New material adviser reporting rules.

• Author: Nevius, Alistair M.

The IRS has issued proposed regulations relating to the reporting rules for material advisers (REG-160872-04). Sec. 6707 contains penalty provisions for failure to timely file a return under Sec. 6111(a) or for filing a false or incomplete return with respect to a reportable transaction. For reportable transactions other than listed transactions, the Sec. 6707 penalty is $50,000; for listed transactions, the penalty is the greater of $200,000 or 50% of the gross income the material adviser makes from providing advice on the transactions (75% if the failure was intentional).

The proposed regulations clarify that the IRS can assess the Sec. 6707 penalty against each material adviser who is required to file a return under Sec. 6111, even if multiple material advisers have a duty to file under the same transaction.

Under the proposed regulations, a material adviser will not be considered to have filed an incomplete Form 8918, Material Advisor Disclosure Statement, if he or she completes the form to the best of his or her ability and knowledge after exercising reasonable efforts to...