Bulletin No. 2000–11

Internal Revenue

bulletin

Bulletin No. 2000–11

March 13, 2000

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2000–12, page 744.

Treatment of certain debt acquisitions. This ruling addresses three situations in which a taxpayer acquires two

debt instruments that are structured so that it is expected

that the value of one will increase significantly, at the same

time that the value of the other one decreases significantly,

and holds that in each situation the taxpayer cannot recognize the claimed loss on the sale of the debt instrument that

decreases in value while not recognizing the gain on the

other debt instrument.

T.D. 8877, page 747.

REG–103735–00, page 770.

Proposed and temporary regulations require certain corporate taxpayers to file a statement with their federal corporate income tax returns under section 6011(a) of the Code.

A public hearing is scheduled for June 20, 2000.

EXCISE TAX

ADMINISTRATIVE

T.D. 8875, page 761.

REG–103736–00, page 768.

Proposed and temporary regulations relate to the maintenance of lists of investors in potentially abusive tax shelters

under section 6112 of the Code. A public hearing is scheduled for June 20, 2000.

T.D. 8876, page 753.

REG–110311–98, page 767.

Proposed and temporary regulations relate to the registration of confidential corporate tax shelters pursuant to section 6111(d) of the Code. A public hearing is scheduled for

June 20, 2000.

Announcement 2000–13, page 771.

This announcement corrects final regulations T.D. 8847

(1999–52 I.R.B. 701) under sections 743, 754, and 755 of

the Code relating to adjustments following the sale of partnership interests.

Announcement 2000–14, page 772.

Rev. Proc. 2000–17, page 766.

Excise tax; minimum funding standard. This revenue procedure provides that under certain circumstances the second

tier excise tax described in section 4971(b) of the Code, which

is imposed as a result of the failure to meet the minimum funding standards under section 412, will be waived automatically.

Finding Lists begin on page ii.

Department of the Treasury

Internal Revenue Service

This announcement explains that supplemental information

on Short-Term Treasury Bills for Publication 1212, List of

Original Issue Discount Instruments (revised December

1999), is now available.

The IRS Mission

Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities

and by applying the tax law with integrity and fairness to

all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription

basis. Bulletin contents are consolidated semiannually into

Cumulative Bulletins, which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements

of internal practices and procedures that affect the rights

and duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service on

the application of the law to the pivotal facts stated in the

revenue ruling. In those based on positions taken in rulings

to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature

are deleted to prevent unwarranted invasions of privacy and

to comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have

the force and effect of Treasury Department Regulations,

but they may be used as precedents. Unpublished rulings

will not be relied on, used, or cited as precedents by Service

personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances

are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions, and Subpart B, Legislation and Related

Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings

are issued by the Department of the Treasury’s Office of the

Assistant Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The first Bulletin for each month includes a cumulative index

for the matters published during the preceding months.

These monthly indexes are cumulated on a semiannual basis,

and are published in the first Bulletin of the succeeding semiannual period, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

March 13, 2000

2000–11 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 165.—Losses

26 CFR 1.165–1: Losses. See Rev. Rul. 2000–12,

page 744.

Section 1275.—Other

Definitions and Special Rules

26 CFR 1.1275–2: Special rules relating to debt

instruments. (Also section 165; 1.165–1.)

26 CFR 1.1275–6: Integration of qualifying debt

instruments.

Treatment of certain debt acquisitions. This ruling addresses three situations in which a taxpayer acquires two

debt instruments that are structured so

that it is expected that the value of one

will increase significantly at the same

time that the value of the other one decreases significantly, and holds that in

each situation the taxpayer cannot recognize the claimed loss on the sale of the

debt instrument that decreases in value

while not recognizing the gain on the

other debt instrument.

Rev. Rul. 2000–12

ISSUE

Under the circumstances described

below, if a taxpayer acquires two debt instruments that are structured so that it is expected that the value of one will increase

significantly at the same time that the value

of the other one decreases significantly, can

the taxpayer recognize a current loss on the

sale of the debt instrument that decreases in

value while not recognizing the gain on the

other debt instrument?

FACTS

Situation 1

X is a corporation that files returns on a

calendar-year basis. On September 1,

1993, X purchases two privately-placed

debt instruments, Note 1 and Note 2, from

unrelated issuers for $1,000,000 each.

Note 1 has a 10-year term and a stated

principal amount of $1,000,000. It provides for quarterly interest payments, beginning on December 1, 1993. The interest rate for the first quarter is 5.9 percent,

compounded quarterly. Note 1 provides

March 13, 2000

for contingent payments based on an event

that will occur (or not occur) with a probability of 50 percent on December 1, 1993

(the reset event). The reset event does not

depend on actively traded personal property. If the reset event occurs, the interest

rate doubles to 11.8 percent, compounded

quarterly. If the reset event does not occur,

the interest rate is reset at zero.

Note 2 has the same terms as Note 1

except that the consequences of the contingency are reversed. Thus, if the reset

event occurs, the interest rate is reset at

zero. If the reset event does not occur, the

interest rate doubles to 11.8 percent, compounded quarterly.

At the time the notes are purchased,

based upon the structure of the notes, it can

be expected that, as a result of the reset, one

note will increase significantly in value and

the other note will decrease in value by the

same amount. The expected tax loss on the

note that decreases in value significantly

exceeds any reasonably expected economic

loss on the two notes.

On December 1, 1993, the reset event

does not occur. Thus, on that date, the interest rate on Note 1 is reset at zero, and

the interest rate on Note 2 doubles to 11.8

percent, compounded quarterly. As a result of the reset, the fair market value of

Note 2 increases significantly because of

the doubling of its interest rate, and the

fair market value of Note 1 decreases by

the same amount. On December 2, 1993,

X sells Note 1 for its fair market value and

claims a loss.

Situation 2

Y is a corporation that files returns on a

calendar-year basis. On September 1,

1998, Y purchases two privately-placed

debt instruments, Note 3 and Note 4, from

unrelated issuers for $1,000,000 each.

Note 3 has a 10-year term and a stated

principal amount of $1,000,000. It provides for quarterly interest payments, beginning on December 1, 1998. The interest

rate for the first quarter is 5.7 percent, compounded quarterly. Note 3 provides for

contingent payments based on an event that

will occur (or not occur) with a probability

of 50 percent on December 1, 1998 (the

reset event). The reset event does not depend on actively traded personal property.

744

If the reset event occurs, the interest rate

doubles to 11.4 percent, compounded quarterly. If the reset event does not occur, the

interest rate is reset at zero.

Note 4 has the same terms as Note 3

except that the consequences of the contingency are reversed. Thus, if the reset

event occurs, the interest rate is reset at

zero. If the reset event does not occur, the

interest rate doubles to 11.4 percent, compounded quarterly.

At the time the notes are purchased,

based upon the structure of the notes, it can

be expected that, as a result of the reset, one

note will increase significantly in value and

the other note will decrease in value by the

same amount. The expected tax loss on the

note that decreases in value significantly

exceeds any reasonably expected economic

loss on the two notes.

On December 1, 1998, the reset event

does not occur. Thus, on that date, the interest rate on Note 3 is reset at zero, and the

interest rate on Note 4 doubles to 11.4 percent, compounded quarterly. As a result of

the reset, the fair market value of Note 4 increases significantly because of the doubling of its interest rate, and the fair market

value of Note 3 decreases by the same

amount. On December 2, 1998, Y sells

Note 3 for its fair market value and claims a

loss.

Situation 3

Z is a corporation that files returns on a

calendar-year basis. On September 1,

1998, Z purchases two privately-placed

debt instruments, Note 5 and Note 6, from

unrelated issuers.

Note 5 is purchased for $1,000,000.

Note 5 has a 10-year term and a stated principal amount of $1,000,000. It provides for

quarterly interest payments, beginning on

December 1, 1998. The interest rate for the

first quarter is 5.7 percent, compounded

quarterly. Note 5 provides for contingent

payments based on an event that will occur

(or not occur) with a probability of 50 percent on December 1, 1998 (the reset event).

