[Federal Register Volume 88, Number 149 (Friday, August 4, 2023)]
[Proposed Rules]
[Pages 51756-51763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16650]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-109348-22]
RIN 1545-BQ69


Identification of Monetized Installment Sale Transactions as 
Listed Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that would 
identify monetized installment sale transactions and substantially 
similar transactions as listed transactions, a type of reportable 
transaction. Material advisors and participants in these listed 
transactions would be required to file disclosures with the IRS and 
would be subject to penalties for failure to disclose. The proposed 
regulations would affect participants in those transactions as well as 
material advisors. This document also provides a notice of a public 
hearing on the proposed regulations.

DATES: 
    Comments: Electronic or written comments must be received by 
October 3, 2023.
    Public Hearing: The public hearing is scheduled to be held on 
October 12, 2023, at 10:00 a.m. ET. Pursuant to Announcement 2023-16, 
2023-20 I.R.B. 854 (May 15, 2023), the public hearing is scheduled to 
be conducted in person, but the IRS will provide a telephonic option 
for individuals who wish to attend or testify at the hearing by 
telephone. Requests to speak and outlines of topics to be discussed at 
the

[[Page 51757]]

public hearing must be received by October 3, 2023. If no outlines are 
received by October 3, 2023, the public hearing will be cancelled. 
Requests to attend the public hearing must be received by 5:00 p.m. ET 
on October 10, 2023. The hearing will be made accessible to people with 
disabilities. Requests for special assistance during the hearing must 
be received by 5:00 p.m. ET on October 6, 2023.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and 
REG-109348-22) by following the online instructions for submitting 
comments. Requests for a public hearing must be submitted as prescribed 
in the ``Comments and Requests for a Public Hearing'' section. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The Department of the Treasury (Treasury Department) and 
the IRS will publish for public availability any comments to the IRS's 
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-109348-22), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Jonathan A. Dunlap of the Office of Associate Chief Counsel (Income Tax 
and Accounting), (202) 317-4718 (not a toll-free number); concerning 
submissions of comments and requests for hearing, Vivian Hayes at (202) 
317-5306 (not a toll-free number) or [email protected] 
(preferred).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed additions to 26 CFR part 1 (Income 
Tax Regulations) under section 6011 of the Internal Revenue Code 
(Code). The additions identify certain transactions as ``listed 
transactions'' for purposes of section 6011.

I. Disclosure of Reportable Transactions by Participants and Penalties 
for Failure To Disclose

    Section 6011(a) generally provides that, when required by 
regulations prescribed by the Secretary of the Treasury or her delegate 
(Secretary), ``any person made liable for any tax imposed by this 
title, or with respect to the collection thereof, shall make a return 
or statement according to the forms and regulations prescribed by the 
Secretary. Every person required to make a return or statement shall 
include therein the information required by such forms or 
regulations.''
    Section 1.6011-4(a) provides that every taxpayer that has 
participated in a reportable transaction within the meaning of Sec.  
1.6011-4(b) and who is required to file a tax return must file a 
disclosure statement within the time prescribed in Sec.  1.6011-4(e).
    Reportable transactions are identified in Sec.  1.6011-4 and 
include listed transactions, confidential transactions, transactions 
with contractual protection, loss transactions, and transactions of 
interest. See Sec.  1.6011-4(b)(2) through (6). Section 1.6011-4(b)(2) 
defines a listed transaction as a transaction that is the same as or 
substantially similar to one of the types of transactions that the IRS 
has determined to be a tax avoidance transaction and identified by 
notice, regulation, or other form of published guidance as a listed 
transaction.
    Section 1.6011-4(c)(4) provides that a transaction is 
``substantially similar'' if it is expected to obtain the same or 
similar types of tax consequences and 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 may involve different entities or use 
different Code provisions.
    Section 1.6011-4(c)(3)(i)(A) provides that 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 Sec.  1.6011-4(b)(2). 
Published guidance may identify other types or classes of persons that 
will be treated as participants in a listed transaction. Published 
guidance may also identify types or classes of persons that will not be 
treated as participants in a listed transaction.
    Section 1.6011-4(d) and (e) provide that the disclosure statement 
Form 8886, Reportable Transaction Disclosure Statement (or successor 
form) must be attached to the taxpayer's tax return for each taxable 
year for which a taxpayer participates in a reportable transaction. A 
copy of the disclosure statement must be sent to the IRS's Office of 
Tax Shelter Analysis (OTSA) at the same time that any disclosure 
statement is first filed by the taxpayer pertaining to a particular 
reportable transaction.
    Section 1.6011-4(e)(2)(i) provides that if a transaction becomes a 
listed transaction after the filing of a taxpayer's tax return 
reflecting the taxpayer's participation in the listed transaction and 
before the end of the period of limitations for assessment for any 
taxable year in which the taxpayer participated in the listed 
transaction, then a disclosure statement must be filed with OTSA within 
90 calendar days after the date on which the transaction becomes a 
listed transaction. This requirement extends to an amended return and 
exists regardless of whether the taxpayer participated in the 
transaction in the year the transaction became a listed transaction. 
The Commissioner of Internal Revenue (Commissioner) may also determine 
the time for disclosure of listed transactions in the published 
guidance identifying the transaction.
    Participants required to disclose these transactions under Sec.  
1.6011-4 who fail to do so are subject to penalties under section 
6707A. Section 6707A(b) provides that the amount of the penalty is 75 
percent of the decrease in tax shown on the return as a result of the 
reportable transaction (or which would have resulted from such 
transaction if such transaction were respected for Federal tax 
purposes), subject to minimum and maximum penalty amounts. The minimum 
penalty amount is $5,000 in the case of a natural person and $10,000 in 
any other case. For a listed transaction, the maximum penalty amount is 
$100,000 in the case of a natural person and $200,000 in any other 
case.
    Additional penalties may also apply. In general, section 6662A 
imposes a 20 percent accuracy-related penalty on any understatement (as 
defined in section 6662A(b)(1)) attributable to an adequately disclosed 
reportable transaction. If the taxpayer had a requirement to disclose 
participation in the reportable transaction but did not adequately 
disclose the transaction in accordance with the regulations under 
section 6011, the taxpayer is subject to an increased penalty rate 
equal to 30 percent of the understatement. See section 6662A(c). 
Section 6662A(b)(2) provides that section 6662A applies to any item 
which is attributable to any listed transaction and any reportable 
transaction (other than a listed transaction) if a significant purpose 
of such transaction is the avoidance or evasion of Federal income tax.
    Participants required to disclose listed transactions who fail to 
do so are also subject to an extended period of

