[Federal Register Volume 71, Number 212 (Thursday, November 2, 2006)]
[Proposed Rules]
[Pages 64488-64496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-18319]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

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

[REG-103038-05]
RIN 1545-BE24


AJCA Modifications to the Section 6011 Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

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SUMMARY: This document contains proposed regulations under section 6011 
of the Internal Revenue Code that modify the rules relating to the 
disclosure of reportable transactions under section 6011. These 
regulations affect taxpayers participating in reportable transactions 
under section 6011, material advisors responsible for disclosing 
reportable transactions under section 6111, and material advisors 
responsible for keeping lists under section 6112.

DATES: Written or electronic comments and requests for a public hearing 
must be received by January 31, 2007.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-103038-05), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
103038-05), Courier's Desk, Internal Revenue Service, Crystal Mall 4 
Building, 1901 S. Bell St., Arlington, VA, or sent electronically, via 
the IRS Internet site at http://www.irs.gov/regs or via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-103038-
05).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Tara P. Volungis or Charles Wien, 202-622-3070; concerning the 
submissions of comments and requests for hearing, Kelly Banks, 202-622-
0392 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document proposes to amend 26 CFR part 1 by modifying and 
clarifying the rules relating to the disclosure of reportable 
transactions under section 6011. This document also proposes to amend 
26 CFR parts 20, 25, 31, 53, 54, and 56 by modifying the rules for 
purposes of estate, gift, employment, and pension and exempt 
organizations excise taxes that require the disclosure of listed 
transactions by certain taxpayers on their Federal tax returns under 
section 6011.
    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. On December 29, 2003, 
the IRS issued final regulations under section 6011 and 6112 (TD 9108) 
(the December 2003 regulations). The December 2003 regulations were 
published in the Federal Register (68 FR 75128) on December 30, 2003.
    Since the publication of the February 2003 regulations and the 
December 2003 regulations, the American Jobs Creation Act of 2004, 
Public Law 108-357, 118 Stat. 1418, (AJCA) was enacted on October 22, 
2004. The AJCA revised sections 6111 and 6112, thereby necessitating 
changes to the rules under section 6011. The IRS and Treasury 
Department also have received various comments and questions regarding 
the rules under Sec.  1.6011-4. Consequently, the IRS and Treasury 
Department are proposing modifications to the rules regarding the 
disclosure of reportable transactions under Sec.  1.6011-4.
    It should be noted that section 516 of the Tax Increase Prevention 
and Reconciliation Act of 2005, Public Law 109-222, 120 Stat. 345, 
(TIPRA), enacted on May 17, 2006, includes new excise taxes that target 
prohibited tax shelter transactions to which a tax-exempt entity is a 
party. Prohibited tax shelter transactions consist of listed 
transactions, confidential transactions, and transactions with 
contractual protection under section 6011. TIPRA also contains new 
disclosure requirements, which apply not only to tax-exempt entities 
but also to taxable entities that are parties to prohibited tax shelter 
transactions involving tax-exempt entities, and makes penalties 
applicable for failure to comply with each new disclosure requirement. 
The IRS and Treasury Department will issue separate guidance regarding 
the disclosure provision in TIPRA.

Explanation of Provisions

A. Removal of Transactions With a Significant Book-Tax Difference

    Under the current regulations in Sec.  1.6011-4, there are six 
categories of reportable transactions. In accordance with the interim 
guidance provided in Notice 2006-6, 2006-5 I.R.B. 385, these proposed 
regulations eliminate the transactions with a significant book-tax 
difference category of reportable transaction that is in Sec.  1.6011-
4(b)(6). The IRS and Treasury Department have determined that this 
category of reportable transaction is no longer necessary due to the 
issuance of the Schedule M-3, ``Net Income (Loss) Reconciliation for 
Corporations With Total Assets of $10 Million or More'', which now 
provides the IRS a more complete disclosure of book-tax differences for 
corporations. The Schedule M-3 reporting requirements will be extended 
to partnerships and S corporations. The removal of the book-tax 
difference category applies to transactions that otherwise would have 
to have been disclosed on or after January 6, 2006 (regardless of when 
the transaction was entered into).