The reset event does not depend on actively

traded personal property. If the reset event

occurs, the interest rate doubles to 11.4 percent, compounded quarterly. If the reset

event does not occur, the interest rate is

reset at zero.

2000–11 I.R.B.

Note 6 is purchased for $615,000.

Note 6 has a 20-year term and a stated

principal amount of $615,000. It provides

for quarterly interest payments beginning

on December 1, 1998. The interest rate

on Note 6 for the first quarter is set at 3month LIBOR. If the reset event occurs,

the interest rate is reset at zero. If the

reset event does not occur, the interest

rate doubles to 200 percent of 3-month

LIBOR, adjusted quarterly.

At the time the notes are purchased,

based upon the structure of the notes, it

can be expected that, as a result of the

reset, the value of one note will increase

significantly and the value of the other

note will decrease significantly. The expected tax loss on the note that decreases

in value significantly exceeds any reasonably expected economic loss on the two

notes.

On December 1, 1998, the reset event

does not occur. Thus, on that date, the interest rate on Note 5 is reset at zero, and

the interest rate on Note 6 doubles to 200

percent of 3-month LIBOR, adjusted

quarterly. As a result, the fair market

value of Note 6 increases significantly because of the doubling of its interest rate,

and the fair market value of Note 5 decreases significantly. On December 2,

1998, Z sells Note 5 for its fair market

value and claims a loss.

LAW AND ANALYSIS

Situation 1

Section 165(a) of the Internal Revenue

Code provides that there shall be allowed

as a deduction any loss sustained during

the taxable year and not compensated for

by insurance or otherwise. Section

1.165–1(b) of the Income Tax Regulations provides, in addition, that for a loss

to be allowable as a deduction under §

165(a), it must be evidenced by closed

and completed transactions, fixed by

identifiable events, and actually sustained

during the taxable year. Section

1.165–1(b) also provides that only a bona

fide loss is allowable and that substance

and not mere form shall govern in determining a deductible loss.

The courts have held that a loss is allowable as a deduction for federal income

tax purposes only if it is bona fide and reflects actual economic consequences. An

artificial loss lacking economic substance

2000–11 I.R.B.

is not allowable. See ACM Partnership v.

Commissioner, 157 F.3d 231, 252 (3d Cir.

1998) (“Tax losses such as these ... which

do not correspond to any actual economic

losses, do not constitute the type of ‘bona

fide’ losses that are deductible under the

Internal Revenue Code and regulations.”),

cert. denied, 526 U.S. 1017 (1999); Scully

v. United States, 840 F.2d 478, 486 (7th

Cir. 1988) (to be deductible, a loss must

be a “genuine economic loss”); Shoenberg v. Commissioner, 77 F.2d 446, 448

(8th Cir. 1935) (to be deductible, a loss

must be “actual and real”), cert. denied,

296 U.S. 586 (1935).

The courts similarly have disallowed

losses from option-straddle transactions

that were found to be devoid of economic

substance. The option-straddle transactions were prearranged to generate a loss

for tax purposes while deferring an offsetting gain. Even though the relevant trades

may have taken place, the loss deduction

claimed was not allowed because no true

loss had occurred. Lerman v. Commissioner, 939 F.2d 44, 52 (3d Cir. 1991),

cert. denied, 502 U.S. 984 (1991), and

Keane v. Commissioner, 865 F.2d 1088,

1092 (9th Cir. 1989), aff’g Glass v. Commissioner, 87 T.C. 1087 (1986).

The sale of Note 1 in Situation 1 does

not produce an allowable loss under §

165. When X sells Note 1 before its maturity date but retains Note 2, X does not

realize an actual economic loss because

the purported loss on the sale of Note 1 is

substantially offset by the unrealized gain

in Note 2. Such an artificial loss is not allowable for federal income tax purposes.

Situation 2

Sections 1271 through 1275, and the

regulations thereunder, provide rules for

the taxation of holders of debt instruments, including debt instruments that

provide for one or more contingent payments. These rules generally require

holders of debt instruments to accrue

original issue discount (OID) using the

constant-yield method. Note 3 and Note

4 are subject to the OID rules because the

notes provide for contingent payments.

Section 1.1275–6 generally provides

for the integration of a “qualifying debt

instrument” with a “§ 1.1275–6 hedge” if

the combined cash flows of the components are substantially equivalent to the

cash flows on a fixed rate debt instrument

745

or a variable rate debt instrument that

pays interest at a qualified floating rate.

When § 1.1275–6 applies, the combined

cash flows of the qualifying debt instrument and the § 1.1275–6 hedge generally

are treated as a synthetic debt instrument

for all federal income tax purposes. The

purpose of § 1.1275–6 is to permit a more

appropriate determination of the character

and timing of income, deductions, gains,

or losses than would be achieved by separate treatment of the components. Section

1.1275–6 generally applies to qualifying

debt instruments issued on or after August

13, 1996.

Under § 1.1275–6(b)(1), a contingent

payment debt instrument (CPDI) that is

issued for cash is a qualifying debt instrument. Under § 1.1275–6(b)(2)(i), a §

1.1275–6 hedge is any financial instrument (including a debt instrument) if the

combined cash flows of the financial instrument and the qualifying debt instrument permit the calculation of a yield to

maturity (under the principles of § 1272)

or the right to the combined cash flows

would qualify under § 1.1275–5 as a variable rate debt instrument that pays interest

at a qualified floating rate or rates (except

for the requirement that the interest payments be stated as interest)(fixed-or-floating requirement).

Section 1.1275–6(b)(2)(ii)(B) provides

that a debt instrument can be a § 1.1275–6

hedge only if it is issued substantially

contemporaneously with, and has the

same maturity (including rights to accelerate or delay payments) as, the qualifying debt instrument.

Section 1.1275–6(c)(2) grants the

Commissioner authority to integrate a

qualifying debt instrument that is a CPDI

with a § 1.1275–6 hedge if the combined

cash flows are substantially the same as

either of the cash flows necessary to satisfy the fixed-or-floating requirement of §

1.1275–6(b)(2)(i). This rule allows the

Commissioner to prevent the potential

timing and character mismatches that

arise if the CPDI and its hedge are treated

separately.

Section 1.1275–6(d)(2) provides rules

for legging out of an integrated transaction. Section 1.1275–6(d)(2)(i)(B) sets

out the rules for determining when a legging out occurs if the Commissioner has

integrated a qualifying debt instrument

and a financial instrument under §

March 13, 2000

1.1275–6(c)(2). Under those rules, the

taxpayer legs out of the integrated transaction if, prior to the maturity of the synthetic debt instrument, the requirements

for Commissioner integration under §

1.1275–6(c)(2) are no longer met. Section 1.1275–6(d)(2)(ii) provides that if the

taxpayer legs out of an integrated transaction, then the taxpayer is treated as selling

or otherwise terminating the synthetic

debt instrument, immediately before legging out, for its fair market value and realizing and recognizing at that time any

resulting income, deduction, gain, or loss.

In Situation 2, unlike Situation 1, the

notes are issued after the effective date

of the integration rules of § 1.1275–6

and qualify for integration by the Commissioner under § 1.1275–6(c)(2). In

this case, the Commissioner integrates

the notes under § 1.1275–6(c)(2) as of

the issue date. Upon the sale of Note 3,

the requirements for Commissioner integration under § 1.1275–6(c)(2) are no

longer met. Therefore, Y is treated as

legging out of the integrated transaction

under § 1.1275–6(d)(2)(ii).

Under the legging out rules of §

1.1275–6(d)(2)(ii), immediately before

Note 3 is sold, Y is treated as disposing

of the synthetic debt instrument for its

fair market value, and Y must realize

and recognize at that time any gain or

loss on the deemed disposition. As a result, Y cannot recognize the claimed loss

on the sale of Note 3 while not recognizing the gain on Note 4.