[[Page 51758]]

limitations under section 6501(c)(10). That section provides that the 
time for assessment of any tax with respect to the transaction shall 
not expire before the date that is one year after the earlier of the 
date the participant discloses the transaction or the date a material 
advisor discloses the participation pursuant to a written request under 
section 6112(b)(1)(A).

II. Disclosure of Reportable Transactions by Material Advisors and 
Penalties for Failure To Disclose

    Section 6111(a) provides that each material advisor with respect to 
any reportable transaction shall make a return 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. Such return shall be filed not later than the date specified 
by the Secretary.
    Section 301.6111-3(a) of the Procedure and Administration 
Regulations provides that each material advisor with respect to any 
reportable transaction, as defined in Sec.  1.6011-4(b), must file a 
return as described in Sec.  301.6111-3(d) by the date described in 
Sec.  301.6111-3(e).
    Section 301.6111-3(b)(1) provides that 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 Sec.  301.6111-
3(b)(3) for the material aid, assistance, or advice. Under Sec.  
301.6111-3(b)(2)(i) and (ii), a person provides material aid, 
assistance, or advice if the person provides a tax statement, which 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).
    Material advisors must disclose transactions on Form 8918, Material 
Advisor Disclosure Statement (or successor form), as provided in Sec.  
301.6111-3(d) and (e). Section 301.6111-3(e) provides that the material 
advisor's disclosure statement for a reportable transaction must be 
filed with the OTSA by the last day of the month that follows the end 
of the calendar quarter in which the advisor becomes a material advisor 
with respect to a reportable transaction or in which the circumstances 
necessitating an amended disclosure statement occur. The disclosure 
statement must be sent to the OTSA at the address provided in the 
instructions for Form 8918 (or successor form).
    Section 301.6111-3(d)(2) provides that 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 for whom the 
material advisor acts as a material advisor as defined in Sec.  
301.6111-3(b). 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.
    Section 6707(a) provides that a material advisor who fails to file 
a timely disclosure, or files an incomplete or false disclosure 
statement, is subject to a penalty. Pursuant to section 6707(b)(2), for 
listed transactions, the penalty is the greater of (1) $200,000, or (2) 
50 percent of the gross income derived by such person with respect to 
aid, assistance, or advice which is provided with respect to the listed 
transaction before the date the return is filed under section 6111.
    Additionally, section 6112(a) provides that each material advisor 
with respect to any reportable transaction shall (whether or not 
required to file a return under section 6111 with respect to such 
transaction) maintain a list (1) identifying each person with respect 
to whom such advisor acted as a material advisor with respect to such 
transaction and (2) containing such other information as the Secretary 
may by regulations require. Material advisors must furnish such lists 
to the IRS in accordance with Sec.  301.6112-1(e).
    A material advisor may be subject to a penalty under section 6708 
for failing to maintain a list under section 6112(a) and failing to 
make the list available upon written request to the Secretary in 
accordance with section 6112(b) within 20 business days after the date 
of such request. Section 6708(a) provides that the penalty is $10,000 
per day for each day of the failure after the 20th day. However, no 
penalty will be imposed with respect to the failure on any day if such 
failure is due to reasonable cause.

