Prop. regs. allow material advisers to request extension.

• Author: Schreiber, Sally P.

The IRS issued proposed regulations under Sec. 6708 governing the penalty for failure of material advisers to provide lists of advisees (i.e., investors) in reportable transactions (as required by Sec. 6112), which applies if the advisers do not supply the lists to the IRS within 20 business clays after a written request (REG-160873-04). The proposed regulations define when the 20-day period starts, outline how the lists may be delivered, and allow for extensions of the period.

The penalty for failure to provide the list is $10,000 for each day after the 20-day period until the list is provided, with no maximum penalty. Under Sec. 6708(a)(2), no penalty is imposed for any day on which there is reasonable cause for the failure.

Prop. Regs. Sec. 301.6708-1(b) starts the 20-business-day period on the first business day following the earlier of the date that the IRS (1) mails by certified or registered mail the request for the list to the person required to maintain the list; (2) hand-delivers the request for the list directly to that person; or (3) leaves the list request at that person's last and usual place of abode or usual place of business.

To comply with the requirement to provide the list, that person may deliver the list to the IRS by either hand delivery, U.S. mail, or a private delivery service; or may arrange with the IRS to produce the list by another agreed-upon method within the 20-business-day period after the list request (Prop. Regs. Sec. 301.6708-1(c)).

Because there are situations in which material advisers cannot comply with the request for a list within 20 days, the IRS is permitting persons to request an extension of the 20-business-day response period under Prop. Regs. Sec. 301.6708-1(c)(3). The IRS will grant an extension at its discretion if, before the 20-business-day period expires, the person establishes that he or she cannot reasonably meet the 20-business-day deadline despite diligent efforts to maintain the...