Situation 3

Under § 1.1275–2(g), if a principal purpose in structuring a debt instrument or

engaging in a transaction is to achieve a

result that is unreasonable in light of the

purposes of §§ 163(e), 1271 through

1275, or any related section of the Code,

the Commissioner can apply or depart

from the regulations under the applicable

sections as necessary or appropriate to

achieve a reasonable result. Section

1.1275–2(g) applies to debt instruments

issued on or after August 13, 1996.

Section 1.1275–2(g)(2) provides that

whether a result is unreasonable is determined based on all the facts and circumstances. A significant fact is whether the

treatment of the debt instrument is expected to have a substantial effect on the

issuer’s or a holder’s U.S. tax liability.

March 13, 2000

A result is unreasonable only if there is

an expected substantial effect on the

present value of a taxpayer’s tax liability.

A principal purpose of §§ 1271

through 1275 and related sections of the

Code is to tax holders of debt instruments according to economic income as

determined by the constant-yield

method. These provisions ensure that

the holder of a debt instrument cannot

artificially avoid, defer, or offset timely

recognition of the economic income

from the debt instrument.

In Situation 3, the notes are issued after

the effective dates of the integration rules

of § 1.1275–6 and the anti-abuse rule of §

1.1275–2(g). But for the anti-abuse rule,

there are two reasons why the integration

rules would not apply. First, it cannot be

determined at the time of issuance

whether the combined cash flows will be

substantially the same as either of the

cash flows necessary to satisfy the fixedor-floating

requirement

of

§

1.1275–6(b)(2)(i). Second, the notes

have different maturities and, thus, they

do not meet the same-maturity limitation

of § 1.1275–6(b)(2)(ii)(B).

If the structure of the transaction were

respected for federal income tax purposes, Z would be able to recognize the

claimed loss upon the sale of Note 5 even

though it could be expected, when Z purchased the two notes, that, as a result of

the reset, one note would increase significantly in value and the other note would

decrease significantly in value. The expected tax loss on the note that decreases

in value significantly exceeds any reasonably expected economic loss on the two

notes. Essentially, Z purchased a series

of cash flows that, absent the application

of the anti-abuse rule of § 1.1275–2(g) (or

§ 165 principles), would produce an artificial loss immediately after the reset.

This result is unreasonable in light of

the purposes of the OID rules. The OID

rules were intended, in part, to ensure

that the holder of a debt instrument cannot artificially avoid, defer, or offset

timely recognition of the economic income from the debt instrument. In this

case, the transaction is structured to defeat this purpose by creating an artificial

loss immediately after the reset. Section

1.1275–2(g) authorizes the Commissioner to apply or depart from the OID

746

regulations as necessary or appropriate

to prevent this unreasonable result.

In this case, the Commissioner departs from the literal requirements of the

integration rules by integrating the two

notes before Note 5 is sold. Upon the

sale of Note 5, Z is treated as legging out

of an integrated transaction under §

1.1275–6(d)(2)(ii). Under the legging

out rules of § 1.1275–6(d)(2)(ii), immediately before Note 5 is sold, Z is treated

as disposing of the synthetic debt instrument for its fair market value, and Z

must realize and recognize at that time

any gain or loss on the deemed disposition. As a result, Z cannot recognize the

claimed loss on the sale of Note 5 while

not recognizing the gain on Note 6.

HOLDING

In each situation the taxpayer cannot

recognize the claimed loss on the sale of

the debt instrument that decreases in

value while not recognizing the gain on

the other debt instrument.

In Situation 1, the loss on the sale of

Note 1 is not allowed under § 165.

In Situation 2, the integration rule of

§ 1.1275–6(c)(2) applies. The Commissioner integrates the notes as of the issue

date. Upon the sale of Note 3, Y is

treated as legging out of the integrated

transaction. Accordingly, Y is treated as

disposing of the synthetic debt instrument at its fair market value immediately before the sale.

In Situation 3, the anti-abuse rule of §

1.1275–2(g) applies. The Commissioner integrates the notes before Note 5

is sold. Upon the sale of Note 5, Z is

treated as legging out of the integrated

transaction. Accordingly, Z is treated as

disposing of the synthetic debt instrument at its fair market value immediately before the sale.

DRAFTING INFORMATION

The principal authors of this revenue

ruling are Charles W. Culmer and

Christina A. Morrison of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling contact

Mr. Culmer on (202) 622-3950 or Ms.

Morrison on (202) 622-3960 (not a tollfree call).

2000–11 I.R.B.

Section 6011.—General

Requirement of Return,

Statement, or List

26 CFR 1.6011–4T: Requirements of statement

disclosing participation in certain transactions by

corporate taxpayers (Temporary).

T.D. 8877

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Tax Shelter Disclosure

Statements

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations requiring certain

corporate taxpayers to file a statement

with their Federal corporate income tax

return under section 6011(a). The temporary regulations affect corporations participating in certain reportable transactions. The text of these temporary

regulations also serves as the text of the

proposed regulations set forth in the notice of proposed rulemaking on this subject in REG–103735–00, page 770.

Management and Budget under control

number 1545-1685. Responses to these

collections of information are mandatory.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless the collection of information displays a valid

OMB control number.

For further information concerning these

collections of information, and where to

submit comments on the collections of information and the accuracy of the estimated

burden, and suggestions for reducing this

burden, please refer to the preamble to the

cross-referencing notice of proposed rulemaking REG–103735–00, page 770.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by 26 U.S.C. 6103.

Background

FOR FURTHER INFORMATION CONTACT: Richard Castanon, (202) 6223080, or Mary Beth Collins, (202) 6223070, (not toll-free numbers).

The Treasury Department and the IRS

are concerned about the proliferation of

corporate tax shelters. These temporary

regulations are intended to provide the

Service with early notification of large

corporate transactions with characteristics

that may be indicative of such tax shelter

activity.

Accordingly, this document amends 26

CFR part 1 regarding the general filing requirement for persons required to file a

return for a taxable year with respect to a

tax imposed under section 11. Section

6011(a) provides that any person made liable for any tax imposed by the Internal

Revenue Code (Code), or with respect to

the collection thereof, shall make a return

or statement according to the forms and

regulations prescribed by the Secretary of

the Treasury.

SUPPLEMENTARY INFORMATION:

Explanation of Provisions

Paperwork Reduction Act

I. Disclosure Statement Required for

Certain Corporate Taxpayers

DATES: Effective date. These temporary

regulations are effective for Federal corporate income tax returns filed after February 28, 2000.

Applicability date. For dates of applicability, see §1.6011–4T(g) of these regulations.

These regulations are being issued

without prior notice and public procedure

pursuant to the Administrative Procedure

Act (5 U.S.C. 553). For this reason, the

collections of information contained in

these regulations have been reviewed and,

pending receipt and evaluation of public

comments, approved by the Office of

2000–11 I.R.B.

The temporary regulations provide that

every person that is required to file a return

for a taxable year with respect to any tax

imposed under section 11 (corporate taxpayers) and that has participated in a reportable transaction shall attach a disclosure statement to its return for each taxable

747

year for which the taxpayer’s Federal income tax liability is affected by its participation in the reportable transaction. In addition, a copy of the disclosure statement

must be sent to the IRS in Washington, DC

for the first taxable year for which the

transaction is disclosed on the taxpayer’s

Federal income tax return. The temporary

regulations outline the form and content of

the disclosure statement and also provide

an example of the statement.

Where the temporary regulations require a taxpayer to attach a disclosure

statement to its return, the information required to be set forth thereon is a required

part of the return to the same extent as information required pursuant to prescribed

forms. See §1.6011–1. Therefore, when

a taxpayer verifies its return, which includes a declaration that the return is

complete, a taxpayer affirms that it has

accurately made all disclosures required

by these temporary regulations.