B. Transactions of Interest

    The IRS and Treasury Department are proposing as a new category of 
reportable transaction the transactions of interest reportable 
transaction. A transaction of interest is a transaction that the IRS 
and Treasury Department believe has a potential for tax avoidance or 
evasion, but for which the IRS and Treasury Department lack enough 
information to determine whether the transaction should be identified 
specifically as a tax avoidance transaction. Transactions of interest 
will be identified in published guidance. When the IRS and Treasury 
Department have gathered enough information to make an informed 
decision as to whether the transaction of interest is a tax avoidance 
type of transaction, the IRS and Treasury Department may take one or 
more actions, including removing the transaction from the transactions 
of interest category in published guidance, designating the transaction 
as a listed transaction, or providing a new category of reportable 
transaction. Listed transactions do not have to be identified as 
transactions of interest before the transactions are identified as 
listed transactions. It is anticipated that, upon finalization of these 
proposed regulations, the transactions of interest category of 
reportable transaction will apply to transactions entered into on or 
after November 2, 2006.

[[Page 64489]]

C. Lease Transactions

    These proposed regulations also eliminate the special rule for 
lease transactions. Under the current regulations this special rule 
provides that certain customary commercial leases of tangible personal 
property described in Notice 2001-18, 2001-1 C.B. 731, are excluded 
from all of the reportable transaction categories except listed 
transactions. Notice 2001-18 originally was published prior to the AJCA 
to provide exceptions from the confidential corporate tax shelter 
registration requirements under section 6111(d) and the list 
maintenance requirements under section 6112. The special rule for lease 
transactions that cross-references Notice 2001-18 was added to Sec.  
1.6011-4 in TD 9046 in February 2003. At that time, the IRS and 
Treasury Department were concerned that customary commercial lease 
transactions routinely would fall under the significant book-tax 
difference category of reportable transaction. The public also 
expressed concern that many customary leasing transactions would 
trigger the confidential transaction category of reportable transaction 
that was published in the temporary regulations under Sec.  1.6011-4T 
in TD 9017 in October 2002 (and in the February 2003 regulations). 
Since the publication of the February 2003 regulations, the IRS and 
Treasury Department amended the confidential transaction category of 
reportable transaction in the December 2003 regulations, the AJCA 
removed the confidential corporate tax shelter provision in section 
6111(d) in October 2004, and Notice 2006-6 signaled the removal of the 
significant book-tax difference transaction category of reportable 
transaction.
    Because the confidential transaction category has been narrowed and 
the significant book-tax difference transaction category is being 
removed, the IRS and Treasury Department believe that leasing 
transactions should be subject to the same disclosure rules as other 
transactions. While the IRS and Treasury Department do believe the 
disclosure rules should apply to all leasing transactions, the IRS and 
Treasury Department also believe that most customary commercial leasing 
transactions will not meet the reportable transaction requirements and 
will not be subject to disclosure. The IRS and Treasury Department 
intend to obsolete Notice 2001-18 when these proposed regulations are 
finalized. Comments regarding the removal of this exception, the 
transactions that will have to be disclosed as a consequence, if any, 
and the possibility of exceptions for specific types of leasing 
transactions as to each category of reportable transaction are 
requested.

D. Transactions Involving a Brief Asset Holding Period

    These proposed regulations also modify the transactions involving a 
brief asset holding period category of reportable transaction in Sec.  
1.6011-4(b)(7). Section 901(l), added to the Code by the AJCA, and 
section 901(k) operate to disallow foreign tax credits for withholding 
and certain other foreign taxes imposed on dividends or other income or 
gain with respect to property if the taxpayer does not meet a minimum 
holding period. In light of the enactment of section 901(l), the 
proposed regulations amend the brief asset holding period category to 
exclude transactions resulting in a claimed foreign tax credit.

E. Protective Disclosures

    The IRS receives disclosures that taxpayers file on a protective 
basis, claiming that the transactions are not subject to disclosure 
under section 6011. Some of those taxpayers fail to provide the IRS 
with the information requested under section 6011 and the regulations 
thereunder that would enable the IRS to make a determination as to 
whether the transaction is subject to disclosure. Consequently, the IRS 
and Treasury Department have added clarifying language in the proposed 
regulations that allows protective disclosures to be filed in 
situations where a taxpayer is unsure of whether the transaction should 
be disclosed under section 6011 if the taxpayer complies with the rules 
of Sec.  1.6011-4 as if the transaction is subject to disclosure and 
the person furnishes the IRS the information requested under these 
regulations.

