Daily Tax Update - July 31, 2007

IRS ISSUES FINAL REGULATIONS ON REPORTABLE TRANSACTIONS: Today, the IRS issued three final regulations (T.D. 9350, T.D. 9351, and T.D. 9352) on disclosure and registration of tax shelter transactions.  The final regulations are effective August 3, 2007.

  • T.D. 9350 modifies the rules relating to the disclosure of reportable transactions under section 6011.  Specifically, the final regulations:
    • adopt the language in the proposed regulations (issued November 1, 2006) regarding transactions of interest.
    • retain the language in the proposed regulations that provide that a taxpayer’s participation in a transaction of interest will be determined in the published guidance which identifies the transaction of interest.
    • provide that the transactions of interest category of reportable transactions will apply to transactions entered into on or after November 2, 2006.
    • extend the disclosure period for filing a disclosure statement with the Office of Tax Shelter Analysis to 60 calendar days.
    • amend the proposed regulations to add language providing flexibility to the IRS and Treasury to issue other provisions for disclosure under § 1.6011-4 in published guidance.
    • amend the proposed regulations to provide that taxpayers have 90 calendar days to disclose their participation in a subsequently identified listed transaction or transaction of interest.
    • remove the brief asset holding period reportable transaction category.
    • provide that investors are no longer required to file Form 8271 otherwise due on or after August 3, 2007, and that this form will be obsoleted.
  • T.D. 9351 covers rules for disclosure of these transactions by material advisors.  The final regulations:
    • state that a material advisor is required to provide a reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor.
    • clarify the material advisor fee threshold language.
    • provide that a material advisor must provide the identities of any material advisor(s) who the material advisor knows or has reason to know acted as a material advisor with respect to a transaction.
    • adopt the language of the proposed regulations regarding designation agreements.
    • continue to require that material advisors must provide the reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor.
  • T.D. 9352 provides rules for material advisors to follow to prepare and maintain lists of investors in these transactions.  The final regulations:
    • remove language found in the proposed regulations regarding the period for furnishing a list or the components of a list to the IRS.
  • For additional information, contact: Matthew D. Lerner - mlerner@steptoe.com 
  • The regulations can be accessed via:

http://www.steptoe.com/assets/attachments/3101.pdf 

http://www.steptoe.com/assets/attachments/3102.pdf 

http://www.steptoe.com/assets/attachments/3100.pdf

IRS REMOVES TEMPORARY REGULATIONS ON CAFETERIA PLANS: Today, the IRS issued T.D. 9349, removing temporary regulations pertaining to benefits that may be offered to participants under a tax code section 125 cafeteria plan.

  • The temporary regulations were issued on Feb. 4, 1986.  The IRS said the rules have been rendered obsolete by subsequent proposed regulations and other section 125 guidance.   

FINANCE HEARS TESTIMONY ON CARRIED INTEREST:  Today, the Senate Finance Committee heard from several academic and private sector witnesses on the topic of carried interest.  Ranking member Charles Grassley (R-IA) said, “This hearing, and the committee’s inquiry, is about the distinction between capital income and labor income.  This issue arises frequently in partnerships, when a person receives a carried interest, or an interest in a partnership’s profits, in exchange for performing services for the partnership, as opposed to contributing capital.  This hearing is not about well-settled principles regarding capital assets or the propriety of current capital gains rates.  It is not an attack on the investor class or capital formation.  We are not questioning the tax treatment of the return on any partner’s invested capital.  That return is, and should continue to be, taxed at preferential capital gains rates.”  Grassley added, “This hearing is also not about a revenue grab from Congress.  It is not about whether alternative asset managers are good or bad for society.  We’re not here to have a hearing on each industry, measure its value to society, and assign a tax rate accordingly.  This hearing is about our responsibility to ensure that the tax code is operating fairly and consistently with the intent behind enacted policies.  If it is not, then there is an unintended subsidy being provided to some, while others pay for it with higher taxes.”

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