In the event of an underpayment attributable to a reportable transaction, a taxpayer’s failure to satisfy the disclosure requirements of the temporary regulations

may affect its exposure to penalties under

sections 6662 and 6663 of the Code. Section 6664(c)(1) provides that such penalties

may not be imposed with respect to any

portion of a taxpayer’s underpayment “if it

is shown that there was a reasonable cause

for such portion and that the taxpayer acted

in good faith with respect to such portion.”

(Emphasis added.) Whether a taxpayer is

considered to have satisfied the requirements of section 6664(c)(1) is determined

on a case-by-case basis, taking into account

all pertinent facts and circumstances. See

§1.6664–4(b)(1).

The fact that a professional tax advisor

has advised a taxpayer that its return position is more likely than not the proper tax

treatment is not necessarily sufficient to

satisfy the requirements of section

6664(c)(1). If a taxpayer has an underpayment attributable to its participation in

a reportable transaction that has not been

properly disclosed on its return, the

nondisclosure could indicate that the taxpayer has not acted in “good faith” with

respect to the underpayment, even if the

taxpayer’s return position has sufficient

legal justification to meet the minimum

requirements of section 6664(c)(1). In

such a case, the determination of whether

a taxpayer has acted in “good faith” will

March 13, 2000

depend on all of the facts and circumstances, including the reason or reasons

why the taxpayer failed to make the required disclosure.

II. Reportable Transactions

The temporary regulations define two

categories of reportable transactions. The

first category includes certain types of

transactions identified by the Treasury and

the Service as tax avoidance transactions.

The second category includes transactions

that warrant further scrutiny because they

possess certain identified characteristics

that are common in corporate tax shelters.

The regulations require disclosure only

for large transactions that provide tax savings in excess of certain dollar thresholds

(the projected tax effect test). In addition,

the regulations contain exceptions to ensure

that normal business transactions are not

subject to disclosure. The fact that a transaction is reportable or not reportable under

these regulations shall not affect the legal

determination whether the tax benefits

claimed with respect to the transaction are

allowable.

The first category of reportable transactions includes any transaction that is the

same as or substantially similar to one of

the specified types of tax avoidance transactions that the IRS has identified by published guidance as a listed transaction for

purposes of section 6011 and that is expected to reduce the taxpayer’s Federal income tax liability by more than $1 million

in any single taxable year or by a total of

more than $2 million for any combination

of taxable years. However, a listed transaction is not treated as a reportable transaction if it has affected the taxpayer’s Federal

income tax liability as reported on any tax

return filed on or before February 28, 2000.

The second category of reportable

transactions includes transactions entered

into after February 28, 2000, that are expected to reduce a taxpayer’s Federal income tax liability by more than $5 million

in any single taxable year or by a total of

more than $10 million for any combination of taxable years and that have at least

two of the following characteristics:

(A) The taxpayer has participated in the

transaction under conditions of confidentiality (as defined in §301.6111–2T(c)).

(B) The taxpayer has obtained or been

provided with contractual protection

against the possibility that part or all of

March 13, 2000

the intended tax benefits from the transaction will not be sustained, including, but

not limited to, recission rights, the right to

a full or partial refund of fees paid to any

person, fees that are contingent on the

taxpayer’s realization of tax benefits from

the transaction, insurance protection with

respect to the tax treatment of the transaction, or a tax indemnity or similar agreement (other than a customary indemnity

provided by a principal to the transaction

that did not participate in the promotion

of the transaction to the taxpayer).

(C) The taxpayer’s participation in the

transaction was promoted, solicited, or

recommended by one or more persons

who have received or are expected to receive fees or other consideration with an

aggregate value in excess of $100,000,

and such person or persons’ entitlement to

such fees or other consideration was contingent on the taxpayer’s participation in

the transaction.

(D) The expected treatment of the

transaction for Federal income tax purposes in any taxable year differs or is expected to differ by more than $5 million

from the treatment of the transaction for

purposes of determining book income as

taken into account on the schedule M-1

(or comparable schedule) on the taxpayer’s Federal corporate income tax return for the same period.

(E) The transaction involves the participation of a person that the taxpayer knows

or has reason to know is in a Federal income tax position that differs from that of

the taxpayer (such as a tax exempt entity or

a foreign person), and the taxpayer knows

or has reason to know that such difference

in tax position has permitted the transaction

to be structured on terms that are intended

to provide the taxpayer with more favorable Federal income tax treatment than it

could have obtained without the participation of such person (or another person in a

similar tax position).

(F) The expected characterization of

any significant aspect of the transaction

for Federal income tax purposes differs

from the expected characterization of

such aspect of the transaction for purposes of taxation of any party to the transaction in another country.

However, a transaction that has at least

two of the foregoing characteristics is not

a reportable transaction if any of the following conditions is satisfied—

748

(A) The taxpayer has participated in the

transaction in the ordinary course of its

business in a form consistent with customary commercial practice, and the taxpayer reasonably determines that it would

have participated in the same transaction

on substantially the same terms irrespective of the expected Federal income tax

benefits;

(B) The taxpayer has participated in the

transaction in the ordinary course of its

business in a form consistent with customary commercial practice, and the taxpayer reasonably determines that there is

a long-standing and generally accepted

understanding that the expected Federal

income tax benefits from the transaction

(taking into account any combination of

intended tax consequences) are allowable

under the Code for substantially similar

transactions;

(C) The taxpayer reasonably determines that there is no reasonable basis

under Federal tax law for denial of any

significant portion of the expected Federal income tax benefits from the transaction; or

(D) The transaction is identified in published guidance as being excepted from

disclosure.

A transaction involving the acquisition,

disposition, or restructuring of a business,

including the acquisition, disposition, or

other change in the ownership or control

of an entity that is engaged in a business,

or a transaction involving a recapitalization or an acquisition of capital for use in

the taxpayer’s business, shall be considered a transaction carried out in the ordinary course of a taxpayer’s business.

III. Record Retention

The taxpayer must retain all documents

related to a transaction subject to disclosure

under this section until the expiration of the

statute of limitations for the first taxable

year for which a disclosure statement is

filed with its tax return. (This obligation is

in addition to any document retention requirements that section 6001 generally imposes on the taxpayer.) Such documents

include, but are not limited to, the following: all marketing materials related to the

transaction; all written analyses used in decision-making related to the transaction; all

correspondence and agreements related to

the transaction between the taxpayer and

any promoter, advisor, lender, or other

2000–11 I.R.B.

party to the reportable transaction; all documents discussing, referring to, or demonstrating the tax benefits arising from the reportable transaction; and all documents, if

any, referring to the business purposes for

the reportable transaction.

IV. Effective Date

The temporary regulations apply to

Federal corporate income tax returns filed

after February 28, 2000.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations

will not have a significant economic impact on a substantial number of small entities. This certification is based upon the

fact that the persons responsible for filing

the statement required by these regulations

are principally large publicly traded corporations, and the burden is not significant

as described earlier in the preamble.

Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5

U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, these

temporary regulations will be submitted to

the Chief Counsel for Advocacy of the

Small Business Administration for comment on their impact on small business.

Drafting Information

The principal authors of these regulations are Mary Beth Collins and Richard

Castanon, Office of Chief Counsel

(Passthroughs and Special Industries).

However, other personnel from the IRS

and Treasury Department participated in

their development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and 602

are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

2000–11 I.R.B.

part 1 is amended by adding an entry in

numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.6011–4T also issued under

26 U.S.C. 6001 and 6011(a). * * *

Par. 2. Section 1.6011–4T is added to

read as follows:

§1.6011–4T Requirement of statement disclosing participation in certain transactions by corporate taxpayers (Temporary).