F. Partners, Shareholders, and Beneficiaries

    The IRS and Treasury Department are aware of situations in which 
partners, shareholders, and beneficiaries have filed their Federal tax 
returns before receiving Schedule K-1s from the partnership, S 
corporation or trust that participated in a reportable transaction. The 
proposed regulations address this problem by providing that if a 
taxpayer in a partnership, S corporation, or trust receives a timely 
Schedule K-1 less than 10 calendar days before the due date of the 
taxpayer's return (including extensions) and, based on receipt of the 
timely Schedule K-1, the taxpayer determines that the taxpayer 
participated in a reportable transaction, the disclosure statement will 
not be considered late if the taxpayer discloses the reportable 
transaction by filing a disclosure statement with OTSA within 45 
calendar days after the due date of the taxpayer's return (including 
extensions). A taxpayer filing a disclosure statement in accordance 
with this provision need only file the statement with OTSA and need not 
file an amended return to make the disclosure. This provision is 
proposed to be applicable for transactions entered into on or after the 
date these regulations are published as final regulations in the 
Federal Register. However, taxpayers currently may rely on this 
provision in the proposed regulations, and taxpayers who have filed a 
disclosure statement with OTSA within 45 calendar days after the due 
date of the taxpayer's return (including extensions) as provided in 
this provision have satisfied the disclosure requirements under Sec.  
1.6011-4. The IRS and Treasury Department solicit comments on whether 
there may be other situations in which a taxpayer may not know or have 
reason to know of its participation in a reportable transaction at the 
time the return is filed and ways in which the disclosure rules could 
address these situations.

G. Tolling Provision

    Other proposed changes relate to the provisions for obtaining a 
private letter ruling and the tolling of the time for providing 
disclosure during the time the request for a ruling is pending. Because 
the IRS and Treasury Department believe that the removal of the tolling 
provision will promote effective tax administration, these proposed 
regulations eliminate the tolling of the time for providing disclosure 
when a taxpayer requests a private letter ruling. Temporary regulations 
removing the tolling provision are being issued concurrently with these 
proposed regulations. Taxpayers may still request a ruling on a 
transaction under the regular procedures for requesting a ruling, 
provided the ruling request is not factual or hypothetical, but the 
time for providing disclosure will not be tolled. The removal of the 
tolling provision is effective for all ruling requests received on or 
after November 1, 2006.

H. Other Clarifications and Modifications

    These proposed regulations also clarify and/or modify other 
provisions under Sec.  1.6011-4. The regulations for estate, gift, 
employment, and pension and exempt organizations excise taxes are 
proposed to be modified by making

[[Page 64490]]

them applicable to transactions of interest.

I. Comments

    The IRS and Treasury Department are aware of concerns expressed by 
commentators regarding the patenting of tax advice or tax strategies. 
The IRS and Treasury Department share these concerns and are exploring 
ways in which they could be addressed, including through the creation 
of a new category of reportable transaction. Comments are requested 
regarding the creation of such a category of reportable transaction. 
Comments also are requested on all proposed changes to the regulations.

J. Effective Date

    Generally, when these proposed regulations become final, they will 
apply to transactions entered into on or after the date these 
regulations are published as final regulations in the Federal Register. 
However, upon publication the final regulations will apply to 
transactions of interest entered into on or after November 2, 2006.

Special Analyses

    It has been determined that this notice of proposed rulemaking 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, and because 
these regulations do not impose a collection of information on small 
entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) do not apply. The disclosure statement referenced in these 
regulations will be made available for public comment in accordance 
with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35). 
Pursuant to section 7805(f) of the Internal Revenue Code, this notice 
of proposed rulemaking will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and Treasury Department request comments on the 
clarity of the proposed rules, how they can be made easier to 
understand, and the administrability of the rules in the proposed 
regulations. All comments will be available for public inspection and 
copying. A public hearing will be scheduled if requested in writing by 
any person that submits timely written or electronic comments. If a 
public hearing is scheduled, notice of the date, time, and place for 
the public hearing will be published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Tara P. Volungis and 
Charles Wien, 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 taxes, 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.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 20, 25, 31, 53, 54, and 56 are 
proposed to be 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 revised 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 of interest, and 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 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.

