[Federal Register Volume 71, Number 212 (Thursday, November 2, 2006)]
[Proposed Rules]
[Pages 64496-64500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-18321]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-103039-05]
RIN 1545-BE26


AJCA Modifications to the Section 6111 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 6111 
of the Internal Revenue Code which provide the rules relating to the 
disclosure of reportable transactions by material advisors. These 
regulations affect 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-103039-05), 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-
103039-05), 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 http://www.regulations.gov (indicate IRS and REG-
103039-05).

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 301 by providing rules 
relating to the disclosure of reportable transactions by material 
advisors under section 6111.
    The American Jobs Creation Act of 2004, Public Law 108-357, 118 
Stat. 1418, (AJCA) was enacted on October 22, 2004. Section 815 of the 
AJCA amended section 6111 to require each material advisor with respect 
to any reportable transaction to make a return (in such form as the 
Secretary may prescribe) setting forth: (1) Information identifying and 
describing the transaction; (2) information describing any potential 
tax benefits expected to result from the transaction; and (3) such 
other information as the Secretary may prescribe. Section 6111(a), as 
amended, also provides that the return must be filed not later than the 
date specified by the Secretary. Section 6111(b)(1), as amended, 
provides a definition for the term material advisor and includes as 
part of that definition a requirement that the material advisor derive 
certain threshold amounts of gross income that the Secretary may 
prescribe. The AJCA amendments to section 6111 also authorize the 
Secretary to prescribe regulations that provide: (1) That only one 
person shall be required to meet the requirements of section 6111(a) in 
cases in which two or more persons would otherwise be required to meet 
such requirements; (2) exemptions from the requirements of section 
6111; and (3) rules as may be necessary or appropriate to carry out the 
purposes of section 6111. Section 815 of the AJCA is effective for 
transactions with respect to which material aid, assistance, or advice 
is provided after October 22, 2004.
    Prior to these amendments, section 6111(a) required an organizer of 
a tax shelter to register the tax shelter with the Secretary not later 
than the day on which interests in the tax shelter were first offered 
for sale. Under former section 6111(c), the term tax shelter was 
defined as any investment with respect to which any person could 
reasonably infer from the representations made or to be made, in 
connection with the offering for sale of interests in the investments 
that the tax shelter ratio for any investor as of the close of any of 
the first five years ending after the date on which the investment was 
offered for sale may have been greater than two to one and which was: 
(1) Required to be registered under a Federal or State law regulating 
securities; (2) sold pursuant to an exemption from registration 
requiring the filing of a notice with a Federal or State agency 
regulating the offering or sale of securities; or (3) a substantial 
investment (the aggregate amount which may have been offered for sale 
exceeded $250,000 and the expected involvement of five or more 
investors). Under former section 6111(d), for purposes of section 
6111(a), the term tax shelter included any entity, plan, arrangement or 
transaction; (1) A significant purpose of the structure of which is the 
avoidance or evasion of Federal income tax for a direct or indirect 
participant which is a corporation; (2) which is offered to any 
potential participant under conditions of confidentiality; and (3) for 
which the tax shelter promoters may receive fees in excess of $100,000 
in the aggregate.
    In response to the AJCA, the IRS and Treasury Department issued 
interim guidance on section 6111 in Notice 2004-80, 2004-2 C.B. 963; 
Notice 2005-17, 2005-1 C.B. 606; Notice 2005-22, 2005-1 C.B. 756; and 
Notice 2006-6, 2006-5 I.R.B. 385 (see Sec.  601.601(d)(2)). The IRS and 
Treasury Department have received various comments and questions 
regarding the application of section 6111. Consequently, the IRS and 
Treasury Department propose new rules relating to the disclosure of 
reportable transactions by material advisors under section 6111.

