Tax shelters.

• Author: Laffie, Lesli S.
• Position: Disclosure rules

The AICPA has written to Treasury on the confidential transactions category contained in TD 9046 (2/27/03)--the firm regulations involving disclosure (Sec. 6011), registration (See. 6111) and list maintenance (Sec. 6112) for reportable transactions. (For background, see Mendelson and Emilian, "Tax Shelter Final Regs.," TTA, June 2003, p. 338.)

In general, transactions are reportable under the final regulations if they fall into one or more of the following categories: (1) listed transactions, (2) confidential transactions, (3) transactions with contractual protection, (4) loss transactions, (5) transactions with a significant book-tax difference or (6) transactions involving a brief asset holding period. Rev. Procs. 2003-24 and 2003-25 (released simultaneously with TD 9046) provide exceptions to the loss-transaction and book-tax difference categories, respectively.

The AICPA requested further clarification as to which transactions should be excepted from the confidential transactions category, and made specific recommendations.

Confidential transactions: The AICPA urged Treasury and the IRS to issue a revenue procedure detailing exceptions to the confidential transactions categories, consistent with Rev. Procs. 2003-24 and 2003-25.

Regs. Sec. 1.6011-4(b)(3)(i) generally defines a confidential transaction as a "transaction that is offered to a taxpayer under conditions of confidentiality ... All the facts and circumstances relating to the transaction will be considered when determining whether a transaction is offered to a taxpayer under conditions of confidentiality, including the prior conduct of the parties."

Exceptions: Generally, Regs. Sec. 1.6011-4(b)(3)(ii) provides exceptions to the confidential transactions category involving (1) securities laws and (2) mergers and acquisitions. The AICPA recommended extending this list of exceptions to cover the following:

1. To clarify that statements in engagement letters, opinions, valuations and other communications between practitioners and their clients prohibiting parties other than the client from relying on the practitioner's advice or work product without the practitioner's consent are not "conditions of confidentiality." These statements are needed to protect a practitioner against claims by third parties not in legal privity with the practitioner and who are not supposed to be relying on the advice or work product. Similarly, a requirement that a client indemnify a practitioner against...