[[Page 64491]]

    (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), in determining the minimum fee, all fees for a tax strategy or 
for services for advice (whether or not tax advice) or for the 
implementation of a transaction are taken into account. 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 return preparation fees are 
unreasonable in light of the facts and circumstances. 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. The IRS will 
scrutinize carefully all of the facts and circumstances in determining 
whether consideration received in connection with a confidential 
transaction constitutes fees.
    (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.

    (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) does not provide any 
substantive rules regarding when a person may charge refundable or 
contingent fees with respect to a 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 of interest. A transaction of interest is a 
transaction that is the same as or substantially similar to one of the 
types of transactions that the IRS has identified

[[Page 64492]]

by notice, regulation, or other form of published guidance as a 
transaction of interest.
    (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 (other than a foreign 
tax credit) exceeding $250,000 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.
    (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 satisfies the reporting requirements of this section with 
regard to that 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 (5) and (b)(7) of this section unless the transaction is also a 
listed transaction or a transaction of interest.
    (c) Definitions. For purposes of this section, the following 
definitions apply:
    (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. Published guidance also may identify types or 
classes of persons that will not 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 of interest. A taxpayer has participated in a 
transaction of interest if the taxpayer is one of the types or classes 
of persons identified as participants in the transaction in the 
published guidance describing the transaction of interest.
    (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 of a foreign 
corporation participates in a transaction described in paragraph (b)(6) 
of this section only if the published guidance identifying the 
transaction includes the reporting shareholder among the types or 
classes of persons identified as participants. A reporting shareholder 
(and any successor in interest) is considered to participate in a 
transaction under this paragraph

[[Page 64493]]

(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 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 2003-55 (2003-2 C.B. 395), which modified and 
superseded 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 treats the amount 
realized from the assignment as its 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 2003-55. 
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. For purposes of this example, 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 the listing notice.
    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. XYZ and X are 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. P, a corporation, has an 80% partnership interest in 
PS, and S, an individual, has a 20% partnership interest in PS. P, 
S, and PS are calendar year taxpayers. In 2006, PS enters into a 
transaction and incurs a section 165 loss (that does not meet any of 
the exceptions to a section 165 loss identified in published 
guidance) of $12 million and offsetting gain of $3 million. On PS' 
2006 tax return, PS includes the section 165 loss and the 
corresponding gain. PS must disclose the transaction under this 
section because PS' section 165 loss of $12 million is equal to or 
greater than $2 million. P is allocated $9.6 million of the section 
165 loss and $2.4 million of the offsetting gain. P does not have to 
disclose the transaction under this section because P's section 165 
loss of $9.6 million is not equal to or greater than $10 million. S 
is allocated $2.4 million of the section 165 loss and $600,000 of 
the offsetting gain. S must disclose the transaction under this 
section because S's section 165 loss of $2.4 million is equal to or 
greater than $2 million.

    (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. For example, a transaction 
may be substantially similar to a listed transaction even though it 
involves different entities or uses different Code provisions. (See 
e.g., Notice 2003-54, 2003-2 C.B. 363, describing a transaction 
substantially similar to the transactions in Notice 2002-50, 2002-2 
C.B. 98, and Notice 2002-65, 2002-2 C.B. 690.) 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 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. A taxpayer required 
to file a disclosure statement under this section

[[Page 64494]]