Explanation of Provisions

A. In General

    These proposed regulations are being issued concurrently with 
proposed regulations under Sec.  301.6112-1 and Sec.  1.6011-4 
published elsewhere in the Federal Register. Under these proposed 
regulations, each material advisor with respect to any reportable 
transaction (as defined in Sec.  1.6011-4(b)(1)) must file a return by 
the date prescribed in the regulations. For this purpose, a person is a 
material advisor with respect to a transaction if the person provides 
any material aid, assistance, or advice with respect to organizing, 
managing, promoting, selling, implementing, insuring, or carrying out 
any reportable transaction, and directly or indirectly derives gross 
income in excess of the threshold amount for the material aid, 
assistance, or advice. A person provides material aid, assistance, or 
advice with respect to organizing, managing, promoting, selling, 
implementing, insuring, or carrying out any transaction if the person 
makes or provides a tax statement to or for the benefit of certain

[[Page 64497]]

persons. The IRS and Treasury Department also may identify other types 
or classes of persons as material advisors in published guidance.
    Further, these proposed regulations provide that the threshold 
amount of gross income that a person may derive, directly or 
indirectly, for providing any material aid, assistance or advice is 
$50,000 in the case of a reportable transaction, substantially all of 
the tax benefits from which are provided to natural persons ($10,000 in 
the case of a listed transaction). This threshold amount of gross 
income is increased to $250,000 in any other case ($25,000 in the case 
of a listed transaction). For transactions of interest, the IRS and 
Treasury Department also may identify reduced threshold amounts in 
published guidance. A person will be treated as becoming a material 
advisor when all of the following events have occurred (in no 
particular order): (A) The person provides material aid, assistance or 
advice; (B) the person directly or indirectly derives gross income in 
excess of the threshold amount; and (C) the transaction is entered into 
by the taxpayer.
    The disclosure statement for a reportable transaction must be filed 
by the last day of the month that follows the end of the calendar 
quarter in which the advisor became a material advisor with respect to 
the reportable transaction. Form 8918, ``Material Advisor Disclosure 
Statement,'' will be published for use by material advisors to disclose 
reportable transactions and will supersede the Form 8264 which is 
currently being used for material advisor disclosures. The IRS will 
issue a reportable transaction number to material advisors who file the 
Form 8918. Material advisors must provide the reportable transaction 
number issued by the IRS to persons to whom the material advisor makes 
or provides tax statements with respect to the transaction. Public 
comment on the Form 8918 will be solicited in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)).

B. Incomplete Disclosure Statements

    Persons who file incomplete disclosures under section 6111 are 
subject to penalties under section 6707. The proposed regulations 
include clarifying language to the regulation reminding taxpayers that 
for a disclosure to be considered complete, the information provided on 
Form 8918 must describe the expected tax treatment and all potential 
tax benefits expected to result from the transaction, describe any tax 
result protection 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 the material advisor(s). An incomplete form containing a 
statement that information will be provided upon request is not 
considered a complete disclosure statement.

C. Tax Result Protection

    Previous comments to the regulations under Sec.  1.6011-4 stated 
that it is inappropriate to require reporting of transactions under the 
contractual protection filter of Sec.  1.6011-4(b)(4) for which the 
taxpayer obtains tax result protection (sometimes referred to as ``tax 
result insurance'') because numerous legitimate business transactions 
with tax indemnities would be subject to reporting. The IRS and 
Treasury Department removed tax result protection from that category of 
reportable transaction but cautioned that if the IRS and Treasury 
Department became aware of abusive transactions utilizing tax result 
protection, the issue would be reconsidered.
    The IRS and Treasury Department have since become aware of 
taxpayers who have obtained tax result protection for the tax benefits 
of a listed transaction from a third party provider. In the AJCA, 
Congress expressed concern about tax result protection for reportable 
transactions and included insuring in the list of activities added to 
the statutory language under section 6111. The IRS, Treasury 
Department, and Congress have an interest in learning more about the 
insuring of reportable transactions. Accordingly, while a transaction 
will not be a reportable transaction simply because there is tax result 
protection for the transaction, tax result protection provided for a 
reportable transaction may subject a person to the material advisor 
disclosure rules under section 6111 because a tax statement includes 
third party tax result protection that insures the tax benefits of a 
reportable transaction.

D. Designation Agreements

    The proposed regulations include a provision allowing designation 
agreements for disclosure of reportable transactions similar to the 
provision in the current regulations under Sec.  301.6112-1 that allows 
material advisors to have a designation agreement authorizing one 
material advisor to maintain a list of investors in the transaction. 
However, parties to the designation agreement may still be liable for 
the penalty under section 6707 if the designated material advisor fails 
to disclose the reportable transaction under section 6111.

