Changes to the interest suspension rules contained in the GO Zone Act.

• Author: Keenan, John
• Position: Gulf Opportunity Zone Act of 2005

On Dec. 21, 2005, President Bush signed into law the Gulf Opportunity Zone Act of 2005 (GO Zone Act). The GO Zone Act provides tax relief to businesses and individuals affected by the 2005 Gulf Coast hurricanes. It also makes several technical corrections to the American Jobs Creation Act of 2004 (AJCA) and other tax legislation, and extends through 2006 several tax provisions that were due to expire at the end of 2005. Also included in the GO Zone Act are two significant changes to the Sec. 6404(g) interest suspension rules.

Suspension of Interest Rules for Certain Reportable and Listed Transactions

Generally, interest and penalties accrue during periods for which taxes are unpaid, regardless of whether a taxpayer knows taxes are due. However, under Sec. 6404(g)(1), the accrual of interest is suspended for individuals unless the IRS provides the taxpayer with a notice stating the amount and basis of the liability within 18 months following the later of (1) the original due date of the return (without regard to extensions) or (2) the date on which the return is filed.

Sec. 6404(g)(2) sets forth several situations in which taxpayers are not entitled to the benefits of the interest suspension rules. One such exception deals with certain reportable and listed transactions. Interest, penalties, additions to tax or any additional amounts (collectively referred to herein as "interest") with respect to a nondisclosed reportable transaction (i.e., a transaction the taxpayer did not disclose on Form 8886, Reportable Transaction Disclosure Statement), other than a listed transaction, will not be suspended under Sec. 6404(g). For listed transactions (including transactions that are substantially similar), interest will not be suspended under Sec. 6404(g), regardless of whether the taxpayer adequately discloses the transaction.

The exception to the benefits of the interest suspension rules for certain reportable and listed transactions was added by the AJCA and effective for interest accruing after Oct. 3, 2004; however, Section 303 of the GO Zone Act substantially modifies the date. Specifically, it provides that the exception to the benefits of the interest suspension rules for certain reportable and listed transactions is retroactive to the beginning of the suspension period (i.e., no suspension of interest would be allowed), unless the taxpayer can demonstrate the existence of one of three circumstances.

First, the retroactive exception to the...