must file a completed Form 8886, ``Reportable Transaction Disclosure 
Statement'' (or a successor form), in accordance with this paragraph 
(d) and the instructions to the form. The Form 8886 (or a successor 
form) is the disclosure statement required under this section. The form 
must be attached to the appropriate tax return(s) 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 in accordance with the 
instructions to the form. To be considered complete, the information 
provided on the form must describe the expected tax treatment and all 
potential tax benefits expected to result from the transaction, 
describe any tax result protection (as defined in Sec.  301.6111-
3(c)(12) of this chapter) with respect to the transaction, and identify 
and describe the transaction in sufficient detail for the IRS to be 
able to understand the tax structure of the reportable transaction and 
the identity of all parties involved in the transaction. An incomplete 
Form 8886 (or a successor form) containing a statement that information 
will be provided upon request is not considered a complete disclosure 
statement. If the form is not completed in accordance with the 
provisions in this paragraph (d) and the instructions to the form, the 
taxpayer will not be considered to have complied with the disclosure 
requirements of this section. If a taxpayer receives one or more 
reportable transaction numbers for a reportable transaction, the 
taxpayer must include the reportable transaction number(s) on the Form 
8886 (or a successor form). See Sec.  301.6111-3(d)(2) of this chapter.
    (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 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 pertaining to a particular reportable transaction. 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, S corporation, or trust, the disclosure statement for 
a reportable transaction must be attached to the partnership, S 
corporation, or trust's tax return for each taxable year in which the 
partnership, S corporation, or trust participates in the transaction 
under the rules of paragraph (c)(3)(i) of this section. If a taxpayer 
in a partnership, S corporation, or trust receives a timely Schedule K-
1 less than 10 calendar days before the due date of the taxpayer's 
return (including extensions) and, based on receipt of the timely 
Schedule K-1, the taxpayer determines that the taxpayer participated in 
a reportable transaction within the meaning of paragraph (c)(3) of this 
section, the disclosure statement will not be considered late if the 
taxpayer discloses the reportable transaction by filing a disclosure 
statement with OTSA within 45 calendar days after the due date of the 
taxpayer's return (including extensions).
    (2) Special rules--(i) Listed transactions and transactions of 
interest. In general, if a transaction becomes a listed transaction or 
a transaction of interest after the filing of a taxpayer's tax return 
(including an amended return) reflecting the taxpayer's participation 
in the listed transaction or transaction of interest and before the end 
of the period of limitations for assessment of tax for any taxable year 
in which the taxpayer participated in the listed transaction or 
transaction of interest, then a disclosure statement must be filed, 
regardless of whether the taxpayer participated in the transaction in 
the year the transaction became a listed transaction or a transaction 
of interest, with OTSA within 60 calendar days after the date on which 
the transaction became a listed transaction or a transaction of 
interest. The Commissioner also may determine the time for disclosure 
of listed transactions and transactions of interest in the published 
guidance identifying the transaction.
    (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, Sec.  
1.6662-3(c)(2).
    (4) Example. The following example illustrates the application of 
this paragraph (e):

    Example. In January of 2006, F, a calendar year taxpayer, enters 
into a transaction that at the time is not a listed transaction 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 2006 tax return filed timely in 
April 2007. On May 1, 2009, the IRS publishes a notice identifying 
the transaction as a listed transaction described in paragraph 
(b)(2) of this section. Upon issuance of the May 1, 2009 notice, the 
transaction becomes a reportable transaction described in paragraph 
(b) of this section. The period of limitations on assessment for F's 
2006 taxable year is still open. F is required to file Form 8886 for 
the transaction with OTSA within 60 calendar days after May 1, 2009.

    (f) [The text of the proposed amendment to Sec.  1.6011-4(f)(1) is 
the same as the text for Sec.  1.6011-4T(f)(1) published elsewhere in 
this issue of the Federal Register].
    (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 comply with all the provisions of this section, and 
indicate on the disclosure statement that the disclosure statement is 
being filed on a protective basis. The IRS will not treat disclosure 
statements filed on a protective basis any differently than other 
disclosure statements filed under this section. For a protective 
disclosure to be effective, the taxpayer must comply with these 
disclosure regulations by providing to the IRS all information 
requested by the IRS under this section.
    (g) Retention of documents. In accordance with the instructions to 
Form 8886 (or a successor form), 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

[[Page 64495]]

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 date--(1) In general. In general, this section 
applies to transactions entered into on or after the date these 
regulations are published as final regulations in the Federal Register. 
However, upon the publication of final regulations, this section will 
apply to transactions of interest entered into on or after November 2, 
2006.
    (2) [The text of the proposed amendment to Sec.  1.6011-4(h)(2) is 
the same as the text for Sec.  1.6011-4T(h)(2) published elsewhere in 
this issue of the Federal Register].

