
transaction is not subject to the registration requirements of this 
section.
    (iii) The IRS makes a determination by individual ruling under 
paragraph (b)(5) of this section that a specific transaction is not 
subject to the registration requirements of this section for the 
taxpayer requesting the ruling.
    (5) 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.
    (6) Example. The following example illustrates the application of 
paragraphs (b)(1) through (4) of this section. Assume, for purposes of 
the example, that the transaction is not the same as or substantially 
similar to any of the types of transactions that the IRS has identified 
as listed transactions under section 6111 and, thus, is not described 
in paragraph (b)(2) of this section. The example is as follows:

    Example. (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 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 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)(3) of this section. However, if Y is uncertain whether this 
transaction is described in paragraph (b)(3) of this section, or is 
otherwise uncertain whether registration is required, Y may apply 
for a ruling under paragraph (b)(5) of this section, and Y will not 
be required to register the transaction while the ruling is pending 
or for sixty days thereafter.

    (c) Conditions of confidentiality--(1) In general. All the facts 
and circumstances relating to the transaction will be considered when 
determining

[[Page 10172]]

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 tax treatment or tax structure of the transaction is limited in 
any manner 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. The tax treatment of a 
transaction is the purported or claimed Federal income tax treatment of 
the transaction. The tax structure of a transaction is any fact that 
may be relevant to understanding the purported or claimed Federal 
income tax treatment of the transaction. 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 offeree's use or disclosure of information relating to the tax 
treatment or tax structure of the transaction is limited for the 
benefit of any person other than the offeree in any other manner, such 
as where the transaction is claimed to be proprietary or exclusive to 
the tax shelter promoter or any party other than the offeree.
    (2) Exceptions--(i) Securities law. An offer is not considered made 
under conditions of confidentiality if disclosure of the tax treatment 
or tax structure of the transaction is subject to restrictions 
reasonably necessary to comply with securities laws and such disclosure 
is not otherwise limited.
    (ii) Mergers and acquisitions. In the case of a proposed taxable or 
tax-free acquisition of historic assets of a corporation (other than an 
investment company, as defined in section 351(e), that is not publicly 
traded) that constitute an active trade or business the acquirer 
intends to continue, or a proposed taxable or tax-free acquisition of 
more than 50 percent of the stock of a corporation (other than an 
investment company, as defined in section 351(e), that is not publicly 
traded) that owns historic assets used in an active trade or business 
the acquirer intends to continue, the transaction is not considered 
offered under conditions of confidentiality under paragraph (c)(1) of 
this section if the offeree is permitted to disclose the tax treatment 
and tax structure of the transaction no later than the earlier of the 
date of the public announcement of discussions relating to the 
transaction, the date of the public announcement of the transaction, or 
the date of the execution of an agreement (with or without conditions) 
to enter into the transaction. However, this exception is not available 
where the offeree's ability to consult any tax advisor (including a tax 
advisor independent from all other entities involved in the 
transaction) regarding the tax treatment or tax structure of the 
transaction is limited in any way.
    (3) Presumption. Unless facts and circumstances indicate otherwise, 
an offer is not considered made under conditions of confidentiality if 
the tax shelter promoter provides express written authorization to each 
offeree permitting the offeree (and each employee, representative, or 
other agent of such offeree) to disclose to any and all persons, 
without limitation of any kind, the tax treatment and tax structure of 
the transaction, and all materials of any kind (including opinions or 
other tax analyses) that are provided to the offeree related to such 
tax treatment and tax structure. Except as provided in paragraph (c)(2) 
of this section, this presumption is available only in cases in which 
each written authorization permits the offeree to disclose the tax 
treatment and tax structure of the transaction immediately upon 
commencement of discussions with the tax shelter promoter providing the 
authorization and each written authorization is given no later than 30 
days from the day the tax shelter promoter commenced discussions with 
the offeree. A transaction that is exclusive or proprietary to any 
party other than the offeree will not be considered offered under 
conditions of confidentiality if written authorization to disclose is 
provided to the offeree in accordance with this paragraph (c)(3) and 
the transaction is not otherwise confidential.
    (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) 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 next offering for sale of 
interests in the shelter. If, subsequent to the first offering for 
sale, a transaction becomes a confidential corporate tax shelter 
because the transaction becomes a listed transaction on or after 
February 28, 2003, 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 within 
60 days after the transaction becomes a listed transaction/confidential 
corporate tax shelter if any interests were offered for sale within the 
previous six years.
    (2) Procedures for registering. 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).) 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.