III. Installment Sales

    Section 61(a)(3) provides that a taxpayer's gross income includes 
gains from dealings in property. Under section 1001(a), a taxpayer's 
gain on a sale of property is equal to the excess of the amount 
realized on the sale over the taxpayer's adjusted basis in the property 
and, generally, a taxpayer must recognize the gain in the taxable year 
of the sale. The taxpayer's amount realized generally includes cash 
actually or constructively received, plus the fair market value of any 
property received or, in the case of a debt instrument issued in 
exchange for property, the issue price of the debt instrument. See 
Sec.  1.1001-1 of the Income Tax Regulations.
    Section 453 provides an exception to the general rule that gain 
from the sale of property must be recognized in the year of sale. 
Section 453(a) provides, in general, that income from an installment 
sale is accounted for under the installment method. Under section 
453(b), an installment sale is one in which a taxpayer disposes of 
property and at least one payment is to be received after the close of 
the taxable year of the disposition. The installment method, as 
described in section 453(c), requires a taxpayer to recognize income 
from a disposition as payments are actually or constructively received, 
in an amount equal to the proportion of the payment received that the 
gross profit (realized or to be realized when payment is completed) 
bears to the total contract price.
    Under section 453(f)(3) and 26 CFR 15a.453-1(b)(3) (Temporary 
Income Tax Regulations Under the Installment Sales Revision Act), a 
taxpayer generally does not receive a ``payment,'' as such term is used 
in section 453(b), to the extent the taxpayer receives evidence of 
indebtedness ``of the person acquiring the property'' (installment 
obligation). As a result, notwithstanding that a taxpayer has received 
an installment obligation from the buyer evidencing the buyer's 
obligation to pay an amount equal to the purchase price, the taxpayer 
is not treated as having received full payment in the year in which the 
taxpayer received the installment obligation. Instead, the taxpayer is 
treated as receiving payments when the taxpayer receives (or 
constructively receives) payments under the installment obligation.
    However, to the extent that the taxpayer receives a note or other 
evidence of indebtedness in the year of sale from a person other than 
``the

[[Page 51759]]

person acquiring the property,'' section 453(f)(3) is inapplicable. A 
note or other evidence of indebtedness received in the year of sale 
issued by a person other than the person acquiring the property is, 
under Sec.  15a.453-1(b)(3), the receipt of a payment for purposes of 
section 453. Likewise, under Sec.  15a.453-1(b)(3), the taxpayer's 
receipt of a note or other evidence of indebtedness that is secured 
directly or indirectly by cash or a cash equivalent is treated as the 
receipt of payment for purposes of section 453.
    Section 453A(d) provides rules relating to certain installment 
obligations arising from a disposition of property, the sales price of 
which is more than $150,000. Under section 453A(d), if any indebtedness 
is secured by an installment obligation to which section 453A applies, 
the net proceeds of the secured indebtedness are treated as a payment 
received on the installment obligation as of the later of the time the 
indebtedness becomes secured by the installment obligation or the time 
the taxpayer receives the proceeds of the indebtedness (the pledging 
rule). To the extent installment payments are received after the date 
payment is treated as received under section 453A(d), the tax on such 
payments is treated as having already been paid.

