[Federal Register Volume 68, Number 249 (Tuesday, December 30, 2003)]
[Rules and Regulations]
[Pages 75128-75130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31900]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 9108]
RIN 1545-BC76


Confidential Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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[[Page 75129]]

SUMMARY: These final regulations modify and clarify the rules relating 
to confidential transactions under the Income Tax Regulations, and make 
minor conforming changes to the list maintenance rules under the 
Procedure and Administration Regulations. These regulations affect 
taxpayers participating in reportable transactions and persons 
responsible for maintaining and furnishing lists of investors in 
reportable transactions.

DATES: Effective Date: These regulations are effective December 29, 
2003.
    Applicability Dates: For dates of applicability, see Sec.  1.6011-
4(h) and Sec.  301.6112-1.

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 regulations have 
been previously reviewed and approved by the Office of Management and 
Budget in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) under control numbers 1545-1685 and 1545-1686.
    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.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document amends 26 CFR parts 1 and 301 by modifying and 
clarifying the rules relating to the disclosure of reportable 
transactions by certain taxpayers on their Federal income tax returns 
under section 6011 and by making conforming changes to the rules under 
section 6112.
    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. On February 28, 2003, the IRS issued final 
regulations under sections 6011, 6111, and 6112 (TD 9046) (the February 
2003 regulations). The February 2003 regulations were published in the 
Federal Register (68 FR 10161) on March 4, 2003.
    Since finalizing the disclosure regulations, the IRS and Treasury 
Department have received numerous comments concerning the 
confidentiality filter. The IRS and Treasury Department received 
requests to exclude certain transactions from the scope of the 
confidentiality filter, and requests to modify the language of the 
regulation itself. After reviewing these comments, the IRS and Treasury 
Department have decided to narrow the confidentiality filter under 
Sec.  1.6011-4(b)(3).

Explanation of Provisions

    Section 1.6011-4(b)(3) provides that certain transactions are 
identified as confidential transactions. Confidential transactions are 
reportable transactions that are subject to the disclosure rules under 
Sec.  1.6011-4 and the list maintenance rules under Sec.  301.6112-1. 
Currently, a confidential transaction is a transaction that is offered 
under conditions of confidentiality. The confidentiality filter 
generally provides a presumption of non-confidentiality if the taxpayer 
receives written authorization to disclose the tax treatment and tax 
structure of the transaction.
    The IRS and Treasury Department have concluded that the 
confidentiality filter should be limited to situations in which an 
advisor is paid a large fee and imposes a limitation on disclosure that 
protects the confidentiality of the advisor's tax strategies. The IRS 
and Treasury Department believe that the confidentiality filter should 
not apply to transactions in which confidentiality is imposed by a 
party to the transaction acting in such capacity. Accordingly, the 
confidentiality filter has been narrowed to reflect this policy. 
Further, the exceptions and presumption language have been removed 
because the IRS and Treasury Department have concluded that they no 
longer are necessary under this narrower rule. Conforming changes have 
been made to the rules under Sec.  301.6112-1.
    The IRS and Treasury Department also have made minor clarifying 
changes under Sec.  1.6011-4. The regulations clarify that a return 
includes amended returns for purposes of determining when a disclosure 
must be made. The IRS and Treasury Department will continue to accept 
comments and will make other changes as appropriate.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has been 
determined pursuant to 5 U.S.C. 553(b)(B) that notice and public 
procedure are unnecessary and contrary to the public interest. These 
final regulations substantially reduce taxpayer compliance burdens by 
limiting the scope of transactions subject to the disclosure 
requirements of Sec.  1.6011-4. For the same reason, pursuant to 5 
U.S.C. 553(d)(1) and (3) a delayed effective date for these final 
regulations is not required. Because no notice of proposed rulemaking 
is required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) do not apply. However, the IRS and Treasury Department 
welcome comments on whether these final regulations impose additional 
costs and compliance burdens on small businesses. Any such comments 
should provide specific information concerning those costs and burdens. 
In addition, the IRS and Treasury Department will consider holding a 
public hearing concerning these regulations if there is sufficient 
interest from affected parties. Pursuant to section 7805(f) of the 
Internal Revenue Code, these regulations were 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, 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 301

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

[[Page 75130]]

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1--INCOME TAXES

0
1. The authority citation for part 1 continues to read in part as 
follows:

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


0
2. Section 1.6011-4 is amended as follows:
0
1. Paragraph (b)(3) is revised.
0
2. Paragraph (e)(1) is amended by removing the second sentence and 
adding two new sentences in its place.
0
3. Paragraphs (e)(2)(i) and (h) are revised.
    The revisions and additions read as follows:


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

* * * * *
    (b) * * *
    (3) Confidential transactions--(i) In general. A confidential 
transaction is a transaction that is offered to a taxpayer under 
conditions of confidentiality and for which the taxpayer has paid an 
advisor a minimum fee.
    (ii) Conditions of confidentiality. A transaction is considered to 
be offered to a taxpayer under conditions of confidentiality if the 
advisor who is paid the minimum fee places a limitation on disclosure 
by the taxpayer of the tax treatment or tax structure of the 
transaction and the limitation on disclosure protects the 
confidentiality of that advisor's tax strategies. A transaction is 
treated as confidential even if the conditions of confidentiality are 
not legally binding on the taxpayer. A claim that a transaction is 
proprietary or exclusive is not treated as a limitation on disclosure 
if the advisor confirms to the taxpayer that there is no limitation on 
disclosure of the tax treatment or tax structure of the transaction.
    (iii) Minimum fee. For purposes of this paragraph (b)(3), the 
minimum fee is:
    (A) $250,000 for a transaction if the taxpayer is a corporation.
    (B) $50,000 for all other transactions unless the taxpayer is a 
partnership or trust, all of the owners or beneficiaries of which are 
corporations (looking through any partners or beneficiaries that are 
themselves partnerships or trusts), in which case the minimum fee is 
$250,000.
    (iv) Determination of minimum fee. For purposes of this paragraph 
(b)(3), a minimum fee includes all fees for a tax strategy or for 
services for advice (whether or not tax advice) or for the 
implementation of a transaction. These fees 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 that the fees exceed the fees customary for return 
preparation. For purposes of this paragraph (b)(3), a taxpayer also is 
treated as paying fees to an advisor if the taxpayer knows or should 
know that the amount it pays will be paid indirectly to the advisor, 
such as through a referral fee or fee-sharing arrangement. A fee does 
not include amounts paid to a person, including an advisor, in that 
person's capacity as a party to the transaction. For example, a fee 
does not include reasonable charges for the use of capital or the sale 
or use of property.
    (v) Related parties. For purposes of this paragraph (b)(3), persons 
who bear a relationship to each other as described in section 267(b) or 
707(b) will be treated as the same person.
    (e) * * *
    (1) * * * In addition, the disclosure statement for a reportable 
transaction must be attached to each amended return that reflects a 
taxpayer's participation in a reportable transaction. A copy of the 
disclosure statement must be sent to OTSA at the same time that any 
disclosure statement is first filed by the taxpayer. * * *
    (2) * * *
    (i) Listed transactions. If a transaction becomes a listed 
transaction after the filing of a taxpayer's tax return (including an 
amended 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 period of limitations for the final return (whether or not already 
filed) reflecting the tax consequences, tax strategy, or tax benefit, 
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 regardless of whether the taxpayer participated in the 
transaction in that year.
* * * * *
    (h) Effective dates. This section applies to Federal income tax 
returns filed after February 28, 2000. However, paragraphs (b)(3), 
(e)(1), and (e)(2)(i) of this section apply to transactions entered 
into on or after December 29, 2003. All the rules in this section may 
be relied upon for transactions entered into on or after January 1, 
2003, and before December 29, 2003. Otherwise, the rules that apply 
with respect to transactions entered into before December 29, 2003, are 
contained in Sec.  1.6011-4 in effect prior to December 29, 2003, (see 
26 CFR part 1 revised as of April 1, 2003).

PART 301--PROCEDURE AND ADMINISTRATION

0
3. The authority citation for part 301 continues to read in part as 
follows:

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


0
4. Sec.  301.6112-1, paragraph (c)(3)(iii) is amended by revising the 
first sentence, removing the language ``for advice or implementation'' 
from the third sentence, and adding two sentences after the third 
sentence, to read as follows:


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

* * * * *
    (c) * * *
    (3) * * *
    (iii) * * * In determining whether the minimum fee threshold is 
satisfied, all fees for a tax strategy or 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. * * * 
A fee does not include amounts paid to a person, including an advisor, 
in that person's capacity as a party to the transaction. For example, a 
fee does not include reasonable charges for the use of capital or the 
sale or use of property. * * *
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 18, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03-31900 Filed 12-29-03; 8:45 am]
BILLING CODE 4830-01-P