[[Page 10173]]

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.
    (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 and any other person who participates in the 
organization, management or sale of a tax shelter (as those persons are 
described in section 6111(e)(1) and Sec.  301.6111-1T (Q&A-26 through 
Q&A-33) or any person related (within the meaning of section 267 or 
707) to such tax shelter organizer or such other person.
    (g) Person required to register--(1) Tax shelter promoters. The 
rules in section 6111 (a) and (e) and Sec.  301.6111-1T (Q&A-34 through 
Q&A-39) determine who is required to register a confidential corporate 
tax shelter. A promoter of a confidential corporate tax shelter must 
register the tax shelter only if it is a person required to register 
under the rules in section 6111(a) and (e) and Sec.  301.6111-1T (Q&A-
34 through Q&A-39).
    (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).
    (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 dates. 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. However, paragraphs (a) through (g) of this section 
apply to confidential corporate tax shelters in which any interests are 
offered for sale on or after February 28, 2003, and to transactions 
described in paragraph (e)(1)(ii) of this section. The rules that apply 
to confidential corporate tax shelters in which any interests are 
offered for sale after February 28, 2000, and before February 28, 2003, 
are contained in Sec.  301.6111-2T in effect prior to February 28, 2003 
(see 26 CFR part 301 revised as of April 1, 2002, 2002-28 I.R.B 91, and 
2002-45 I.R.B. 823 (see Sec.  601.601(d)(2) of this chapter)).


Sec.  301.6111-2T  [Removed]

    Par. 24. Section 301.6111-2T is removed.
    Par. 25. Section 301.6112-1 is added as follows:


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

    (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 (IRS) 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 the expected tax treatment of any 
investment, entity, plan, or

[[Page 10174]]