IV. Tax Avoidance Using Monetized Installment Sales

    The Treasury Department and the IRS are aware that promoters are 
marketing transactions that purport to convert a cash sale of 
appreciated property by a taxpayer (seller) to an identified buyer 
(buyer) into an installment sale to an intermediary (who may be the 
promoter) followed by a sale from the intermediary to the buyer. In a 
typical transaction, the intermediary issues a note or other evidence 
of indebtedness to the seller requiring annual interest payments and a 
balloon payment of principal at the maturity of the note, and then 
immediately or shortly thereafter, the intermediary transfers the 
seller's property to the buyer in a purported sale of the property for 
cash, completing the prearranged sale of the property by seller to 
buyer. In connection with the transaction, the promoter refers the 
seller to a third party that enters into a purported loan agreement 
with the seller. The intermediary generally transfers the amount it has 
received from the buyer, less certain fees, to an account held by or 
for the benefit of this third party (the account). The third party 
provides a purported non-recourse loan to the seller in an amount equal 
to the amount the seller would have received from the buyer for the 
sale of the property, less certain fees. The ``loan'' is either funded 
or collateralized by the amount deposited into the account. The 
seller's obligation to make payments on the purported loan is typically 
limited to the amount to be received by the seller from the 
intermediary pursuant to the purported installment obligation. Upon 
maturity of the purported installment obligation, the purported loan, 
and the funding note, the offsetting instruments each terminate, giving 
rise to a deemed payment on the purported installment obligation and 
triggering taxable gain to the seller purportedly deferred until that 
time.
    The promotional materials for these transactions assert that 
engaging in the transaction will allow the seller to defer the gain on 
the sale of the property under section 453 until the taxpayer receives 
the balloon principal payment in the year the note matures, even though 
the seller receives cash from the purported lender in an amount that 
approximates the amount paid by the buyer to the intermediary. The IRS 
intends to use multiple arguments to challenge the reported treatment 
of these transactions as installment sales to which section 453 
purportedly applies, including the arguments described below.
    First, the intermediary is not a bona fide purchaser of the gain 
property that is the subject of the purported installment sale. In 
these transactions, the intermediary is interposed between the seller 
and the buyer for no purpose other than Federal income tax avoidance, 
and the intermediary neither enjoys the benefits nor bears the burdens 
of ownership of the gain property. The interposition of the 
intermediary typically takes place after the seller has decided to sell 
the gain property to a specific buyer at a specific negotiated purchase 
price, and the purported resale by the intermediary to such buyer 
generally takes place almost simultaneously with the purported sale to 
the intermediary for approximately the same negotiated purchase price, 
less certain fees. The seller's only purpose for entering into an 
agreement with the intermediary is to defer recognition of the gain on 
the sale of the gain property to the buyer. Other than the Federal 
income tax deferral benefits provided by the installment method 
provisions of section 453, the sole economic effect of entering the 
monetized installment sale transaction from the perspective of the 
seller is to pay direct and indirect fees to the intermediary and the 
purported lender in an amount that is substantially less than the 
Federal tax savings purportedly achieved from using section 453 to 
defer the realized gain on the sale.
    When an intermediate transaction with a third party is interposed 
and lacks independent substantive (non-tax) purpose, such transaction 
is not respected for Federal income tax purposes and the transaction is 
appropriately treated as a sale of the property by the seller directly 
to the buyer in the taxable year in which the gain property is 
transferred by the seller. See Commissioner v. Court Holding Co., 324 
U.S. 331, 334 (1945) (``A sale by one person cannot be transformed for 
tax purposes into a sale by another by using the latter as a conduit 
through which to pass title. To permit the true nature of a transaction 
to be disguised by mere formalisms, which exist solely to alter tax 
liabilities, would seriously impair the effective administration of the 
tax policies of Congress'' (footnote omitted)); Wrenn v. Commissioner, 
67 T.C. 576 (1976), (holding that a taxpayer did not engage in a bona 
fide installment sale when the taxpayer transferred stock to his spouse 
under a purported installment sale contract, followed by the spouse 
immediately selling the stock to a third party for a negligible gain); 
Blueberry Land Co. v. Commissioner, 361 F.2d 93, 100 (5th Cir. 1966), 
(holding that a corporation's transaction with an unrelated 
intermediary entered into solely to avoid Federal income taxes on the 
sale should be disregarded for Federal income tax purposes and the 
corporation should be taxed as if it sold the property directly to the 
ultimate buyer); Enbridge Energy Co. Inc. v. United States, 354 F. 
App'x 15 (5th Cir. 2009) (holding that an intermediate sale was a sham, 
the intermediary lacked a ``bona fide role in the transaction,'' as its 
only purpose for being a party in the transaction, and indeed for 
existing, was to mitigate the Federal tax bill arising from the 
transaction, and that the transaction should be treated, for Federal 
tax purposes, as a sale directly from the seller to the taxpayer).
    In addition, it is inappropriate to treat the intermediary in the 
monetized installment sale transaction described in this NPRM as the 
acquirer of the gain property that is the subject of the purported 
installment sale because the intermediary neither enjoys the benefits 
nor bears the burdens of ownership of the gain property that a person 
must possess to be considered the owner of property for Federal income 
tax purposes. See Grodt & McKay Realty Inc. v. Commissioner, 77 T.C. 
1221 (1981). See also Derr v. Commissioner, 77 T.C. 708 (1981) and 
Baird v. Commissioner, 68 T.C. 115 (1977).

