New tax-shelter excise tax on exempt entities.

• Author: Stein, Ronald A.

Sec. 4965, added by Section 516(a)(1) of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), imposes a new excise tax on tax-exempt entities. (Managers of these entities may also be liable for tax.) The taxes are intended to discourage exempt entities from facilitating tax shelters by becoming a party to any prohibited-tax-shelter transaction (PTST) or a transaction that may subsequently become a listed transaction.

Scope

Sec. 4965 is broad, covering both "nonplan" and "plan" exempt entities. Under Notice 2006-65, nonplan entities are:

* Entities described in Sec. 501(c);

* Religious or apostolic associations or corporations described in Sec. 501(d);

* Entities described in Sec. 170(c), including states, U.S. possessions, the District of Columbia and political subdivisions of states and U.S. possessions (but not including the U.S.); and

* Indian tribal governments, within the meaning of Sec. 7701(a)(40). Hart entities are:

* Qualified pension, profit-sharing and stock bonus plans described in Sec. 401(a);

* Annuity plans described in Sec. 403(a);

* Annuity contracts described in Sec. 403(b);

* Qualified tuition programs described in Sec. 529;

* Retirement plans described in Sec. 457(b) maintained by a governmental employer;

* Individual retirement accounts, within the meaning of Sec. 408(a);

* Archer Medical Savings Accounts, within the meaning of Sec. 220(d);

* Individual retirement annuities, within the meaning of Sec. 408(b);

* Coverdell education savings accounts described in Sec. 530; and

* Health savings accounts, within the meaning of Sec. 223(d).

PTSTs and SLTs

PTSTs: A PTST is a listed transaction as defined in Sec. 6707A or a prohibited reportable transaction (PRT).

For Sec. 6707A purposes, a listed transaction is a reportable transaction that is the same as, or substantially similar to, a transaction specifically identified by the IRS as a tax-avoidance transaction under Sec. 6011; see Sec. 6707A(c)(2). Currently, there am 31 listed transactions; see Notices 2004-67 and 2005-13.

Sec. 4965(e)(1)(C) defines a PRT as any confidential transaction or any transaction with contractual protection (as defined by regulations) that is a reportable transaction as defined by Sec. 6707A. A reportable transaction for Sec. 6707A purposes is any transaction for which information is required to be included with a return or statement because, as determined under the Sec. 6011 regulations, the transaction is of a type that Treasury has determined to have a potential for tax avoidance or evasion; see Sec. 6707A(c)(1). For now, the Service has given the terms "confidential transaction" and "transaction with contractual protection" as used in Sec. 4695, the meanings ascribed to them in Regs. Secs. 1.6011-4(b)(3) and (4), respectively; see Notice 2006-65.

SLTs: A subsequently listed transaction (SLT) is any transaction to which an exempt entity is a party that the IRS determines to be a listed...