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 IRS 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--
(i) In general. A transaction that has a potential for tax avoidance or 
evasion includes--
    (A) Any listed transaction as defined in Sec.  1.6011-4(b)(2) of 
this chapter that is subject to disclosure under Sec. Sec.  1.6011-4, 
20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of 
this chapter;
    (B) Any transaction that a potential material advisor (at the time 
the transaction is entered into or an interest is acquired) knows is or 
reasonably expects will become a reportable transaction under Sec.  
1.6011-4(b)(3) through (7) of this chapter; and
    (C) Any interest in a type of transaction that is transferred if 
the transferor knows or reasonably expects that the transferee will 
sell or transfer an interest in that type of transaction to another 
transferee (subsequent participant), and the type of transaction would 
be a listed transaction under Sec. Sec.  1.6011-4, 20.6011-4, 25.6011-
4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, or a 
transaction described in Sec.  1.6011-4(b)(3) through (7) of this 
chapter assuming that the relevant thresholds are met.
    (ii) 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. Sec.  1.6011-4, 
20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of 
this chapter.
    (iii) If a transaction becomes a potentially abusive tax shelter on 
or after February 28, 2003, because it is a listed transaction as 
defined in Sec.  1.6011-4 of this chapter and is subject to disclosure 
under Sec.  1.6011-4 of this chapter this section shall apply with 
respect to any such transaction entered into or any interest acquired 
therein after February 28, 2000 (including interests acquired before 
the transaction becomes a listed transaction). If a transaction becomes 
a listed transaction as defined in Sec.  1.6011-4 of this chapter and 
is subject to disclosure under Sec. Sec.  20.6011-4, 25.6011-4, 
31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, this 
section shall apply with respect to any such transaction entered into 
or any interest acquired therein on or after January 1, 2003 (including 
interests acquired before the transaction becomes a listed 
transaction).
    (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--(i) In general. A person is a material 
advisor with respect to a transaction that is a potentially abusive tax 
shelter if the person is required to register the transaction under 
section 6111; or the person receives or expects to receive at least a 
minimum fee (as defined in paragraph (c)(3) of this section) with 
respect to the transaction, and the person makes a tax statement (as 
defined in paragraph (c)(2)(iii) of this section) to or for the benefit 
of--
    (A) A taxpayer who is required to disclose the transaction under 
Sec. Sec.  1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 
54.6011-4, or 56.6011-4 of this chapter because the transaction is a 
listed transaction or who would have been required to disclose a listed 
transaction under Sec. Sec.  1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 
53.6011-4, 54.6011-4, or 56.6011-4 of this chapter if the transaction 
had become a listed transaction within the statute of limitations 
period in Sec.  1.6011-4(e)(2);
    (B) A taxpayer who the potential material advisor (at the time the 
transaction is entered into) knows is or reasonably expects to be 
required to disclose the transaction under Sec.  1.6011-4 because the 
transaction is or is reasonably expected to become a transaction 
described in Sec.  1.6011-4(b)(3) through (7);
    (C) A person who is required to register the transaction under 
section 6111;
    (D) A person who purchases (or otherwise acquires) an interest in a 
section 6111 tax shelter; or
    (E) A transferee of an interest if the interest is described in 
paragraph (b)(2)(i)(C) of this section.
    (ii) Special rules. A material advisor generally does not include a 
person who makes a tax statement solely in the person's capacity as an 
employee, shareholder, partner or agent of another person. Any tax 
statement made by that person will be attributed to that person's 
employer, corporation, partnership or principal. However, 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.
    (iii) Tax statement--(A) In general. A tax statement means any 
statement, oral or written, that relates to a tax aspect of a 
transaction that causes the transaction to be a reportable transaction 
as defined in Sec.  1.6011-4(b)(2) through (7) or a tax shelter as 
described in section 6111.
    (B) Confidential transactions. A tax statement relates to an aspect 
of a transaction that causes it to be a confidential transaction if the 
statement concerns a tax benefit related to the transaction and either 
the taxpayer's disclosure of the tax treatment or tax structure of the 
transaction is limited in the manner described in Sec.  1.6011-4(b)(3) 
of this chapter by or for the benefit of the person making the 
statement, or the person making the statement knows the taxpayer's 
disclosure of the tax structure or tax aspects of the transaction is 
limited in the manner described in Sec.  1.6011-4(b)(3) of this 
chapter.
    (C) Transactions with contractual protection. A tax statement 
relates to an aspect of a transaction that causes it to be a 
transaction with contractual protection if the statement concerns a tax 
benefit related to the transaction and either--
    (1) The taxpayer has the right to a full or partial refund of fees 
paid to the person making the statement or if these fees are contingent 
in the manner described in Sec.  1.6011-4(b)(4) of this chapter; or
    (2) The person making the statement knows that the taxpayer has the 
right to a full or partial refund of fees (as described in Sec.  
1.6011-4(b)(4)(ii)) paid to another if all or part of the intended tax 
consequences from the transaction are not sustained or that fees (as 
described in Sec.  1.6011-4(b)(4)(ii)) paid by the taxpayer to another 
are contingent on the taxpayer's realization of tax benefits from the 
transaction in the manner described in Sec.  1.6011-4(b)(4) of this 
chapter.
    (D) Loss transactions. A tax statement relates to an aspect of a 
transaction that causes it to be a loss transaction if the statement 
concerns an item that gives rise to a loss described in Sec.  1.6011-
4(b)(5) of this chapter.
    (E) Transactions with a significant book-tax difference. A tax 
statement relates to an aspect of a transaction that causes it to be a 
transaction with a significant book-tax difference if the statement 
concerns an item that gives rise to a book-tax difference described in 
Sec.  1.6011-4(b)(6) of this chapter.
    (F) Transactions involving a brief asset holding period. A tax 
statement relates to an aspect of a transaction

[[Page 10175]]