[[Page 51760]]

    Second, in these transactions the seller is appropriately treated 
as having already received the full payment at the time of the sale to 
the buyer because (1) the purported installment obligation received by 
the seller is treated as the receipt of a payment by the seller under 
Sec.  15a.453-1(b)(3) since it is indirectly secured by the sales 
proceeds, or (2) the proceeds of the purported loan are appropriately 
treated as a payment to the seller because the purported loan is not a 
bona fide loan for Federal income tax purposes, or (3) the pledging 
rule of section 453A(d) deems the seller to receive full payment on the 
purported installment obligation in the year the seller receives the 
loan proceeds.
    Third, the transaction may be disregarded or recharacterized under 
the economic substance rules codified under section 7701(o) or the 
substance over form doctrine. The step transaction doctrine and conduit 
theory may also apply to recharacterize monetized installment sale 
transactions described in this NPRM.

V. Purpose of Proposed Regulations

    On March 3, 2022, the Sixth Circuit issued an order in Mann 
Construction v. United States, 27 F.4th 1138, 1147 (6th Cir. 2022), 
holding that Notice 2007-83, 2007-2 C.B. 960, which identified certain 
trust arrangements claiming to be welfare benefit funds and involving 
cash value life insurance policies as listed transactions, violated the 
Administrative Procedure Act (APA), 5 U.S.C. 551-559, because the 
notice was issued without following the notice-and-comment procedures 
required by section 553 of the APA. The Sixth Circuit reversed the 
decision of the district court, which held that Congress had authorized 
the IRS to identify listed transactions without notice and comment. See 
Mann Construction, Inc. v. United States, 539 F.Supp.3d 745, 763 (E.D. 
Mich. 2021).
    Relying on the Sixth Circuit's analysis in Mann Construction, three 
district courts and the Tax Court have concluded that IRS notices 
identifying listed transactions were improperly issued because they 
were issued without following the APA's notice and comment procedures. 
See Green Rock, LLC v. IRS, 2023 WL 1478444 (N.D. AL., February 2, 
2023) (Notice 2017-10); GBX Associates, LLC, v. United States, 
1:22cv401 (N.D. Ohio, Nov. 14, 2022) (same); Green Valley Investors, 
LLC, et al. v. Commissioner, 159 T.C. No. 5 (Nov. 9, 2022) (same); see 
also CIC Services, LLC v. IRS, 2022 WL 985619 (E.D. Tenn. March 21, 
2022), as modified by 2022 WL 2078036 (E.D. Tenn. June 2, 2022) (Notice 
2016-66, identifying a transaction of interest).
    The Treasury Department and the IRS disagree with the Sixth 
Circuit's decision in Mann Construction and the subsequent decisions 
that have applied that reasoning to find other IRS notices invalid and 
are continuing to defend the validity of notices identifying 
transactions as listed transactions in circuits other than the Sixth 
Circuit. At the same time, however, to avoid any confusion and ensure 
consistent enforcement of the tax laws throughout the nation, the 
Treasury Department and the IRS are issuing these proposed regulations 
to identify monetized installment sale transactions as listed 
transactions for purposes of all relevant provisions of the Code and 
Treasury Regulations.

Explanation of Provisions

    These proposed regulations would require taxpayers that participate 
in monetized installment sale transactions and substantially similar 
transactions, and persons who act as material advisors with respect to 
these transactions, to disclose the transactions in accordance with the 
regulations issued under sections 6011 and 6111. Material advisors 
would also be required to maintain lists as required by section 6112.

I. Definition of Monetized Installment Sale Transaction

    Proposed Sec.  1.6011-13(a) would provide that a transaction that 
is the same as, or substantially similar to, a monetized installment 
sale transaction described in proposed Sec.  1.6011-13(b) is a listed 
transaction for purposes of Sec.  1.6011-4(b)(2) and sections 6111 and 
6112. ``Substantially similar'' is defined in Sec.  1.6011-4(c)(4) to 
include 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 a similar tax strategy.
    The transaction described in proposed Sec.  1.6011-13(b) includes 
the following elements:
    (1) A taxpayer (seller), or a person acting on the seller's behalf, 
identifies a potential buyer for appreciated property (gain property), 
who is willing to purchase the gain property for cash or other property 
(buyer cash).
    (2) The seller enters into an agreement to sell the gain property 
to a person other than the buyer (intermediary) in exchange for an 
installment obligation.
    (3) The seller purportedly transfers the gain property to the 
intermediary, although the intermediary either never takes title to the 
gain property or takes title only briefly before transferring it to the 
buyer.
    (4) The intermediary purportedly transfers the gain property to the 
buyer in a sale of the gain property in exchange for the buyer cash.
    (5) The seller obtains a loan, the terms of which are such that the 
amount of the intermediary's purported interest payments on the 
installment obligation correspond to the amount of the seller's 
purported interest payments on the loan during the period. On each of 
the installment obligation and loan, only interest is due over 
identical periods, with balloon payments of all or a substantial 
portion of principal due at or near the end of the instruments' terms.
    (6) The sales proceeds from the buyer received by the intermediary, 
reduced by certain fees (including an amount set aside to fund 
purported interest payments on the purported installment obligation), 
are provided to the purported lender to fund the purported loan to the 
seller or transferred to an escrow or investment account of which the 
purported lender is a beneficiary. The lender agrees to repay these 
amounts to the intermediary over the course of the term of the 
installment obligation.
    (7) On the seller's Federal income tax return for the taxable year 
of the purported installment sale, the seller treats the purported 
installment sale as an installment sale under section 453.
    A transaction may be ``substantially similar'' to the transaction 
described above even if such transaction does not include all of the 
elements described above. For example, a transaction would be 
substantially similar to a monetized installment sale if a seller 
transfers property to an intermediary for an installment obligation, 
the intermediary simultaneously or after a brief period transfers the 
property to a previously identified buyer for cash or other property, 
and in connection with the transaction, the seller receives a loan for 
which the cash or property from the buyer serves indirectly as 
collateral.

