Daily Tax Update - March 7, 2013: IRS, Treasury Issue Proposed Regulations Regarding Material Advisor Penalty

IRS, TREASURY ISSUE PROPOSED REGULATIONS REGARDING MATERIAL ADVISOR PENALTY:  Today, the IRS and the Treasury Department issued proposed regulations regarding the material advisor penalty to reflect changes made by the American Jobs Creation Act of 2004 (Jobs Act).  For any reportable transaction, the material advisor must maintain a list of advisees and other specified information.  If the material advisor fails to provide the required information, a penalty may be applied.  The Jobs Act increased the penalty to $10,000 for each day the advisor fails to provide the IRS with the required information, starting after the 20th business day that the request was made.

  • The proposed regulations discuss what constitutes reasonable cause and provide a nonexclusive list of factors the IRS will consider in determining whether reasonable cause exists.  The key factor is a good-faith effort to comply timely and fully.  Other supporting factors include if the advisor experiences a supervening event (e.g., illness, theft, or flood), or if the advisor relied reasonably and in good-faith on the advice of an independent tax professional.
  • The proposed regulations authorize the IRS to grant extensions beyond the 20-busines-day period; however, extensions are not expected to be routinely requested or granted, because the required information is required to be maintained in a readily accessible form.
  • The proposed regulations clarify that the information a material advisor is required to maintain is governed by the version of section 6112 in effect on the date the maintenance requirement arose with respect to the reportable transaction.
  • Comments have been requested, particularly regarding the necessity, practicality, and costs of complying with the proposed collection of information requirements. Comments are due by June 6, 2013, and discussion topic outlines for the public hearing to be held July 2, 2013, are due by June 10, 2013.

The guidance can be accessed via: march7.pdf


1. [113rd] H.R.998 : To amend the Internal Revenue Code of 1986 to reduce the holding period used to determine whether horses are section 1231 assets to 12 months.
Sponsor: Rep Barr, Andy [KY-6] (introduced 3/6/2013)      Cosponsors (None) 
Committees: House Ways and Means 
Latest Major Action: 3/6/2013 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

2. [113rd] H.R.1009 : To amend the Internal Revenue Code of 1986 to provide recruitment and retention incentives for volunteer emergency service workers.
Sponsor: Rep King, Peter T. [NY-2] (introduced 3/6/2013)      Cosponsors (12) 
Committees: House Ways and Means; House Education and the Workforce 
Latest Major Action: 3/6/2013 Referred to House committee. Status: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and the Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

3. [113rd] S.479 : A bill to amend the Internal Revenue Code of 1986 to clarify the employment tax treatment and reporting of wages paid by professional employer organization, and for other purposes.
Sponsor: Sen Grassley, Chuck [IA] (introduced 3/6/2013)      Cosponsors (3) 
Committees: Senate Finance 
Latest Major Action: 3/6/2013 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.