Revised List Maintenance Regulations :
Perhaps the most onerous and burdensome provisions in the new regulations for tax practitioners are the rules pertaining to maintenance for offshore trusts .
The new regulation with respect to list maintenance expands the requirement to any organizer or seller that is involved with a “potentially abusive tax shelter.”19 An organizer or seller is defined as a person that is a material advisor to the transaction. A material advisor is defined as any person who (or through its employees, shareholders, partners, or agents) receives, or expects to receive, at least a minimum fee of $250,000 for a transaction that is a potentially abusive tax shelter if all persons who acquire a direct or indirect interest are corporations (other than S corporations), and $50,000 for any other transaction that is a potentially abusive tax shelter. 20/21Under the previous list maintenance rules for tax shelters, organizers and sellers were responsible for maintaining the lists. That requirement now belongs principally to lawyers and accountants who participate in the transaction as “material advisors” and provide consultative advice with respect to potentially abusive transactions (which now include all reportable transactions). Our Wyoming asset protection Trusts .
Potentially abusive tax shelters are defined as any transaction that is a §6111 tax shelter (whether or not the transaction was registered) or that has the potential for tax avoidance or evasion as a listed transaction or reportable transaction under regulation §1.6011-4T (whether or not the transaction was properly disclosed). In addition, if a transaction becomes a listed transaction after the transaction is entered into or an interest in the transaction is acquired, then list maintenance is required after January 1, 2003 for all transactions entered into after February 28, 2000. As a result, list maintenance requirements can become effective via a subsequent event that occurs after the initial date of the transaction.
A separate list of persons must be prepared and maintained for each transaction that is a potentially abusive tax shelter. However, one list must be maintained for substantially similar transactions that are potentially abusive tax shelters.22 A material advisor is required to list each person to whom the material advisor makes or provides a statement, oral or written, as to the potential tax consequences of a transaction that is a potentially abusive tax shelter, if the material advisor knows or has reason to know that the person or any related party participated in or will participate in the transaction (or a substantially similar transaction that is a potentially abusive tax shelter). Browse other asset protection strategies here.
In addition, the material advisor shall treat a person (including any related party) as having participated in a transaction that is a potentially abusive tax shelter if the material advisor knows or has reason to know that the person sold or transferred, or will sell or transfer, to another person an interest in that type of transaction that if entered into would be a potentially abusive tax shelter. The material advisor also must list any subsequent participant if the material advisor knows or has reason to know the identity of that subsequent participant, and the material advisor knows or reasonably expects the subsequent participant will participate in, or sell or transfer to another subsequent participant an interest in that type of transaction, that if entered into would be a potentially abusive tax shelter. Consider contacting our asset protection attorney today.
Regulation §301.6112-1T(e)(3)(i) contains the list maintenance requirements. Under the new regulation, the following information must be maintained:
The name of each transaction that is a potentially abusive tax shelter and the registration number, if any, obtained under section 6111;
The TIN, if any, of each transaction;
The name, address, and TIN of each person required to be on the list;
If applicable, the number of units (i.e., percentage of profits, number of shares, etc.) acquired by each persons required to be included on the list;
The date on which each interest was acquired;
The amount invested in each transaction by each person required to be included on the list;
A detailed description of each transaction that describes both the structure and its expected tax consequences;
A summary or schedule of the tax consequences that each person is intended or expected to derive from participation in each transaction, if known by the material advisor;
Copies of any additional written materials, including tax analyses or opinions, relating to each transaction that have been shown or provided to any person who acquired or may acquire an interest in the transactions, or to their representatives, tax advisors, or agents, by the material advisor or any related party or agent of the material advisor; and
For each person, if the interest in the transaction was not acquired from the material advisor maintaining the list, the name of the person from whom the interest was acquired.