E. Post-Filing Advice

    The current regulations under Sec.  301.6112-1 provide that 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. The IRS and 
Treasury Department, however, believe that a person should be 
considered a material advisor for certain post-filing advice. 
Consequently, the proposed rule provides that the exception will not 
apply to a person who makes a tax statement with respect to the 
transaction if it is expected that the taxpayer will file a 
supplemental or amended return reflecting additional tax benefits from 
the transaction.

F. Protective Disclosures

    The IRS receives disclosures filed on a protective basis from 
persons claiming that the transactions are not subject to disclosure 
under section 6111. Some of those disclosures fail to provide the IRS 
with the information requested under sections 6111 and 6112 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 regulation that allows protective disclosures 
to be filed in situations where a person is unsure of whether the 
transaction should be disclosed under section 6111. However, the 
disclosure is effective only if the rules of Sec.  301.6111-3 and Sec.  
301.6112-1 are followed.

G. Tolling Provision

    In response to comments that asked whether the tolling provisions 
of Sec.  1.6011-4(f) would apply to requests from a potential material 
advisor for a letter ruling under section 6111, Notice 2005-22 provided 
that, until further guidance is issued, if an advisor submits a request 
for a letter ruling on or before the date the return under section 6111 
is due and fully discloses all relevant facts relating to the 
transaction, the obligation of the potential material advisor to 
disclose the transaction will be suspended as provided in Sec.  1.6011-
4(f). The IRS and Treasury Department believe that removing the tolling 
provision will promote effective tax administration. Consequently, 
these proposed regulations do not include a provision to toll the time 
for providing

[[Page 64498]]

disclosure when a potential material advisor requests a ruling on a 
transaction. Potential material advisors may request a ruling under 
section 6111 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 under section 6111 
will not be tolled. The temporary regulations issued concurrently with 
these proposed regulations supersede the tolling provision in Notice 
2005-22, effective for all ruling requests received on or after 
November 1, 2006.

H. Effective Date

    Generally, when these proposed regulations become final, they will 
apply to transactions with respect to which a material advisor makes a 
tax statement on or after the date the 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 with respect to which a material 
advisor makes a tax statement under Sec.  301.6111-3 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 return 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 in 26 CFR Part 301

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

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

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

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

    Par. 2. Section 301.6111-3 is added to read as follows:


Sec.  301.6111-3  Disclosure of reportable transactions.

    (a) In general. Each material advisor, as defined in paragraph (b) 
of this section, with respect to any reportable transaction, as defined 
in Sec.  1.6011-4(b) of this chapter, must file a return as described 
in paragraph (d) of this section by the date described in paragraph (e) 
of this section.
    (b) Material advisor--(1) In general. A person is a material 
advisor with respect to a transaction if the person provides any 
material aid, assistance, or advice with respect to organizing, 
managing, promoting, selling, implementing, insuring, or carrying out 
any reportable transaction, and directly or indirectly derives gross 
income in excess of the threshold amount as defined in paragraph (b)(3) 
of this section for the material aid, assistance, or advice. 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.
    (2) Material aid, assistance, or advice--(i) In general. Except as 
provided in paragraph (b)(5) of this section, a person provides 
material aid, assistance, or advice with respect to organizing, 
managing, promoting, selling, implementing, insuring, or carrying out 
any transaction if the person makes or provides a tax statement to or 
for the benefit of--
    (A) A taxpayer who either 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 a transaction of interest, or would have been 
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 if the transaction had become a listed transaction or a 
transaction of interest within the period of limitations in Sec.  
1.6011-4(e) of this chapter;
    (B) A taxpayer who the potential material advisor knows is or 
reasonably expects to be required to disclose the transaction under 
Sec.  1.6011-4 of this chapter because the transaction is or is 
reasonably expected to become a transaction described in Sec.  1.6011-
4(b)(3) through (5) or (7) of this chapter;
    (C) A material advisor who is required to disclose the transaction 
under this section because it is a listed transaction or a transaction 
of interest; or
    (D) A material advisor who the potential material advisor knows is 
or reasonably expects to be required to disclose the transaction under 
this section because the transaction is or is reasonably expected to 
become a transaction described in Sec.  1.6011-4(b)(3) through (5) or 
(7) of this chapter.
    (ii) Tax statement--(A) In general. A tax statement is any 
statement (including another person's 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) of this chapter. A tax statement under this section includes tax 
result protection that insures some or all of the tax benefits of a 
reportable transaction.
    (B) Confidential transactions. A statement relates to a tax 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

