IRS issues reporting requirements for transactions of interest.

Author:Emilian, James

Transactions of interest are a category of reportable transaction described in the regulations under Sec. 6011 (TD 9350). A transaction of interest (TOI) is defined in the preamble to the regulations as a transaction that the IRS and Treasury believe has a potential for tax avoidance or evasion but for which there is insufficient information to determine whether the transaction should be identified specifically as a tax avoidance transaction. The stated purpose underlying the creation of the TOI category is to enable the IRS to gather information about such transactions. The Service and Treasury will alert the public to their detailed concerns about particular TOIs by issuing notices, regulations, or other forms of published guidance.

On August 14, 2007, for the first time, the IRS identified two TOIs (Notices 2007-72 and 2007-73). Notice 2007-72 identifies transactions involving charitable contributions of a "successor member interest" in a limited liability company (LLC). Notice 2007-73 identifies transactions in which the grantor status of a trust is turned on and off (i.e., toggled) to avoid income tax.

The regulations pertaining to TOIs are effective August 3, 2007, and apply to transactions entered into on or after November 2, 2006.

Notice 2007-72: Contribution of Successor Member Interest

Notice 2007-72 identifies a type of transaction involving a contribution to a tax-exempt organization of a successor member interest in an LLC, the value of which is inflated to allow the taxpayer to claim a potentially excessive charitable contribution deduction for income tax purposes.

A Notice 2007-72 TOI arises when a taxpayer engages in a transaction that has the following general fact pattern:

* The taxpayer acquires, directly or indirectly, a successor member interest in an LLC that directly or indirectly owns real property;

* The taxpayer transfers the successor member interest to a tax-exempt organization more than one year after the acquisition; and

* The taxpayer claims a charitable contribution deduction that is significantly higher than the amount that the taxpayer paid to acquire the successor member interest.

In addition, some variations of this transaction may have the charity agreeing not to transfer the successor member interest for a specified period of time and/or that any sale of the successor member interest will be to a party designated by the taxpayer.

Notice 2007-73: Toggling Grantor Trust Transaction

Notice 2007-73 identifies a type of transaction...

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