(a) In general. Every taxpayer that is

required to file a return for a taxable year

with respect to a tax imposed under section 11 and that has participated, directly

or indirectly, in a reportable transaction

within the meaning of paragraph (b) of

this section must attach to its return for

the taxable year described in paragraph

(d) of this section a disclosure statement

in the form prescribed by paragraph (c) of

this section. For this purpose, a taxpayer

will have indirectly participated in a

transaction if its Federal income tax liability is affected by the transaction even if

it is not a direct party to the transaction

(e.g., it participates through a partnership

or through a controlled entity). A separate

disclosure statement is required for each

reportable transaction. The fact that a taxpayer files a disclosure statement for a reportable transaction shall not affect the

legal determination whether the tax benefits claimed with respect to the transaction

are allowable.

(b) Definition of reportable transaction—(1) In general. A reportable transaction is a transaction that is described in

either paragraph (b)(2) or (3) of this section and that meets the projected tax effect test in paragraph (b)(4) of this section. The term transaction includes all of

the factual elements necessary to support

the tax benefits that are expected to be

claimed with respect to any entity, plan,

or arrangement, and includes any series of

related steps carried out as part of a prearranged plan and any series of substantially similar transactions entered into in

the same taxable year.

(2) Listed transactions. A transaction

is described in this paragraph (b)(2) if the

transaction is the same as or substantially

similar to one of the types of transactions

that the Internal Revenue Service (IRS)

has determined to be a tax avoidance

transaction and identified by notice, regulation, or other form of published guid-

749

ance as a listed transaction for purposes of

section 6011. However, a listed transaction is not treated as a reportable transaction if it has affected the taxpayer’s Federal income tax liability as reported on

any tax return filed on or before February

28, 2000. The fact that a transaction becomes a listed transaction does not imply

that the transaction was not otherwise a

reportable transaction prior thereto.

(3) Other reportable transactions—(i)

In general. Except as provided in paragraph (b)(3)(ii) of this section, a transaction is described in this paragraph (b)(3) if

it is entered into after February 28, 2000,

and has at least two of the following characteristics:

(A) The taxpayer has participated in the

transaction under conditions of confidentiality (as defined in §301.6111–2T(c)).

(B) The taxpayer has obtained or been

provided with contractual protection

against the possibility that part or all of

the intended tax benefits from the transaction will not be sustained, including, but

not limited to, recission rights, the right to

a full or partial refund of fees paid to any

person, fees that are contingent on the

taxpayer’s realization of tax benefits from

the transaction, insurance protection with

respect to the tax treatment of the transaction, or a tax indemnity or similar agreement (other than a customary indemnity

provided by a principal to the transaction

that did not participate in the promotion

of the transaction to the taxpayer).

(C) The taxpayer’s participation in the

transaction was promoted, solicited, or

recommended by one or more persons

who have received or are expected to receive fees or other consideration with an

aggregate value in excess of $100,000,

and such person or persons’ entitlement to

such fees or other consideration was contingent on the taxpayer’s participation in

the transaction.

(D) The expected treatment of the

transaction for Federal income tax purposes in any taxable year differs or is expected to differ by more than $5 million

from the treatment of the transaction for

purposes of determining book income as

taken into account on the schedule M-1

(or comparable schedule) on the taxpayer’s Federal corporate income tax return for the same period.

(E) The transaction involves the participation of a person that the taxpayer

March 13, 2000

knows or has reason to know is in a Federal income tax position that differs from

that of the taxpayer (such as a tax exempt

entity or a foreign person), and the taxpayer knows or has reason to know that

such difference in tax position has permitted the transaction to be structured on

terms that are intended to provide the taxpayer with more favorable Federal income tax treatment than it could have obtained without the participation of such

person (or another person in a similar tax

position).

(F) The expected characterization of

any significant aspect of the transaction

for Federal income tax purposes differs

from the expected characterization of

such aspect of the transaction for purposes of taxation of any party to the transaction in another country.

(ii) Exceptions. A transaction is not a

reportable transaction under paragraph

(b)(3) of this section if paragraph

(b)(3)(ii)(A), (B), (C), or (D) of this section is satisfied.

(A) The taxpayer has participated in the

transaction in the ordinary course of its

business in a form consistent with customary commercial practice, and the taxpayer reasonably determines that it would

have participated in the same transaction

on substantially the same terms irrespective of the expected Federal income tax

benefits.

(B) The taxpayer has participated in the

transaction in the ordinary course of its

business in a form consistent with customary commercial practice, and the taxpayer reasonably determines that there is

a long-standing and generally accepted

understanding that the expected Federal

income tax benefits from the transaction

(taking into account any combination of

intended tax consequences) are allowable

under the Internal Revenue Code (Code)

for substantially similar transactions.

(C) The taxpayer reasonably determines that there is no reasonable basis

under Federal tax law for denial of any

significant portion of the expected Federal income tax benefits from the transaction. Such a determination must take into

account the entirety of the transaction and

any combination of tax consequences that

are expected to result from any component steps of the transaction, must not be

based on any unreasonable or unrealistic

factual assumptions, and must take into

March 13, 2000

account all relevant aspects of Federal tax

law, including the statute and legislative

history, treaties, authoritative administrative guidance, and judicial decisions that

establish principles of general application

in the tax law (e.g., Gregory v. Helvering,

293 U.S. 465 (1935)).

(D) The transaction is identified in published guidance as being excepted from

disclosure under this section.

(iii) Ordinary course of business. For

purposes of paragraphs (b)(3)(ii)(A) and

(B) of this section, a transaction involving

the acquisition, disposition, or restructuring of a business, including the acquisition, disposition, or other change in the

ownership or control of an entity that is

engaged in a business, or a transaction involving a recapitalization or an acquisition of capital for use in the taxpayer’s

business, shall be considered a transaction

carried out in the ordinary course of a taxpayer’s business.

(4) Projected tax effect—(i) In general.

A transaction described in paragraph

(b)(2) of this section meets the projected

tax effect test if, at the time the taxpayer

enters into the transaction or at any time

thereafter, the taxpayer reasonably estimates that the transaction will reduce the

taxpayer’s Federal income tax liability by

more than $1 million in any single taxable

year or by a total of more than $2 million

for any combination of taxable years in

which the transaction is expected to have

the effect of reducing the taxpayer’s Federal income tax liability. A transaction

described in paragraph (b)(3) of this section meets the projected tax effect test if,

at the time the taxpayer enters into the

transaction or at any time thereafter, the

taxpayer reasonably estimates that the

transaction will reduce the taxpayer’s

Federal income tax liability by more than

$5 million in any single taxable year or by

a total of more than $10 million for any

combination of taxable years in which the

transaction is expected to have the effect

of reducing the taxpayer’s Federal income

tax liability. For purposes of this paragraph (b)(4), a transaction will be treated

as reducing a taxpayer’s Federal income

tax liability for a taxable year if, and to

the extent that, disallowance of the tax

treatment claimed or expected to be

claimed would result in an increase in the

taxpayer’s Federal income tax liability for

that year. These dollar thresholds may be

750

adjusted pursuant to forms prescribed for

reporting under this section and the instructions to such forms.

(ii) Estimation of projected tax effect.

A taxpayer’s estimate of the effect of a

transaction on its Federal income tax liability shall take into account all projected

Federal income tax consequences of the

transaction, including all deductions, exclusions from gross income, nonrecognition of gain, tax credits, adjustments (or

the absence of adjustments) to the basis of

property, and any other tax consequences

that may reduce the taxpayer’s Federal income tax liability by affecting the timing,

character, or source of any item of income, gain, deduction, loss, or credit.

The estimate shall not take into account

the potential Federal income tax effect of

any other transaction or transactions that

the taxpayer might have entered into if the

taxpayer had not entered into the transaction in question. Gross income may not

be taken into account if the elements of

the transaction that result in the creation

of the gross income are not necessary to

achieve the intended tax results of the

transaction, whether or not these elements

are an integral part of the transaction. For

example, gross income may not be taken

into account to the extent that it would

have been reasonably possible for the taxpayer to have participated in the transaction in a manner that would have been expected to produce less gross income

without a commensurate effect on the

other tax consequences of the transaction.