[[Page 64499]]

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 statement relates 
to a tax 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 the 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 or has reason to know 
that the taxpayer has the right to a full or partial refund of fees 
(described in Sec.  1.6011-4(b)(4)(ii) of this chapter) 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) of this chapter) 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 statement relates to a tax 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 involving a brief asset holding period. A 
statement relates to a tax aspect of a transaction 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.
    (iii) Special rules--(A) Capacity as an employee. 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.
    (B) 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. However, this exception does not apply to a person 
who makes a tax statement with respect to the transaction if it is 
expected that the taxpayer will file a supplemental or amended return 
reflecting additional tax benefits from the transaction.
    (C) 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 (b)(2) of this section.
    (3) Gross income derived for material aid, assistance, or advice--
(i) Threshold amount--(A) In general. The threshold amount of gross 
income is $50,000 in the case of a reportable transaction substantially 
all of the tax benefits from which are provided to natural persons 
(looking through any partnerships, S corporations, or trusts). For all 
other transactions, the threshold amount is $250,000.
    (B) Listed transactions and transactions of interest. For listed 
transactions described in 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, the 
threshold amounts in paragraph (b)(3)(i)(A) of this section are reduced 
from $50,000 to $10,000 and from $250,000 to $25,000. For transactions 
of interest described in 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, the 
threshold amounts in paragraph (b)(3)(i)(A) of this section may be 
reduced as identified in the published guidance describing the 
transaction.
    (ii) Gross income derived directly or indirectly for the material 
aid, assistance, or advice. In determining the amount of gross income a 
person derives directly or indirectly for material aid, assistance, or 
advice, all fees for a tax strategy or for services for advice (whether 
or not tax advice) or for the implementation of a reportable 
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 all of 
the facts and circumstances. 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 reportable 
transaction constitutes gross income derived directly or indirectly for 
aid, assistance, or advice. For purposes of this section, the threshold 
amount must be met independently for each transaction that is a 
reportable transaction and aggregation of fees among transactions is 
not required.
    (4) Date a person becomes a material advisor--(i) In general. A 
person will be treated as becoming a material advisor when all of the 
following events have occurred (in no particular order)--
    (A) The person provides material aid, assistance or advice as 
described in paragraph (b)(2) of this section;
    (B) The person directly or indirectly derives gross income in 
excess of the threshold amount as described in paragraph (b)(3) of this 
section; and
    (C) The transaction is entered into by the taxpayer to whom or for 
whose benefit the person provided the tax statement, or in the case of 
a tax statement provided to another material advisor, when the 
transaction is entered into by a taxpayer to whom or for whose benefit 
that material advisor provided a tax statement.
    (ii) Determining if the taxpayer entered into the transaction. 
Material advisors, including those who cease providing services before 
the time the transaction is entered into, must make reasonable and good 
faith efforts to determine whether the event described in paragraph 
(b)(4)(i)(C) of this section has occurred.
    (iii) Listed transactions and transactions of interest. If a 
transaction that was not a reportable transaction is identified as a 
listed transaction or a transaction of interest in published guidance 
after the occurrence of the events described in paragraph (b)(4)(i) of 
this section, the person will be treated as becoming a material advisor 
on the date the transaction is identified as a listed transaction or a 
transaction of interest.
    (5) Other persons designated as material advisors. Published 
guidance may identify other types or classes of persons as material 
advisors.
    (c) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Reportable transaction. The term reportable transaction is 
defined in Sec.  1.6011-4(b)(1) of this chapter.
    (2) Listed transaction. The term listed transaction is defined in 
Sec.  1.6011-4(b)(2) of this chapter. See also

[[Page 64500]]

