Daily Tax Update - December 2, 2008


IRS AGAIN REVISES INTERMEDIARY LISTED TRANSACTION NOTICE: Yesterday, the IRS issued Notice 2008-111, which clarifies when transactions will be treated as Intermediary Transaction Tax Shelters (“Intermediary Transactions”). This Notice clarifies Notice 2001-16, which originally identified the Intermediary Transaction as a listed transaction, and supersedes Notice 2008-20, which identified four components of a transaction that, if present, would cause the transaction to be treated as an Intermediary Transaction.

  • The transactions at issue generally involve the disposition of target corporation stock by the seller, coupled with the disposition of the target’s assets in a transaction in which gain is recognized but is offset or otherwise avoided.
  • Unlike Notice 2008-20, Notice 2008-111 requires that requires that the transaction be engaged in pursuant to a “Plan” pursuant to which Built-in Gain Assets are disposed of in a taxable disposition giving rise to a fair market value basis under circumstances in which the person or persons primarily liable for any federal income tax obligation with respect to the disposition of such assets will not pay that tax. The Notice explains that a transaction will only be treated as an Intermediary Transaction with respect to a person who engages in the transaction knowing that it was structured as an Intermediary Transaction.
  • Notice 2008-111 changes the four components identified in Notice 2008-20 that cause the transaction to be treated as an Intermediary Transaction are as follows:
  • A de minimis rule was added that disregards the Built-in Tax on the target’s assets if that amount is less than 5% of the value of the target stock disposed of in the Stock Disposition.
  • The Stock Disposition threshold was raised from 50% to 80%.
  • The requirement that “all or most” of the target’s Built-in Gain Assets be disposed of within a 12 month period was quantified to require at at least 65%. In addition, the intercompany transaction exception to such a disposition was broadened to include controlled group dispositions.
  • The requirement that “all or most” of the target’s Built-in Tax be offset, avoided, or not paid was quantified to require at least half.
  • The Notice is generally effective January 19, 2001, the effective date of Notice 2001-16. 
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com, Matthew D. Lerner - mlerner@steptoe.com, or Lisa M. Zarlenga - lzarlenga@steptoe.com.

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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