In addition, gain on property that the taxpayer acquired independent of its participation in the transaction may not be taken

into account.

(5) Examples. The following examples

illustrate the application of paragraph (b)

of this section. Assume, for purposes of

these examples, that the transactions are

not the same as or substantially similar to

any of the types of transactions that the

IRS has identified as listed transactions

under section 6011 and, thus, are not described in paragraph (b)(2) of this section.

The examples are as follows:

Example 1. In March of 2000, C, a domestic corporation, invests $100 million to purchase certain financial instruments the terms of which have been

structured to enable the holder to claim a deductible

tax loss upon the disposition of one or more of the

instruments a short time after acquisition while deferring gain on the retained instruments. C purchased the instruments on the recommendation of X,

which is expected to receive direct or indirect com-

2000–11 I.R.B.

pensation in excess of $100,000 contingent on C’s

purchase. C disposes of certain of the financial instruments in November of 2000, and reports a loss

from the disposition of those financial instruments

on its 2000 Federal corporate income tax return

which reduces its reported Federal income tax liability by more than $5 million. That loss is not reflected on C’s income statement for purposes of determining book income as taken into account on the

schedule M-1 on C’s Federal corporate income tax

return. Further, C is unable to reasonably determine

that it would have entered into the transaction irrespective of the Federal income tax benefits, or that

the transaction is a customary form of transaction

giving rise to tax consequences for which there is a

long-standing and generally accepted understanding

that such tax consequences are allowable under the

Code for similar transactions, or that the Commissioner would have no reasonable basis to deny the

claimed loss. The transaction involving C’s purchase and disposition of the financial instruments

has the characteristics described in paragraphs

(b)(3)(i)(C) and (D) of this section. None of the exceptions in paragraph (b)(3)(ii) of this section applies. Therefore, the transaction involving C’s purchase and disposition of the financial instruments is

a reportable transaction because it is described in

paragraph (b)(3) of this section.

Example 2. In the year 2001, D, a domestic corporation, completes construction of an office building to be used in its business. After completion of

the building but before D files its tax return for the

year 2001, it is approached by Y, a professional services organization, which advises D that Y has developed a set of programs that will enable D to maximize its depreciation deductions with respect to the

building and the related furniture and fixtures. Y allows D to review Y’s programs subject to D’s agreement that it will not use any portion of the programs

in establishing its depreciation accounts for Federal

tax purposes unless it pays Y a fee of $150,000. In

addition, D makes a commitment to Y that it will not

divulge any information relating to the programs to

any person, whether or not D decides to use the programs. D agrees to use Y’s programs for purposes

of computing its depreciation allowances for 2001

and later taxable years. D expects its use of the programs to reduce its Federal income tax liability by

more than $10 million over the life of the building.

However, D reasonably determines that it would

have constructed and owned the office building in

the same manner irrespective of the enhanced depreciation that it expects to derive from the use of Y’s

programs. Therefore, regardless of whether D’s depreciation deductions on the building may be subject

to disallowance, the transaction encompassing the

construction of the building and the use of Y’s programs is not a reportable transaction by reason of the

exception under paragraph (b)(3)(ii)(A) of this section.

2000–11 I.R.B.

Example 3. E is a domestic corporation, which is

a calendar year taxpayer. E is engaged in the leasing

business. In 2001, E enters into a large number of

substantially similar arrangements described in

paragraph (b)(3)(i) of this section under which it acquires and leases tangible personal property to U.S.

persons who use such property in their businesses.

E treats the leases as leases for Federal income tax

purposes and as loans for financial accounting purposes. During the first three taxable years in which

the leases are in effect, E reasonably expects that its

reported taxable income will be more than $30 million lower than it would be if the leases were treated

as loans for Federal income tax purposes, giving rise

to a total expected reduction of E’s Federal income

tax liability for those years in excess of $10 million.

E cannot conclude that it would have entered into

the leases on substantially the same terms irrespective of the expected Federal income tax benefits, nor

can it conclude that the Commissioner would have

no reasonable basis to deny its tax treatment of the

leases. However, E does reasonably determine that

the terms of the leases are consistent with customary

commercial form in the leasing industry, and that

there is a long-standing and generally accepted understanding that the combination of Federal income

tax consequences it is claiming with respect to the

leases are allowable under the Code for similar

transactions. The substantially similar leases would

be treated for purposes of this section as a single

transaction that would satisfy the projected tax effect

test described in paragraph (b)(4) of this section.

However, the leases would not be a reportable transaction by reason of the exception under paragraph

(b)(3)(ii)(B) of this section.

(c) Form and content of disclosure

statement.(1) The disclosure statement for

each reportable transaction must include

the information required by paragraph

(c)(1)(i) through (c)(1)(vi) of this section

and shall be presented in a format (preferably no longer than one page) similar to

that shown in the Example in paragraph

(c)(2) of this section or on such form as

may be prescribed for use under this section.

(i) The name, if any, by which the

transaction is known or commonly referred to by the taxpayer; if no name exists, provide a short-hand designation of

this transaction to distinguish it from

other reportable transactions in which the

taxpayer may have participated (or may

participate in the future).

(ii) A statement indicating whether, to

751

the best knowledge of the taxpayer, the

transaction has been registered as a tax

shelter under section 6111. If the transaction has been registered as a tax shelter

under section 6111, indicate whether

Form 8271, “Investor Reporting of Tax

Shelter Registration Number”, has been

filed with the taxpayer’s return and provide the registration number, if any, that

has been assigned to the tax shelter.

(iii) A brief description of the principal

elements of the transaction that give rise

to the expected tax benefits.

(iv) A brief description of the expected

tax benefits of the transaction (e.g., loss

deductions, interest deductions, rental deductions, foreign tax credits, etc.).

(v) An identification of each taxable

year (including prior taxable years) for

which the transaction is expected to have

the effect of reducing the taxpayer’s Federal income tax liability and an estimate

(which may be rounded to the nearest $1

million) of the amount by which the transaction is expected to reduce the taxpayer’s Federal income tax liability for

each such taxable year.

(vi) The names and addresses of any

parties who promoted, solicited, or recommended the taxpayer’s participation in

the transaction and who had a financial

interest, including the receipt of fees, in

the taxpayer’s decision to participate.

(2) Example. The following example illustrates

the application of paragraph (c) of this section: In

January of 1999, X, a domestic corporation which is

a calendar year taxpayer, entered into an arrangement under which it purported to lease a building

owned and occupied by the government of a municipality located in foreign country W and lease the

building back to the municipal government. X determines that the transaction is a reportable transaction described in paragraph (b)(1) of this section because it is described in paragraph (b)(2) of this

section and satisfies the projected tax effect test in

paragraph (b)(4) of this section. As of February 28,

2000, X had not filed its 1999 Federal corporate income tax return. The following form of disclosure

statement would satisfy the requirements described

in paragraph (c)(1) of this section.

March 13, 2000

DISCLOSURE STATEMENT FOR REPORTABLE TRANSACTION

Corporation X

(address)

(EIN)

1. Identification of transaction: LILO–Country W

2. Registration status under section 6111: Not registered

3. Description of transaction: We leased a building from a municipality in W. We made an advance payment of rent of $89 million. The lease term is 34

years. The foreign municipality subleased the asset back from us for a term of 20 years. The foreign municipality has the option, at the end of the sublease

term, to buy out our interest for $50 million. Our advance lease payment has been financed with a bank loan of $60 million. The foreign municipality placed

$75 million of the advance rental payment in special accounts to satisfy the sublease and buyout obligations.

4. Principal tax benefits: Deductions for rental and interest payments in excess of income from leaseback rental payments

5. Estimates of expected reduction of Federal income tax liability for affected taxable years: 1999-2002, $5 million per year; 2003-2013, $4 million per

year; and 2014-2017, $3 million per year.