Transactions of the type contemplated under §§ 6011 and 6112 and the have the involvement of attorneys frequently contain elements of attorney-client privilege. Regulation §301.6112-1Te)(3)(ii) provides that in the case where an attorney or federally authorized tax practitioner within the meaning if §7525 is required to maintain a list with respect to a transaction that is a potentially abusive tax shelter, and that person has a reasonable belief that information required to be disclosed is protected by attorney-client privilege or by the confidentiality privilege of §7525(a), the attorney or federally authorized tax practitioner must still maintain the list of persons pursuant to the new regulations. When the list is requested by the IRS, the material advisor may assert a privilege claim supported by a statement that is signed by the attorney or federally authorized tax practitioner under penalties of perjury that must identify the nature of each document or category of information that is not produced which will allow the Service to determine the applicability of the privilege protection claimed, without revealing the privileged information itself. In addition, the following representations must be specifically made for each document or category of information for which privilege is claimed:
Representation that the information was a confidential practitioner-client communication and, in the case of information which a federally authorized tax practitioner claims is privileged under §7525, that the omitted information was not part of tax advice that constituted the promotion of the direct or indirect participation of a corporation or tax shelter.
Representation that to the best of such person’s knowledge and belief, all others in possession of the omitted information did not disclose the omitted information to any person whose receipt of such information would result in the waiver of the privilege.
If a material advisor has list maintenance obligations, he or she must maintain the list for ten years following the date on which the material advisor made a statement, oral or written, as to the potential tax consequences of the transaction. If the material advisor is an entity that has liquidated before completion of the ten-year period, the person responsible for winding up the affairs of the entity under state law must prepare, maintain and furnish the list on behalf of the entity, unless the entity submits the list to the Office of Tax Shelter Analysis (OTSA) within 60 days after the liquidation.
Upon written request from the IRS, each material advisor and person responsible for maintaining a list of persons must furnish the list within 20 days of the request. The request is not required to be in the form of an administrative summons. The list may be furnished to the IRS on paper, card file, magnetic media, or in any other form, provided the method of furnishing the list enables the IRS to determine the information without undue delay.
If more than one material advisor is required to maintain a list, the material advisors may designate by written agreement a single advisor to maintain a list or a portion of a list. The designation of one material advisor does not relieve the other material advisors from their obligation to furnish the list to the IRS. However, the fact that a material advisor is unable to obtain the list from any designated material advisor, the fact that any designated material advisor did not maintain a list, or the fact that the list maintained by any designated material advisor is not complete, will not relieve any material advisor from the list maintenance requirements.
A person may submit a request to the IRS for a ruling regarding whether a transaction is a potentially abusive tax shelter or whether a person is a material advisor with respect to the transaction. If the request fully discloses all relevant facts relating to the transaction, (including all the relevant facts regarding the person’s relationship to the transaction), then the requirement to maintain a list shall be suspended for that person during the period that the ruling request is pending and for 60 days thereafter. If it is ultimately determined that the transaction is a potentially abusive tax shelter, the pendency of the ruling request shall not affect the requirement to maintain the list, nor shall it affect the persons required to be included on the list or the other information required to be included as part of the list.
As previously discussed in the introduction to this article, the IRS has issued a Notice that delays the effective date of the revised regulations for disclosure and list maintenance. This delay in effective date is the result of comments received by Treasury regarding provisions in the regulations that clearly place an undue burden on taxpayers and practitioners. Namely, the provisions in the disclosure regulations regarding reportable transactions attributable to book-tax differences should be revised to incorporate exemptions for transactions such as like-kind exchanges and corporate reorganizations. In addition, the tracking of these book-tax differences by non-public entities and clients that lack sophisticated accounting systems may not be practical.
From the tax practitioner’s standpoint, the new list maintenance rules will generally require accountants and attorneys to revise their methods for monitoring work that is performed for clients to determine if a transaction has been contemplated that meets the definition of a reportable transaction. In addition, the ability to determine if the fee thresholds have been met to qualify as a material advisor may require significant alterations in the manner that time and billings are tracked for clients. Ultimately, it can only be hoped that the cooperation of Treasury with ethical tax practitioners can create a system of disclosure and list maintenance that does not place an undue burden on taxpayers and practitioners, while meeting the goals of the government with respect to eliminating the use of abusive tax shelters.