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Abusive Tax Shelters

Reportable Transactions-6 Categories (Federal Law)

In accordance with Section 6011 of the Internal Revenue Code and the regulations issued thereunder, any taxpayer that has participated in a "reportable transaction" must file a disclosure statement ( IRS Form 8886 ) with the IRS describing the transaction and the extent of the taxpayer's participation in the transaction. For purposes of these rules, "reportable transactions" include the following:

  1. Listed Transactions (including transactions that are substantially similar thereto, construed broadly in favor of disclosure)
  2. Confidential Transactions (transactions offered to a taxpayer under conditions of confidentiality to protect the advisor's tax strategies and the taxpayer pays a minimum fee of $250,000 for a transaction involving a corporate taxpayer and generally $50,000 for transactions involving noncorporate taxpayers).
  3. Transactions with Contractual Protection (transactions in which a taxpayer has a right to a full or partial refund of fees in the event the intended tax consequences of the transaction are not sustained, or if the transaction's fees are contingent upon a taxpayer's realization of tax benefits).
  4. Loss Transactions. A transaction will be considered a loss transaction requiring disclosure as a "reportable transaction" if it purports to give rise to a loss under Section 165 of the Internal Revenue Code of at least $10 million in any single tax year ($20 million in a combination of tax years) for corporations, or a loss of $2 million in any single tax year (or $4 million in a combination of taxable years) for transactions involving individuals, S corporations or trusts. A five-year window from the year of loss, going forward, is utilized when determining these thresholds.
  5. Transactions with Significant Book-Tax Differences. A transaction in which the amount of any item reported for tax purposes differs by more than $10 million on a gross basis from the amount of the item reported for book purposes in any tax year. This particular provision only applies to taxpayers reporting to the SEC or business entities with over $250 million or more in gross assets for book purposes. The IRS has prepared a draft Form M-3 for use with corporate income tax returns, with detailed schedules aimed at identifying these book-tax differences and potential abusive transactions.
  6. Transactions Involving a Brief Asset Holding Period. A transaction that results in a taxpayer claiming a tax credit of over $250,000 and the asset giving rise to this credit is held by the taxpayer for 45 days or less.

If you have any questions about whether or not you have engaged in a transaction covered by these rules, 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

Content is general information only. Information is not provided as advice for a specific matter, nor does its
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