New reportable transaction guidance.

• Author: Auclair, David

The American Jobs Creation Act of 2004 (AJCA) provides significant penalties for failing to disclose reportable transactions. In its wake, the 1RS issued four revenue procedures clarifying the types of disclosable transactions; see Rev. Procs. 2004-65 through 2004-68, which contain lists of transactions exempt from the reporting requirements. This type of guidance is commonly referred to as an "angel list."

Reportable Transactions

Under Regs. Sec. 1.6011-4(b), there are six categories of reportable transactions:

1. Listed transactions (i.e., tax avoidance transactions identified in IRS published guidance) and substantially similar transactions;

2. Transactions offered under conditions of confidentiality;

3. Transactions with contractual protection;

4. Transactions resulting in a claimed loss deduction under Sec. 165 if they meet certain specified dollar amounts;

5. Transactions with a book-tax difference over $10 million entered into by publicly traded companies, or business entities with $250 million or more in gross assets for book purposes; and

6. Transactions reasonably expected to generate over $250,000 in tax credits if the taxpayer holds the underlying asset for 45 days or less.

   Taxpayers are generally required to disclose reportable transactions on Form 8886, Reportable Transaction Disclosure Statement; however, according to Rev. Proc. 2004-45, transactions meeting the book-tax difference listed in #5 above may be disclosed on Schedule M-3, Net Income (Loss) Reconciliation For Corporations With Total Assets of $10 Million or More.

   Penalties

   AJCA Section 81(a) enacted new Sec. 6707A, which provides a $200,000 penalty ($100,000 for a natural person) for failing to disclose a listed transaction, and a $50,000 penalty ($10,000 for a natural person) for failing to disclose other reportable transactions. The new angel lists take on added significance in light of the severity of the new penalties for reportable transactions.

   Angel Lists

   The four new revenue procedures provide specific exemptions for four of the above categories. They all apply to transactions entered into after 2002.

   Transactions with contractual protection (Rev. Proc. 2004-65): Generally, under Regs. Sec. 1.6011-4(b)(4), a transaction with contractual protection is one involving (1) a refundable fee, if all or part of the transaction's intended tax consequences are not sustained; or (2) a fee contingent on the taxpayer's realization of the transaction's tax benefits. Rev. Proc...