Sec. Sec.  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.
    (3) Derive. The term derive means receive or expect to receive.
    (4) 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.
    (5) Substantially similar. The term substantially similar is 
defined in Sec.  1.6011-4(c)(4) of this chapter.
    (6) Tax. The term tax means Federal tax.
    (7) 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.
    (8) Tax return. The term tax return means a Federal tax return and 
a Federal information return.
    (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.
    (10) Tax treatment. The tax treatment of a transaction is the 
purported or claimed Federal tax treatment of the transaction.
    (11) Taxpayer. The term taxpayer is defined in Sec.  1.6011-4(c)(1) 
of this chapter.
    (12) Tax result protection. The term tax result protection includes 
insurance company and other third party products commonly described as 
tax result insurance.
    (13) Transaction of interest. The term transaction of interest is 
defined in Sec.  1.6011-4(b)(6) of this chapter. See also Sec. Sec.  
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.
    (d) Form and content of material advisor's disclosure statement--
(1) In general. A material advisor required to file a disclosure 
statement under this section must file a completed Form 8918, 
``Material Advisor Disclosure Statement'' (or successor form) in 
accordance with this paragraph (d) and 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 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 the material advisor(s). An incomplete form containing a 
statement that information will be provided upon request is not 
considered a complete disclosure statement. A material advisor may file 
a single form for substantially similar transactions. An amended form 
must be filed if information previously provided is no longer accurate, 
if additional information that was not disclosed becomes available, or 
if there are material changes to the transaction. A material advisor is 
not required to file an additional form for each additional taxpayer 
that enters into the same or substantially similar transaction. If the 
form is not completed in accordance with the provisions in this 
paragraph (d) and the instructions to the form, the material advisor 
will not be considered to have complied with the disclosure 
requirements of this section.
    (2) Reportable transaction number. The IRS will issue to a material 
advisor a reportable transaction number with respect to the disclosed 
reportable transaction. Receipt of a reportable transaction number does 
not indicate that the disclosure statement is complete, nor does it 
indicate that the transaction has been reviewed, examined, or approved 
by the IRS. Material advisors must provide the reportable transaction 
number to all taxpayers and material advisors to whom the material 
advisor makes or provides tax statements. The reportable transaction 
number must be provided at the time the transaction is entered into, 
or, if the transaction is entered into prior to the material advisor 
receiving the reportable transaction number, within 60 calendar days 
from the date the reportable transaction number is mailed to the 
material advisor.
    (e) Time of providing disclosure. The material advisor's disclosure 
statement for a reportable transaction must be filed with the Office of 
Tax Shelter Analysis (OTSA) by the last day of the month that follows 
the end of the calendar quarter in which the advisor became a material 
advisor with respect to the reportable transaction or in which the 
circumstances necessitating an amended disclosure statement occur. The 
disclosure statement must be sent to OTSA at the address provided in 
the instructions for Form 8918 (or a successor form).
    (f) Designation agreements. If more than one material advisor is 
required to disclose a reportable transaction under this section, the 
material advisors may designate by written agreement a single material 
advisor to disclose the transaction. The transaction must be disclosed 
by the last day of the month following the end of the calendar quarter 
that includes the earliest date on which a material advisor who is a 
party to the agreement became a material advisor with respect to the 
transaction as described in paragraph (b)(4) of this section. The 
designation of one material advisor to disclose the transaction does 
not relieve the other material advisors of their obligation to disclose 
the transaction to the IRS in accordance with this section, if the 
designated material advisor fails to disclose the transaction to the 
IRS in a timely manner.
    (g) Protective disclosures. If a potential material advisor is 
uncertain whether a transaction must be disclosed under this section, 
the advisor 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 advisor must comply with the 
regulations under this section and Sec.  301.6112-1 by providing to the 
IRS all information requested by the IRS under these sections.
    (h) [The text of the proposed Sec.  301.6111-3(h) is the same as 
the text for Sec.  301.6111-3T(h) published elsewhere in this issue of 
the Federal Register].
    (i) Effective date--(1) In general. In general, this section 
applies to transactions with respect to which a material advisor makes 
a tax statement 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 with 
respect to which a material advisor makes a tax statement under Sec.  
301.6111-3 on or after November 2, 2006.
    (2) [The text of the proposed Sec.  301.6111-3(i)(2) is the same as 
the text for Sec.  301.6111-3T(i)(2) published elsewhere in this issue 
of the Federal Register].

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E6-18321 Filed 11-1-06; 8:45 am]
BILLING CODE 4830-01-P