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

    Par. 3. The authority citation for part 20 continues to read, in 
part, as follows:

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

    Par. 4. Section 20.6011-4 is amended as follows:

    1. Paragraph (a) is amended by adding the language ``or a 
transaction of interest'' after the first occurrence of ``listed 
transaction'' and by adding the language ``or transaction of interest'' 
after the second occurrence of ``listed transaction''.
    2. Paragraph (b) is revised.
    The revision reads as follows:


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

* * * * *
    (b) Effective date. This section applies to listed transactions 
entered into on or after January 1, 2003. Upon the publication of final 
regulations, this section will apply to transactions of interest 
entered into on or after November 2, 2006.

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

    Par. 5. The authority citation for part 25 continues to read, in 
part, as follows:

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

    Par. 6. Section 25.6011-4 is amended as follows:
    1. Paragraph (a) is amended by adding the language ``or a 
transaction of interest'' after the first occurrence of ``listed 
transaction'' and by adding the language ``or transaction of interest'' 
after the second occurrence of ``listed transaction''.
    2. Paragraph (b) is revised.
    The revision reads as follows:


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

* * * * *
    (b) Effective date. This section applies to listed transactions 
entered into on or after January 1, 2003. Upon the publication of final 
regulations, this section will apply to transactions of interest 
entered into on or after November 2, 2006.

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

    Par. 7. The authority citation for part 31 continues to read, in 
part, as follows:

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

    Par. 8. Section 31.6011-4 is amended as follows:
    1. Paragraph (a) is amended by adding the language ``or a 
transaction of interest'' after the first occurrence of ``listed 
transaction'' and by adding the language ``or transaction of interest'' 
after the second occurrence of ``listed transaction''.
    2. Paragraph (b) is revised.
    The revision reads as follows:


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

* * * * *
    (b) Effective date. This section applies to listed transactions 
entered into on or after January 1, 2003. Upon the publication of final 
regulations, this section will apply to transactions of interest 
entered into on or after November 2, 2006.

PART 53--FOUNDATION AND SIMILAR EXCISE TAXES

    Par. 9. The authority citation for part 53 continues to read, in 
part, as follows:

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

    Par. 10. Section 53.6011-4 is amended as follows:
    1. Paragraph (a) is amended by adding the language ``or a 
transaction of interest'' after the first occurrence of ``listed 
transaction'' and by adding the language ``or transaction of interest'' 
after the second occurrence of ``listed transaction''.
    2. Paragraph (b) is revised.
    The revision reads as follows:


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

* * * * *
    (b) Effective date. This section applies to listed transactions 
entered into on or after January 1, 2003. Upon the publication of final 
regulations, this section will apply to transactions of interest 
entered into on or after November 2, 2006.

PART 54--PENSION EXCISE TAXES

    Par. 11. The authority citation for part 54 continues to read, in 
part, as follows:

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

    Par. 12. Section 54.6011-4 is amended as follows:
    1. Paragraph (a) is amended by adding the language ``or a 
transaction of interest'' after the first occurrence of ``listed 
transaction'' and by adding the language ``or transaction of interest'' 
after the second occurrence of ``listed transaction''.
    2. Paragraph (b) is revised.
    The revision reads as follows:


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

* * * * *
    (b) Effective date. This section applies to listed transactions 
entered into on or after January 1, 2003. Upon the publication of final 
regulations, this section will apply to transactions of interest 
entered into on or after November 2, 2006.

PART 56--PUBLIC CHARITY EXCISE TAXES

    Par. 13. The authority citation for part 56 continues to read, in 
part, as follows:

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

    Par. 14. Section 56.6011-4 is amended as follows:
    1. Paragraph (a) is amended by adding the language ``or a 
transaction of interest'' after the first occurrence of ``listed 
transaction'' and by adding the language ``or transaction of interest'' 
after the second occurrence of ``listed transaction''.
    2. Paragraph (b) is revised.
    The revision reads as follows:

[[Page 64496]]

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

* * * * *
    (b) Effective date. This section applies to listed transactions 
entered into on or after January 1, 2003. Upon the publication of final 
regulations, this section will apply to transactions of interest 
entered into on or after November 2, 2006.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E6-18319 Filed 11-1-06; 8:45 am]
BILLING CODE 4830-01-P