6. Promoters:

Financial Institution Y

(address)

(telephone number)

Professional Service Firm Z

(address)

(telephone number)

(d) Time of providing disclosure—(1) In

general. The disclosure statement for a reportable transaction shall be attached to the

taxpayer’s Federal corporate income tax return for each taxable year for which the taxpayer’s Federal income tax liability is affected by its participation in the transaction.

In addition, at the same time that the disclosure statement is first attached to the taxpayer’s Federal income tax return, a copy

of that disclosure statement must be sent to:

Internal Revenue Service LM:PF, Large &

Mid-Size Business Division, 1111 Constitution Ave., N.W., Washington, DC 20224.

If a transaction becomes a reportable transaction on or after the date the taxpayer has

filed its return for the first taxable year for

which the transaction affected the taxpayer’s Federal income tax liability (e.g.,

there is a change in facts affecting the expected Federal income tax effect of the

transaction, or the transaction subsequently

becomes one identified in published guidance as a listed transaction described in

(b)(2) of this section), the disclosure statement shall be filed as an attachment to the

taxpayer’s Federal corporate income tax return next filed after the date the transaction

becomes a reportable transaction. If a disclosure statement is required as an attachment to a Federal corporate income tax return that is filed earlier than 180 days after

February 28, 2000, the taxpayer may either

attach the disclosure statement to the return, or file the disclosure statement as an

amendment to the return no later than 180

days after February 28, 2000.

(2) Example. The following example illustrates the

application of this paragraph (d): In December of

2000, F, a domestic corporation which is a calendar

year taxpayer, enters into a transaction described in

March 13, 2000

paragraph (b)(3) of this section but not described in

paragraph (b)(2) of this section. At the time F enters

into the transaction and thereafter, F reasonably estimates that the transaction will reduce F’s Federal income tax liability by $2 million in any single taxable

year and by a total of $8 million for any combination

of taxable years in which the transaction is expected to

have the effect of reducing F’s Federal income tax liability. Consequently, the transaction does not meet the

projected tax effect test described in paragraph (b)(4)

of this section for transactions described in paragraph

(b)(3) of this section. On March 1, 2002, the IRS publishes a notice identifying the transaction as a listed

transaction described in paragraph (b)(2) of this section. Thus, upon issuance of the notice, the transaction

becomes a transaction described in paragraph (b)(2) of

this section. As a result of the lower dollar thresholds

of the projected tax effect test with respect to transactions described in (b)(2) of this section, the transaction

meets the projected tax effect test in paragraph (b)(4)

of this section. Consequently, the transaction becomes

a reportable transaction described in paragraph (b)(1)

of this section, and F is required to file a disclosure

statement meeting the requirements of paragraph

(c)(1) of this section for the transaction as an attachment to F’s next filed Federal corporate income tax return. If F’s 2001 return has not been filed on or before

the date the Service identifies the transaction as a

listed transaction, the disclosure statement must be attached to F’s 2001 return.

(e) Retention of documents. The taxpayer

must retain all documents related to a transaction subject to disclosure under this section until the expiration of the statute of limitations applicable to the first taxable year

for which disclosure of the transaction was

made in accordance with the requirements

of this section. (This document retention requirement is in addition to any document retention requirements that section 6001 generally imposes on the taxpayer.) Such

documents include, but are not limited to,

the following: all marketing materials related to the transaction; all written analyses

used in decision-making related to the trans-

752

action; all correspondence and agreements

related to the transaction between the taxpayer and any promoter, advisor, lender, or

other party to the reportable transaction; all

documents discussing, referring to, or

demonstrating the tax benefits arising from

the reportable transaction; and all documents, if any, referring to the business purposes for the reportable transaction.

(f) Affiliated groups. For purposes of

this section, an affiliated group of corporations that joins in the filing of a consolidated return under section 1501 shall be

considered a single taxpayer.

(g) Effective date. This section applies to

Federal corporate income tax returns filed

after February 28, 2000. However, paragraph (e) of this section applies to documents and other records that the taxpayer

acquires, prepares, or has in its possession

on or after February 28, 2000.

Par.

3. In §602.101, paragraph (b) is amended

by adding an entry for §1.6011–4T to read

in part as follows:

§602.101 OMB Control numbers.

*****

(b) * * *

Charles O. Rossotti,

Commissioner of Internal Revenue.

Approved February 23, 2000.

Jonathan Talisman,

Acting Assistant Secretary

of the Treasury.

(Filed by the office of the Federal Register on February 28, 2000, 8:45 a.m., and published in the issue of

the Federal Register for March 2, 2000, 65 F.R.

11205)

2000–11 I.R.B.

CFR Part or Section Where

Identified and Described

Current OMB

Control No.

*****

1.6011–4T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545–1685

*****

Section 6111.— Registration of

Tax Shelters

26 CFR 301.6111–2T: Confidential corporate tax

shelters (Temporary).

T.D. 8876

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 301 and 602

Corporate Tax Shelter

Registration

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations requiring the registration of confidential corporate tax shelters pursuant to section 6111(d) as

amended by section 1028(a) of the Taxpayer Relief Act of 1997 (the Act). The

temporary regulations affect persons responsible for registering confidential corporate tax shelters. The text of these temporary regulations also serves as the text

of the proposed regulations set forth in the

notice of proposed rulemaking on this

subject in REG–110311–98, page 767.

DATES: Effective date. These temporary

regulations are effective February 28, 2000.

Applicability date. For dates of applicability, see §301.6111–2T(h) of these regulations.

FOR FURTHER INFORMATION CONTACT: Richard Castanon, (202) 6223080, or Mary Beth Collins, (202) 6223070; concerning international issues

Rebecca Rosenberg, (202) 622-3870 (not

toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

These regulations are being issued

2000–11 I.R.B.

without prior notice and public procedure

pursuant to the Administrative Procedure

Act (5 U.S.C. 553). For this reason, the

collections of information contained in

these regulations have been reviewed and,

pending receipt and evaluation of public

comments, approved by the Office of

Management and Budget under control

number 1545-1687. Responses to these

collections of information are mandatory.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless the collection of information displays a valid

OMB control number.

For further information concerning

these collections of information, and

where to submit comments on the collections of information and the accuracy of

the estimated burden, and suggestions for

reducing this burden, please refer to the

preamble to the cross-referencing notice

of proposed rulemaking published in the

Proposed Rules section of this issue of the

Federal Register.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by 26 U.S.C. 6103.

Background

In enacting section 6111(d), Congress

added confidential corporate tax shelters

as a type of tax shelter that must be registered under section 6111. Congress intended the provision to improve tax compliance by giving the Treasury

Department earlier notification of transactions that may not comport with Federal

tax law and by discouraging taxpayers

from entering into questionable transactions. See H.R. R EP. N O . 148, 105th

Cong., 1st Sess. 469 (1997); S. REP. NO.

33, 105th Cong., 1st Sess. 148 (1997).

Section 1028(e)(1) of the Act provides

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that the registration requirements of section 6111 and the penalty provisions of

section 6707 for failing to comply with

the registration requirements apply to

confidential corporate tax shelters in

which interests are offered to potential

participants after the IRS issues guidance

on the registration requirements. These

regulations provide the guidance necessary to activate the registration requirements of section 6111 and the penalty

provisions of section 6707 for confidential corporate tax shelters.

These temporary regulations relate to

disclosure obligations for tax shelter organizers and promoters under section 6111.

Although the terms of section

6111(d)(1)(A), which are part of the definition of a confidential corporate tax shelter, are similar to the definition of tax

shelter under section 6662(d)(2)(C)(iii),

these temporary regulations are not intended to define a tax shelter for purposes

of section 6662, which relates to the imposition of penalties.

Explanation of Provisions

I. In General

Under section 6111(d)(1) and the temporary regulations, a confidential corporate tax shelter is any entity, plan,

arrangement, or transaction that satisfies

the following three requirements: (1) a

significant purpose of the structure of the

transaction is the avoidance or evasion of

Federal income tax for a direct or an indirect corporate participant; (2) the transaction is offered to any potential participant

under conditions of confidentiality; and

(3) the tax shelter promoters may receive

fees in excess of $100,000 in the aggregate.

