Daily Tax Update - June 15, 2010

IRS AND TREASURY ISSUE FINAL REGULATIONS REGARDING THE SUSPENSION OF INTEREST AND PENALTIES WITH RESPECT TO LISTED TRANSACTIONS AND UNDISCLOSED REPORTABLE TRANSACTIONS: Today, the IRS and Treasury issued final regulations under section 6404(g)(2)(E) regarding the suspension of any interest, penalty, addition to tax, or additional amount with respect to listed transactions or undisclosed reportable transactions.

  • Section 6404(g) generally suspends interest and certain penalties if the IRS does not contact a taxpayer within a specified period of time. However, section 903(c) of the American Jobs Creation Act of 2004 provided an exception to this general suspension rule for any interest, penalty, addition to tax, or additional amount with respect to a listed transaction or undisclosed reportable transaction.
  • The final regulations replace temporary regulations that were issued in 2007 and are substantially the same. Under the regulations, the general rule of suspension under section 6404(g)(1) does not apply to any interest, penalty, addition to tax or additional amount with respect to any listed transaction or any undisclosed reportable transaction. The general rule of suspension, however, will still apply to a listed transaction or undisclosed reportable transaction if (i) the taxpayer is a participant in a settlement initiative with respect to the transaction; (ii) the taxpayer has acted reasonably and in good faith with respect to a transaction; or (ii) the transaction is a “closed transaction.”
  • Under the regulations, whether a taxpayer acted reasonably and in good faith is determined based on all the facts and circumstances, including, but not limited to, whether the taxpayer disclosed the transaction, the taxpayer’s course of conduct after being identified as participating in the transaction, the taxpayer’s response to opportunities afforded to settle the transaction, and whether the taxpayer engaged in unreasonable delay at any stage of the matter.
  • A transaction is considered a “closed transaction” for purposes of the regulations if, as of December 14, 2005, the assessment of all federal income taxes for the taxable year in which the tax liability to which the interest relates is prevented by the operation of any law or rule of law, or a closing agreement under section 7121 has been entered into with respect to the tax liability arising in connection with the transaction.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Matthew D. Lerner - mlerner@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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