II. Participation

    Whether a taxpayer has participated in the listed transaction 
described in proposed Sec.  1.6011-13(b) would be determined under 
Sec.  1.6011-4(c)(3)(i)(A). Participants would include the seller, the 
intermediary, the purported lender, and any other person whose Federal 
income tax return reflects tax consequences or the tax strategy 
described in proposed Sec.  1.6011-13(b), or a substantially similar 
transaction.
    Under the proposed regulations, the buyer of the gain property that 
provides the buyer cash or other consideration

[[Page 51761]]

would not be treated as a participant in the listed transaction 
described in proposed Sec.  1.6011-13(b) under Sec.  1.6011-
4(c)(3)(i)(A). The Treasury Department and the IRS request comments on 
whether the buyer of the gain property should be treated as a 
participant given the buyer's key role in the transaction. If the final 
regulations include the buyer as a participant, that change would apply 
only with respect to transactions entered into after the date on which 
the final regulations are published in the Federal Register.

III. Material Advisors

    Material advisors who make a tax statement with respect to 
monetized installment sale transactions described in proposed Sec.  
1.6011-13(b) would have disclosure and list maintenance obligations 
under sections 6111 and 6112. See Sec. Sec.  301.6111-3 and 301.6112-1.

IV. Effect of Transaction Becoming a Listed Transaction

    Participants required to disclose listed transactions under Sec.  
1.6011-4 who fail to do so are subject to penalties under section 
6707A. Participants required to disclose listed transactions under 
Sec.  1.6011-4 who fail to do so are also subject to an extended period 
of limitations under section 6501(c)(10). Material advisors required to 
disclose listed transactions under section 6111 who fail to do so are 
subject to penalties under section 6707. Material advisors required to 
maintain lists of investors under section 6112 who fail to do so (or 
who fail to provide such lists when requested by the IRS) are subject 
to penalties under section 6708. In addition, the IRS may impose other 
penalties on persons involved in listed transactions, including 
accuracy-related penalties under section 6662 or section 6662A, the 
section 6694 penalty for understatements of a taxpayer's liability by a 
tax return preparer, the section 6700 penalty for promoting abusive tax 
shelters, and the section 6701 penalty for aiding and abetting 
understatement of tax liability.
    The Treasury Department and IRS recognize that some taxpayers may 
have filed Federal income tax returns taking the position that they 
were entitled to the purported tax benefits of the type of transactions 
described in these proposed regulations. Because the IRS will take the 
position in litigation that taxpayers are not entitled to the purported 
tax benefits of transactions described in these proposed regulations, 
taxpayers who have participated in those transactions should consider 
the best way to make corrections, whether by filing an amended return, 
an administrative adjustment request under section 6227, or a Form 
3115, Application for Change in Accounting Method (whichever is 
applicable), or if the taxpayer has been contacted by the IRS for 
examination for a taxable year in which the taxpayer participated in 
the transaction, by working with an IRS employee to reverse the 
purported tax benefits.
    In addition, the proposed regulations would subject material 
advisors to disclosure requirements with regard to transactions 
occurring in prior years. However, notwithstanding Sec.  301.6111-
3(b)(4)(i) and (iii), material advisors would be required to disclose 
only if they have made a tax statement on or after [the date that is 6 
years before the date that Final Regulations are published in the 
Federal Register].