involving a brief asset holding period if the statement concerns an 
item that gives rise to a tax credit described in Sec.  1.6011-4(b)(7) 
of this chapter.
    (iv) Exceptions--(A) Post-filing advice. A person will not be 
considered to be a material advisor with respect to a transaction if 
that person does not make or provide a tax statement regarding the 
transaction until after the first tax return reflecting tax benefit(s) 
of the transaction is filed with the IRS.
    (B) Publicly-filed statements. A tax statement with respect to a 
transaction that includes only information about the transaction 
contained in publicly-available documents filed with the Securities and 
Exchange Commission no later than the close of the transaction will not 
be considered a tax statement to or for the benefit of a person 
described in paragraph (c)(2)(i)(A) through (E) of this section.
    (3) Minimum fee--(i) In general. The minimum fee is $250,000 for a 
transaction if every person to whom or for whose benefit the potential 
material advisor makes or provides a tax statement with respect to the 
transaction is a corporation. The minimum fee is $50,000 for a 
transaction if any person to whom or for whose benefit a potential 
material advisor makes or provides a tax statement with respect to the 
transaction is a partnership or trust, unless all owners or 
beneficiaries are corporations (looking through any partners or 
beneficiaries that are themselves partnerships or trusts), in which 
case the minimum fee is $250,000. For all other transactions, the 
minimum fee is $50,000. For purposes of this paragraph (c)(3)(i) a 
corporation means a corporation other than an S corporation.
    (ii) Listed transactions. For listed transactions described in 
Sec. Sec.  1.6011-4(b)(2), 20.6011-4(a), 25.6011-4(a), 31.6011-4(a), 
53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter, the 
minimum fees in paragraph (c)(3)(i) of this section are reduced from 
$250,000 to $25,000 and from $50,000 to $10,000.
    (iii) Determination of fees. In determining whether the minimum fee 
threshold is satisfied, all fees for services for advice (whether or 
not tax advice) or for the implementation of a transaction that is a 
potentially abusive tax shelter are taken into account. For purposes of 
this section, the minimum fee threshold must be met independently for 
each transaction that is a potentially abusive tax shelter and 
aggregation of fees among transactions is not required. Fees for advice 
or implementation include consideration in whatever form paid, whether 
in cash or in kind, for services to analyze the transaction (whether or 
not related to the tax consequences of the transaction), for services 
to implement the transaction, for services to document the transaction, 
and for services to prepare tax returns to the extent return 
preparation fees are unreasonable in light of all of the facts and 
circumstances. The IRS 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 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 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.
    (5) Tax. For purposes of this section, the term tax means Federal 
tax.
    (6) Tax benefit. A tax benefit includes deductions, exclusions from 
gross income, nonrecognition of gain, tax credits, adjustments (or the 
absence of adjustments) to the basis of property, status as an entity 
exempt from Federal income taxation, and any other tax consequences 
that may reduce a taxpayer's Federal tax liability by affecting the 
amount, timing, character, or source of any item of income, gain, 
expense, loss, or credit.
    (7) Tax return. For purposes of this section, the term tax return 
means a Federal tax return and a Federal information return.
    (8) Tax treatment. The tax treatment of a transaction is the 
purported or claimed Federal tax treatment of the transaction.
    (9) Tax structure. The tax structure of a transaction is any fact 
that may be relevant to understanding the purported or claimed Federal 
tax treatment of the transaction.
    (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. A list may be maintained on paper, 
card file, magnetic media, or in any other form, provided the method of 
maintaining the list enables the IRS to determine without undue delay 
or difficulty the information required in paragraph (e)(3) of this 
section.
    (2) Persons required to be included on lists--(i) In general. A 
material advisor is required to list each person described in 
paragraphs (c)(2)(i)(A) through (D) of this section to whom (or for 
whose benefit) the material advisor makes or provides a tax statement 
with respect to a transaction that is a potentially abusive tax 
shelter. However, a material advisor is not required to list a person 
described in paragraph (c)(2)(i)(A) of this section if that person 
entered into, or acquired an interest in, a listed transaction more 
than 6 years before the transaction was listed.
    (ii) Subsequent participant. A material advisor must list any 
subsequent participant if the material advisor knows the identity of 
that subsequent participant, and the material advisor knows that the 
subsequent participant either entered into a transaction that must be 
disclosed under Sec.  1.6011-4(b) of this chapter or sold or 
transferred to another subsequent participant an interest in that type 
of transaction.
    (iii) Section 6111 registrant. A material advisor required to 
register a

[[Page 10176]]

transaction under section 6111 also must list each person who purchases 
(or otherwise acquires) an interest in the transaction.
    (iv) Examples. The following examples illustrate the provisions of 
this section:

    Example 1.  An investment firm provides a tax statement as to a 
type of transaction to three taxpayers: Corporation X, Corporation 
Y, and Corporation Z (all of which are C corporations). 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 reasonably expects 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.  1.6011-4(b)(2), (3), (4), (6) or 
(7) of this chapter.
    (i) Transaction X. At the time transaction X is entered into, 
the investment firm does not know or reasonably expect that the 
transaction is a reportable transaction, because the $9 million loss 
associated solely with transaction X does not satisfy the $10 
million threshold under Sec.  1.6011-4(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 
requirements for being a material advisor with respect to 
transaction Y and transaction Z. First, both of the transactions are 
potentially abusive tax shelters with respect to the investment firm 
because the investment firm knows, or reasonably expects, at the 
time the transactions are entered into, that the losses for each of 
Corporation Y and Z will exceed the $10 million threshold and, thus, 
the investment firm knows or reasonably expects that the 
transactions are or will become reportable transactions under Sec.  
1.6011-4(b)(5) of this chapter (relating to loss transactions). 
Second, the investment firm provides a tax statement to Corporation 
Y and Corporation Z as to the transactions. Third, the investment 
firm receives $300,000 in connection with each transaction (viewed 
independently of each other and without regard to any other 
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 tax statement to 
Corporation N (a C corporation) describing the potential loss from a 
type of transaction. Corporation N pays Corporation M $300,000 for 
the information about that type of transaction. Corporation M knows 
that Corporation N will sell the information to Taxpayer O (a C 
corporation) and Taxpayer P (an individual), and that Taxpayer O and 
Taxpayer P will participate in transactions of the type that 
Corporation M described to Corporation N. Corporation N, in turn, 
provides a tax statement as to that type of transaction to Taxpayer 
O and Taxpayer P. Each taxpayer agrees to pay Corporation N $250,000 
in connection with its transaction, 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 that the transactions are or 
will become reportable transactions under Sec.  1.6011-4(b)(5) of 
this chapter.
    (ii) Corporation N is a material advisor with respect to 
transaction O and transaction P. First, at the time the transactions 
are entered into, Corporation N knows that the transactions are 
reportable transactions. Thus, the transactions are potentially 
abusive tax shelters. Second, Corporation N provides a tax statement 
to Taxpayer O and Taxpayer P as to the transactions. Third, 
Corporation N receives $250,000 in connection with transaction O and 
transaction P (each viewed independently of any other transaction), 
which equals or exceeds the minimum fee for those transactions 
($50,000 and $250,000, respectively). Accordingly, Corporation N 
must keep a list with respect to transaction O and transaction P. 
The list must contain information about Taxpayer P (see paragraph 
(e)(2)(i) of this section). Because transactions O and P are based 
on the same or similar tax strategy, transactions O and P are 
substantially similar transactions, and Corporation N must keep one 
list with respect to both transactions. The list must contain 
information about Taxpayer O and Taxpayer P (see (e)(2)(i) of this 
section).
    (iii) Corporation M's tax statement to Corporation N constitutes 
a potentially abusive tax shelter under paragraph (b)(2)(C) of this 
section. Corporation M transferred information to Corporation N 
regarding the potential tax consequences of a type of transaction 
that, if entered into and if the relevant thresholds are met, would 
be a reportable transaction described in Sec.  1.6011-4(b)(5). In 
addition, Corporation M knew that Corporation N would transfer that 
information to another person. Corporation M is a material advisor 
with respect to that potentially abusive tax shelter. Corporation M 
made a tax statement to Corporation N and Corporation M received 
$300,000 in connection with the potentially abusive tax shelter, 
which exceeds the minimum fee for that transaction ($250,000). 
Accordingly, Corporation M must keep a list with respect to that 
potentially abusive tax shelter. The list must contain information 
with respect to Corporation N (see paragraph (e)(2)(i) of this 
section). The list must also contain information about Taxpayer O 
and Taxpayer P because Corporation M knows the identity of Taxpayer 
O and Taxpayer P, and Corporation M knows that Taxpayer O and 
Taxpayer P entered into transaction O and transaction P, 
respectively (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, if known by the material advisor;
    (E) The date on which each person required to be included on the 
list entered into each transaction, if known by the material advisor;
    (F) The amount invested in each transaction by each person required 
to be included on the list, if known by the material advisor;
    (G) A detailed description of each transaction that describes both 
the tax structure and its expected tax treatment;
    (H) A summary or schedule of the tax treatment 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 opinions, relating to each transaction that are material to 
an understanding of the purported tax treatment or tax structure of the 
transaction that have been shown or provided to any person who acquired 
or may acquire an interest in the transactions, or to their

[[Page 10177]]

