IRS releases new Form 8886-T and final instructions.

AuthorHancock, Mark

On September 22, 2007, the IRS released new Form 8886-T, Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction, and the final instructions for its use. The new form requires tax-exempt organizations to report prohibited tax shelter transactions (e.g., listed transactions, including transactions "substantially similar" to listed transactions, confidential transactions, and contractual protection transactions). If the prohibited tax shelter transaction is a listed transaction, organizations must identify the specific listed transaction and all other parties to the transaction, whether taxable or tax-exempt (if known). A separate Form 8886-T must be filed for each prohibited tax shelter transaction. In addition, the entity or entity manager must keep a copy of all documents and other records related to a prohibited tax shelter transaction.

If the tax-exempt entity is a nonplan entity, Form 8886-T must be filed by the entity; if it is a plan entity, the form must be filed by the entity manager. In addition to the Form 8886-T, a tax-exempt entity and/or entity manager may be liable for excise taxes in connection with the prohibited tax shelter transaction.

The final instructions indicate that a taxable party to a prohibited tax shelter transaction must provide a statement, to any tax-exempt entity that is party to the transaction, that the transaction qualifies as a prohibited tax shelter transaction. Also, if a tax-exempt entity "participates in" any reportable transaction, including one of the categories of prohibited tax shelter transactions, the entity may also be required to file Form 8886, Reportable Transaction Disclosure Statement.

When to File

The due date for Form 8886-T depends on whether the entity is a party to a prohibited tax shelter transaction to reduce its own federal tax liability or whether it is trying to "facilitate" the transaction by reason of its tax-exempt, tax-indifferent, or tax-favored status.

For a tax-exempt entity that is a party to a prohibited tax shelter transaction because it is facilitating the transaction by reason of its exempt status, Form 8886-T must be filed on or before May 15 of the year following the dose of the calendar year during which the entity entered into the prohibited tax shelter transaction. For a tax-exempt entity that became a party to a prohibited tax shelter transaction that is a listed transaction to reduce (or eliminate) its own tax liability, Form 8886-T must be...

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