V. Applicability Date

    Proposed Sec.  1.6011-13(a) would identify monetized installment 
sale transactions, and transactions that are the same as, or 
substantially similar to, the monetized installment sale transactions 
described in proposed Sec.  1.6011-13(b) as listed transactions 
effective as of the date of publication in the Federal Register of a 
Treasury decision adopting these regulations as final regulations.

Special Analyses

I. Paperwork Reduction Act

    The collection of information contained in these proposed 
regulations is reflected in the collection of information for Forms 
8886 and 8918 that have been reviewed and approved by the Office of 
Management and Budget (OMB) in accordance with the Paperwork Reduction 
Act (44 U.S.C. 3507(c)) under control numbers 1545-1800 and 1545-0865.
    To the extent there is a change in burden as a result of these 
regulations, the change in burden will be reflected in the updated 
burden estimates for the Forms 8886 and 8918. The requirement to 
maintain records to substantiate information on Forms 8886 and 8918 is 
already contained in the burden associated with the control number for 
the forms and remains unchanged.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid OMB control number.

II. Regulatory Flexibility Act

    The Secretary of the Treasury hereby certifies that the proposed 
regulations will not have a significant economic impact on a 
substantial number of small entities pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6). This certification is based on 
the fact that these proposed regulations implement sections 6111 and 
6112 and Sec.  1.6011-4 by specifying the manner in which and time at 
which an identified Monetized Installment Sale Transaction must be 
reported.
    Further, the Treasury Department and the IRS expect that the 
reporting burden is low; the information sought is necessary for 
regular annual return preparation and ordinary recordkeeping. The 
estimated burden for any taxpayer required to file Form 8886 is 
approximately 10 hours, 16 minutes for recordkeeping, 4 hours, 50 
minutes for learning about the law or the form, and 6 hours, 25 minutes 
for preparing, copying, assembling, and sending the form to the IRS. 
According to the American Institute of CPAs 2016 National MAP Survey, 
the median billing cost for a CPA is approximately $100 per hour. See 
2016 AICPA PCPS/CPA.com National MAP Survey 8-9 (2016), https://www.riscpa.org/writable/news-items/documents/2016_pcps_national_map_survey_commentary.pdf (last accessed July 3, 
2023). For 2018, the median billing cost for a CPA is approximately 
$210.50 per hour. See National MAP Survey 2018 Executive Summary, 13 
(2018), https://us.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/financialadminoperations/nationalmapsurvey/downloadabledocuments/2018-national-map-survey-executive-summary.pdf (last accessed July 3, 2023). Thus, for the 
initial reporting period, it is estimated that taxpayers may incur 
costs ranging from $2,150 to $4,700 per respondent, although this 
amount is anticipated to be significantly less for all subsequent 
reporting periods.
    For the reasons stated, a regulatory flexibility analysis under the 
Regulatory Flexibility Act is not required. The Treasury Department and 
the IRS invite comments on the impact of the proposed regulations on 
small entities. Pursuant to section 7805(f) of the Code, this notice of 
proposed rulemaking has been submitted to the Chief Counsel for the 
Office of Advocacy of the Small Business Administration for comment on 
its impact on small business.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that

[[Page 51762]]

includes any Federal mandate that may result in expenditures in any one 
year by a State, local, or Tribal government, in the aggregate, or by 
the private sector, of $100 million (updated annually for inflation). 
This proposed rule does not include any Federal mandate that may result 
in expenditures by State, local, or Tribal governments, or by the 
private sector in excess of that threshold.

IV. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

V. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6(b) of Executive Order 12866, as amended. Therefore, a 
regulatory impact assessment is not required.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to any comments that are 
submitted timely to the IRS as prescribed in the preamble under the 
ADDRESSES section. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations. Any comments submitted will 
be made available at https://www.regulations.gov or upon request. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn.
    A public hearing is being held on October 12, 2023, beginning at 
10:00 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 
Constitution Avenue NW, Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. Participants may alternatively attend the public 
hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit an outline of 
the topics to be discussed as well as the time to be devoted to each 
topic by October 3, 2023. A period of ten minutes will be allocated to 
each person for making comments. After the deadline for receiving 
outlines has passed, the IRS will prepare an agenda containing the 
schedule of speakers. Copies of the agenda will be made available free 
of charge at the hearing. If no outlines of the topics to be discussed 
at the hearing are received by October 3, 2023, the public hearing will 
be cancelled. If the public hearing is cancelled, a notice of 
cancellation of the public hearing will be published in the Federal 
Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list The subject line of the email must contain the 
regulation number REG-109348-22 and the language TESTIFY In Person. For 
example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-109348-22.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the hearing. The subject line of the email 
must contain the regulation number REG-109348-22 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-109348-22.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number (REG-109348-22) and the 
language ATTEND In Person. For example, the subject line may say: 
Request to ATTEND Hearing In Person for REG-109348-22. Requests to 
attend the public hearing must be received by 5:00 p.m. ET on October 
10, 2023.
    Individuals who want to attend the public hearing telephonically 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the hearing. The 
subject line of the email must contain the regulation number (REG-
109348-22) and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-109348-22. Requests to attend the public hearing must be received 
by 5:00 p.m. ET on October 10, 2023.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during the hearing, contact the Publications 
and Regulations Branch of the Office of Associate Chief Counsel 
(Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) at least October 6, 2023.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these proposed regulations is Jonathan A. 
Dunlap, Office of Associate Chief Counsel (Income Tax & Accounting). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1.The authority citation for part 1 is amended by adding an 
entry for Sec.  1.6011-13 in numerical order to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.6011-13 also issued under 26 U.S.C. 6001 and 26 U.S.C. 
6011.
* * * * *
0
Par. 2. Section 1.6011-13 is added to read as follows:


Sec.  1.6011-13  Monetized installment sale listed transaction.

    (a) Identification as a listed transaction. Transactions that are 
the same as, or substantially similar to, a transaction described in 
paragraph (b) of this section are identified as listed transactions for 
purposes of Sec.  1.6011-4(b)(2).
    (b) Monetized installment sale transaction. A transaction is a

[[Page 51763]]

monetized installment sale transaction if, in connection with the 
transaction, and regardless of the order of the steps, or the presence 
of additional steps or parties--
    (1) A taxpayer (seller), or a person acting on the seller's behalf, 
identifies a potential buyer for appreciated property (gain property), 
who is willing to purchase the gain property for cash or other property 
(buyer cash);
    (2) The seller enters into an agreement to sell the gain property 
to a person other than the buyer (intermediary), in exchange for an 
installment obligation;
    (3) The seller purportedly transfers the gain property to the 
intermediary, although the intermediary either never takes title to the 
gain property or takes title only briefly before transferring it to the 
buyer;
    (4) The intermediary purportedly transfers the gain property to the 
buyer in a sale of the gain property in exchange for the buyer cash;
    (5) The seller obtains a loan, the terms of which are such that the 
amount of the intermediary's purported interest payments on the 
installment obligation correspond to the amount of the seller's 
purported interest payments on the loan during the period. On each of 
the installment obligation and loan, only interest is due over 
identical periods, with balloon payments of all or a substantial 
portion of principal due at or near the end of the instruments' terms;
    (6) The sales proceeds from the buyer received by the intermediary, 
reduced by certain fees (including an amount set aside to fund 
purported interest payments on the purported installment obligation), 
are provided to the purported lender to fund the purported loan to the 
seller or transferred to an escrow or investment account of which the 
purported lender is a beneficiary. The lender agrees to repay these 
amounts to the intermediary over the course of the term of the 
installment obligation; and
    (7) On the seller's Federal income tax return for the taxable year 
of the purported installment sale, the seller treats the purported 
installment sale as an installment sale under section 453.
    (c) Substantially similar transactions. A transaction may be 
substantially similar to a transaction described in paragraph (b) of 
this section if the transaction does not include all of the elements 
described in that paragraph. For example, a transaction would be 
substantially similar to a monetized installment sale described in 
paragraph (b) of this section if a seller transfers property to an 
intermediary for an installment obligation, the intermediary 
simultaneously or after a brief period transfers the property to a 
previously identified buyer for cash or other property, and in 
connection with the transaction, the seller receives a loan for which 
the cash or property from the buyer serves indirectly as collateral.
    (d) Participation in a monetized installment sale transaction. 
Participants in a monetized installment sale transaction described in 
paragraph (b) of this section include sellers, intermediaries and 
purported lenders described in paragraph (b) of this section and any 
other taxpayer whose Federal income tax return reflects tax 
consequences or the tax strategy described in paragraph (b) of this 
section or a substantially similar transaction. Buyers of gain property 
described in paragraph (b) of this section are not treated as 
participants.
    (e) Applicability date. This section's identification of 
transactions that are the same as, or substantially similar to, the 
transaction described in paragraph (b) of this section as listed 
transactions for purposes of Sec.  1.6011-4(b)(2) and sections 6111 and 
6112 of the Code is effective the date that these regulations are 
published as final regulations in the Federal Register. Notwithstanding 
section 301.6111-3(b)(4)(i) and (iii) of this chapter, material 
advisors are required to disclose only if they have made a tax 
statement on or after the date that is 6 years before the date that 
these regulations are published as final regulations in the Federal 
Register.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-16650 Filed 8-3-23; 8:45 am]
BILLING CODE 4830-01-P