representatives, tax advisors, or agents, by the material advisor or 
any related party or agent of the material advisor. However, a material 
advisor is not required to retain earlier drafts of a document provided 
the material advisor retains a copy of the final document (or, if there 
is no final document, the most recent draft of the document) and the 
final document (or most recent draft) contains all the information in 
the earlier drafts of such document that is material to an 
understanding of the purported tax treatment or the tax structure of 
the transaction; and
    (J) For each person required to be on the list, 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) [Reserved]
    (f) Retention of lists. Each material advisor must maintain the 
list described in paragraph (e) of this section for seven years 
following the earlier of the date on which the material advisor last 
made a tax statement relating to the transaction, or the date the 
transaction was entered into, if known. 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 seven-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: 
IRS 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--(1) In general. Each material advisor and 
person responsible for maintaining a list of persons must, upon written 
request by the IRS, furnish the list to the IRS within 20 days from the 
day on which the request is provided. The request is not required to be 
in the form of an administrative summons. The list may be furnished to 
the IRS on paper, card file, magnetic media, or in any other form, 
provided the method of furnishing the list enables the IRS to determine 
without undue delay or difficulty the information required in paragraph 
(e)(3) of this section.
    (2) Claims of privilege--(i) 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 specified in paragraph (e)(3)(i)(I) required to 
be furnished under this paragraph (g) 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 IRS, as provided in 
paragraph (g)(1) of this section, the material advisor may assert a 
privilege claim as to the information specified in paragraph 
(e)(3)(i)(I) subject to the requirements of this paragraph (g)(2).
    (ii) 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 this 
paragraph (g)(2)) the nature of each document that is not produced 
which will allow the IRS 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 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 the direct or indirect participation 
of a corporation in any tax shelter (as defined in section 
6662(d)(2)(C)(iii)); and
    (B) Specifically represent that to the best of such person's 
knowledge and belief, that the person and 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.
    (iii) Identification and description of a document includes, but is 
not limited to--
    (A) The date appearing on such document or, if it has no date, the 
date or approximate date that such document was created;
    (B) 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
    (C) 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.
    (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 IRS 
in accordance with paragraph (g)(1) of this section, if the designated 
material advisor fails to furnish the list to the IRS in a timely 
manner. A material advisor is not relieved from the requirement of this 
section because a material advisor is unable to obtain the list from 
any designated material advisor, any designated material advisor did 
not maintain a list, or the list maintained by any designated material 
advisor is not complete.
    (i) Procedure for obtaining rulings. A person may submit a request 
to the IRS for a ruling as to whether a specific transaction will be 
considered 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 the ruling request is pending and for 60 days thereafter; however, 
if it is ultimately determined that the transaction is a potentially 
abusive tax shelter and that the person is a material advisor with 
respect to that transaction, the pendency of such a ruling request 
shall not affect the requirement to maintain the list, nor shall it 
affect the

[[Page 10178]]

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 February 28, 2003. However, this section 
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 potentially abusive tax shelter on or after February 28, 2003 
because it is a listed transaction as defined in Sec.  1.6011-4 of this 
chapter, and is subject to disclosure under Sec.  1.6011-4 of this 
chapter. This section also shall apply to any transaction that was 
entered into, or in which an interest was acquired, after January 1, 
2003, if the transaction becomes a listed transaction as defined in 
Sec.  1.6011-4 of this chapter and is subject to disclosure under 
Sec. Sec.  20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4 or 
56.6011-4 of this chapter. The rules in Sec.  301.6112-1T as contained 
in 2002-45 I.R.B. 826 (see Sec.  601.601(d)(2) of this chapter) apply 
only to a transaction entered into, or an interest acquired therein, on 
or after January 1, 2003, and before February 28, 2003, if the 
transaction is a listed transaction as defined in Sec.  1.6011-4 of 
this chapter or a section 6111 tax shelter. Otherwise, the rules that 
apply with respect to any transaction that is a potentially abusive tax 
shelter entered into, or any interest acquired therein, before January 
1, 2003, are contained in Sec.  301.6112-1T in effect prior to January 
1, 2003 (see 26 CFR part 301 revised as of April 1, 2002). 
Additionally, the IRS will not ask to inspect any list for a 
potentially abusive tax shelter that is entered into, or any interest 
acquired therein, on or after January 1, 2003, until June 1, 2003, 
unless the potentially abusive tax shelter is a listed transaction as 
defined in Sec.  1.6011-4 of this chapter or a transaction that is a 
section 6111 tax shelter.


Sec.  301.6112-1T  [Removed]

    Par. 26. Section 301.6112-1T is removed.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 27. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 28. In Sec.  602.101, paragraph (b) is amended as follows:
    1. The following entries to the table are removed:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
1.6011-4T...............................................       1545-1685
 
                                * * * * *
301.6111-2T.............................................       1545-0865
                                                               1545-1687
301.6112-1T.............................................       1545-1686
 
                                * * * * *
------------------------------------------------------------------------


    2. The following entries are added in numerical order to the table:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
1.6011-4................................................       1545-1685
 
                                * * * * *
301.6111-2..............................................       1545-0865
                                                               1545-1687
301.6112-1..............................................       1545-1686
 
                                * * * * *
------------------------------------------------------------------------


Approved: February 26, 2003.
David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
Pamela F. Olsen,
Assistant Secretary of the Treasury.
[FR Doc. 03-4958 Filed 2-28-03; 10:47 am]
BILLING CODE 4830-01-P