New transaction of interest identified.

• Author: Jamouneau, Greg

In Notice 2008-99, the IRS identified a new transaction of interest (TOI) for purposes of the reportable transaction disclosure and list maintenance rules under Secs. 6011, 6111, and 6112. A transaction of interest is defined in Regs. Sec. 1.6011-4(b)(6) as "a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest."

Although TOIs are a category of reportable transaction under Sec. 6011, they are not necessarily considered abusive by the IRS. Unlike a listed transaction, which is a category of reportable transaction also specifically identified in published guidance, a TOI is not determined to be a "tax avoidance transaction." The IRS added the TOI category in order to gather information about transactions that it believes have the potential for tax avoidance but for which it lacks sufficient information to determine if the transaction should be identified as a tax avoidance transaction (i.e., a listed transaction). The transaction described in Notice 2008-99 is the third transaction identified by the IRS as a TOI. (The others were identified in Notices 2007-72 and 2007-73; see Emilian and Jamouneau, "IRS Issues Reporting Requirement for Transactions of Interest," Tax Clinic, 39 The Tax Adviser 81 (February 2008).)

Notice 2008-99 identifies certain transactions involving the use of charitable remainder trusts and substantially similar transactions as TOIs. A charitable remainder trust (CRT) is a vehicle through which a donor (grantor) contributes property that provides income to the grantor (or his or her designated beneficiaries) but provides that the remainder interest (or principal) is received by a designated charity. CRTs provide tax benefits in the form of capital gains savings (on the donated property), an income tax deduction (based on the value of the remainder interest), and estate planning (i.e., the donated property is removed from the estate).

The use of CRTs is quite common and does not by itself invite IRS scrutiny. The type of CRT transaction identified in Notice 2008-99, however, involves a tax benefit that the IRS believes has the potential for tax avoidance or evasion. Specifically, the IRS is concerned that the Notice 2008-99 transaction allows the CRT grantor to permanently avoid recognition of gain on the sale or other disposition of appreciated assets.

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