Reportable transactions: A compliance update.

AuthorHeroux, Mark

Concerns about the growth of abusive tax-avoidance transactions led the IRS and Treasury to issue Regs. Sec. 1.6011-4 in 2003, which allowed the Service to quickly identify and deal with abusive or potentially abusive transactions.

Because of a recent series of court decisions--Mann Construction, Inc., 27 F.4th 1138 (6th Cir.2022); CIC Services, LLC, No. 3:17-cv-110 (E.D. Tenn. 3/21/22); and Green Valley Investors, LLC, 159 T.C. No. 5 (2022)--it is worth revisiting Regs. Sec. 1.6011-4. Those courts have invalidated the IRS's efforts to designate certain transactions as reportable, because the agency failed to follow proper procedures under the Administrative Procedure Act (APA).

This column first provides some background on reportable transactions, then discusses these three court rulings and what they may mean for clients that have reportable transactions.

Reportable transactions

Under Regs. Sec. 1.6011-4, taxpayers that have participated in reportable transactions must disclose them on Form 8886, Reportable Transaction Disclosure Statement. Material advisers with respect to these reportable transactions must also disclose such information on Form 8918, Material Advisor Disclosure Statement.

Five types of transactions are reportable under Regs. Sec. 1.6011-4: * Listed transactions;

* Confidential transactions;

* Transactions with contractual protection;

* Loss transactions; and

* Transactions of interest.

Listed transactions: A listed transaction is a transaction that is the same as or substantially similar to one the IRS has determined to be a tax-avoidance transaction and that has been identified in a notice, regulation, or other form of published guidance as a listed transaction (Regs. Sec. 1.6011-4(b)(2)). Listed transactions arguably are the most potentially abusive transactions. Many of them relate to the tax shelter days of the early 2000s.

The IRS has identified 36 listed transactions, only two of them since 2008. Practitioners recognize listed transactions as those that the IRS closely monitors.

Confidential transactions: A confidential transaction is offered to a taxpayer by an adviser under conditions of confidentiality and for which the taxpayer has paid the adviser a fee of at least a minimum amount prescribed in the regulations (Regs. Sec. 1.6011-4(b)(3)). Most practitioners recognize that confidential tax transactions should be avoided. Tax transparency is important to a well-functioning tax system. It is not surprising that...

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