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Abusive Tax Shelters

List Maintenance Policies and Procedures for Material Advisors

Practitioners must not delay in their efforts to implement policies and procedures at their firms, consistent with best practices, Circular 230, and applicable Federal and state ethical obligations. (Effective, October 22, 2004, with the enactment of the American Job Creation Act of 2004, the IRS may now use injunctions to bring about compliance in this area, including enforcement over Circular 230).

List Maintenance Rules Depend on Effective Date of American Job Creation Act of 2004 Effective 10/22/04 (enactment of American Job Creation Act of 2004), any "material advisor" with respect to a "reportable transaction" is required to maintain a list of investors and such other information as required by regulations.  Under this new tax law, "material advisor" is defined to mean any person (1) who provides material aid, assistance, or advice with respect to organizing, managing, promoting, sellling, implementing, insuring, or carrying out any reportable transaction and (2) who directly or indirectly derives gross income in excess of either: $50,000 (in the case of a reportable transaction substantially all of the tax benefits of which are provided to natural persons) or $250,000 (in the case of any other situation), or such other amount as prescribed by regulations. 

Prior to 10/22/04, any organizer or seller of a potentially abusive tax shelter ("PATS") is required by Federal law to maintain a list identifying each investor in the tax shelter (plus provide any other information required by the regulations). These rules were then extended to "material advisors."  A "material advisor" is defined as any person who makes any oral or written statement relating to any tax aspect of an applicable transaction. The minimum fee triggering this list maintenance requirement is $250,000 for transactions involving corporate taxpayers and $50,000 for transactions involving noncorporate taxpayers (except, in the case of material advisors to a "listed transaction", the minimum fee amounts are reduced to $25,000 for corporate taxpayers and $10,000 for noncorporate taxpayers).

Practitioners must recognize that a "material advisor" is required to maintain a list of investors for any transaction that is a "potentially abusive tax shelter" ("PATS"). For purposes of these list maintenance rules, a PATS includes any "tax shelter" (as defined under Section 6111 of the Code) or if the transaction otherwise has a potential for tax avoidance or evasion. The regulations state that a transaction has the potential for tax avoidance or evasion if it constitutes a "listed transaction" or a material advisor knows or reasonably expects the transaction will become a listed transaction.

We stand ready to assist practitioners in their efforts to implement policies and procedures aimed at complying with these list maintenance rules.

If you are interested in obtaining such services, please contact us.

Tufts Law Firm
Tufts Law Firm, PLLC
159 Lookout Place, # 202  •  Maitland, Florida 32751
Phone: (407) 647-8886  •  Fax: (407) 641-8082
Toll Free: 1-866-747-3423

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