Final Regs. Provide Rules for Assessment Limitation Period for Undisclosed Listed Transactions

On Monday, the IRS issued final regulations regarding the exception to the general three-year assessment limitation period for listed transactions that a taxpayer did not disclose as required under Sec. 6011 (T.D. 9718).

Sec. 6501(c)(10) contains an exception to the general three-year period under Sec. 6501(a) in which the IRS may assess tax after a taxpayer files a tax return. Under Sec. 6501(c)(10), the assessment period is extended for a listed transaction (which is defined as a transaction that the IRS has identified as a tax avoidance transaction) that is not properly disclosed under Sec. 6011. The period of limitation is extended to one year after the earlier of (1) the date on which the taxpayer furnishes the information required for listed transactions (see below), or (2) the date that the material adviser furnishes to the IRS, upon written request, the information required under Sec. 6112 about the taxpayer related to the listed transaction. Sec. 6112 requires material advisers to maintain lists of advisees and other information for reportable transactions, including listed transactions, and to furnish that information to the IRS upon request.

The disclosure rules require the taxpayer to complete Form 8886, Reportable Transaction Disclosure Statement (or successor form), and file it with the taxpayer’s original or amended return for each taxable year for which the taxpayer participates in a listed transaction and file a copy with the IRS Office of Tax Shelter Analysis. If the transaction becomes a listed transaction after the date a taxpayer files its return and before the end of the period of limitations for assessment of tax for any taxable year in which the taxpayer participated in the listed transaction, Form 8886 must be filed within 90 calendar days after the transaction became a listed transaction.

T.D. 9718 finalizes proposed regulations issued in 2009 (REG-160871-04) with a few clarifications. The four clarifications are:

1. If the three-year period of limitations on assessment applies and the one-year period under Sec. 6501(c)(10) ends before the three-year period expires, the assessment period for the tax year remains open until the expiration of the general three-year period. This was illustrated in an example in the proposed regulations but has now been added to the final rules.
2. Next, the rules clarify when a disclosure by a material adviser will be considered a disclosure. If a taxpayer fails to disclose information related to a listed transaction, unless a material adviser furnishes the information in response to an IRS written request for the list, the one-year period will not begin. Accordingly, receipt of information from a person other than the material adviser with respect to the taxpayer will not satisfy the requirements. Regs. Sec. 301.6501(c)-1(g)(6)(ii)(A) clarifies that, consistent with the statutory language, except in limited circumstances related to dissolution or liquidation of an entity that is a material adviser or in the case of a designation agreement, only receipt of information the material adviser furnished will satisfy the requirements for disclosure.
3. The final rules also clarify that information received other than in response to a Sec. 6112 request for a list of a material adviser’s advisees, such as in response to an information document request or a summons, will not begin the one-year period.
4. The last clarification explains that, if a material adviser furnishes the required information about a listed transaction but does not specifically identify the taxpayer who entered into it, the one-year period under Sec. 6501(c)(10)(B) will not be triggered for that taxpayer.

The final regulations apply to taxable years for which the period of limitation on assessment under Sec. 6501(including section 6501(c)(10) and Regs. Sec. 301.6510(c)-1(g)) did not expire before March 31, 2015.