II. Significant Purpose of Tax Avoidance

or Tax Evasion

Under the temporary regulations, there

are three categories of transactions for

March 13, 2000

which the avoidance or evasion of Federal

income tax is considered a significant

purpose of the structure of the transaction.

First, the avoidance or evasion of Federal income tax is considered a significant

purpose of the structure of a transaction if

the transaction is the same as or substantially similar to one of the specified types

of transactions that the IRS has determined to be a tax avoidance transaction

and identified by notice, regulation, or

other form of published guidance as a

listed transaction for purposes of section

6111.

Second, the avoidance or evasion of

Federal income tax is generally considered a significant purpose of the structure

of a transaction if the present value of the

participant’s reasonably expected pre-tax

profit (after taking into account foreign

taxes as expenses and transaction costs)

from the transaction is insignificant relative to the present value of the participant’s expected net Federal income tax

savings from the transaction. However, if

the substance of the transaction is the borrowing of money or the acquisition of financial capital by a corporate participant,

the transaction falls within this second

category if the present value of the Federal income tax deductions of the taxpayer to whom the loan or financial capital is provided significantly exceeds the

present value of the pre-tax return of the

person providing the loan or financial

capital.

Third, the avoidance or evasion of Federal income tax is generally considered to

be a significant purpose of the structure of

a transaction if the transaction has been

structured to produce Federal income tax

benefits that constitute an important part

of the intended results of the transaction

and the tax shelter promoter (or other person who would be responsible for registration under this section) reasonably expects the transaction to be presented (in

the same or substantially similar form) to

more than one potential participant.

However, a transaction does not come

within this third category if the promoter

reasonably determines that the potential

participant is expected to participate in

the transaction in the ordinary course of

its business in a form consistent with customary commercial practice, and the promoter reasonably determines that there is

a long-standing and generally accepted

March 13, 2000

understanding that the expected Federal

income tax benefits from the transaction

(taking into account any combination of

intended tax consequences) are allowable

under the Code for substantially similar

transactions.

Except for listed transactions, the

avoidance or evasion of Federal income

tax will not be considered a significant

purpose of the structure of a transaction if

the tax shelter promoter (or other person

who would be responsible for registration

under this section) reasonably determines

that there is no reasonable basis under

Federal tax law for denial of any significant portion of the expected Federal income tax benefits from the transaction.

The IRS may make a determination, by

published guidance, individual ruling, or

otherwise, that a transaction is not required to be registered under the temporary regulations. If a tax shelter promoter

(or other person who would be responsible for registration under this section) is

uncertain whether a transaction is properly classified as a confidential corporate

tax shelter or is otherwise uncertain

whether registration is required under this

section, that person may, on or before the

date that registration would otherwise be

required under this section, submit a request to the IRS for a ruling as to whether

the transaction is subject to the registration requirements of this section. If the

request fully discloses all relevant facts

relating to the transaction, that person’s

potential obligation to register the transaction will be suspended during the period that the ruling request is pending and,

if the Service subsequently concludes that

the transaction is a confidential corporate

tax shelter subject to registration under

this section, until the sixtieth day after the

issuance of the ruling (or, if the request is

withdrawn, sixty days from the date that

the request is withdrawn). In the alternative, that person may register the transaction in accordance with the requirements

of this section and append a statement to

the Form 8264, “Application for Registration of a Tax Shelter,” which states that

the person is uncertain whether the transaction is required to be registered as a

confidential corporate tax shelter, and that

the Form 8264 is being filed on a protective basis.

III. Conditions of Confidentiality

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Section 6111(d)(2) describes when an

offer is made under conditions of confidentiality. The determination of whether

an offer is made under conditions of confidentiality is based on all the facts and

circumstances surrounding the offer, including prior conduct of the parties. If an

offeree’s disclosure of the structure or tax

aspects of the transaction is limited in any

way by an express or implied understanding or agreement with or for the benefit of

a tax shelter promoter, an offer is considered made under conditions of confidentiality, whether or not such understanding

or agreement is legally binding. An offer

will also be considered made under conditions of confidentiality in the absence of

any such understanding or agreement if

any tax shelter promoter knows or has

reason to know the transaction is protected from disclosure or use in any other

manner, such as where the transaction is

claimed to be proprietary to the tax shelter

promoter or any party other than the offeree. An offeree’s privilege to maintain

the confidentiality of a communication relating to a tax shelter in which the taxpayer might participate or has agreed to

participate, including an offeree’s confidential communication with the offeree’s

attorney, is not itself a condition of confidentiality.

The temporary regulations provide

that, unless facts and circumstances

clearly indicate otherwise, an offer is not

considered made under conditions of confidentiality if the tax shelter promoter enters into a written agreement with each

person who participates or discusses participation in the transaction and such

agreement expressly authorizes such persons to disclose every aspect of the transaction to any and all persons, without limitation of any kind.

IV. Fees

The third requirement that must be satisfied for a transaction to be treated as a

confidential corporate tax shelter is that

the tax shelter promoters, whether or not

related, may receive fees in excess of

$100,000 in the aggregate. In determining whether the tax shelter promoters may

receive fees in excess of $100,000, all the

facts and circumstances surrounding the

transaction are considered. For this purpose, all consideration that may be received by the tax shelter promoters is

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taken into account, including contingent

fees, fees in the form of equity interests,

and fees the promoters may receive for

other transactions as consideration for

promoting the tax shelter.

For example, if a tax shelter promoter

may receive a fee for arranging a transaction that is a confidential corporate tax

shelter and/or a separate fee for another

transaction that is not a confidential corporate tax shelter, part or all of the fee

paid with respect to the other transaction

may be treated as a fee paid with respect

to the confidential corporate tax shelter if

the facts and circumstances indicate that

the fee paid for the other transaction is in

consideration for the confidential corporate tax shelter. For purposes of determining whether the tax shelter promoters

may receive fees in excess of $100,000,

the fees from all substantially similar

transactions are considered part of the

same tax shelter and must be aggregated.

V. Registration Requirements

To register a confidential corporate tax

shelter, the person responsible for registering the tax shelter must file Form 8264,

“Application for Registration of a Tax

Shelter.” (Form 8264 is also used to register tax shelters defined in section

6111(c).) The exemptions from the registration requirements contained in the instructions to the current Form 8264 apply

only to tax shelters defined in section

6111(c). Form 8264 will be revised and

will include specific requirements and instructions for registering confidential corporate tax shelters. Until that time, persons responsible for registering

confidential corporate tax shelters should

follow the registration procedures outlined in these regulations.

The temporary regulations provide that

the person registering a confidential corporate tax shelter must provide a detailed

description of the tax shelter, including

the structure of the tax shelter and the tax

benefits. Any written materials presented

in connection with an offer to participate

in the shelter are required to be submitted

with the registration form.

Consistent with the registration requirements for tax shelters defined in section 6111(c), the temporary regulations

provide that any transactions involving

similar business assets or similar plans or

arrangements that are offered to corporate

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taxpayers by the same person or by related persons are aggregated and treated

as a single tax shelter. However, in contrast with the registration requirements

applicable to tax shelters defined in section 6111(c), the temporary regulations

allow the tax shelter promoter to file a

single Form 8264 with respect to any such

aggregated tax shelter, provided an

amended Form 8264 is filed to reflect any

material changes and to include any additional or revised written materials presented in connection with an offer to participate in the shelter. Furthermore, the

temporary regulations require all transactions that are part of the same tax shelter

and that are to be carried out by the same

corporate participant (or one or more

other members of the same affiliated

group within the meaning of section

1504) to be registered on the same Form

8264.

The temporary regulations provide that

in cases in which an attorney or federally

authorized tax practitioner acts as a tax

shelter promoter with respect to a client’s

participation in a confidential corporate

tax shelter and believes that information

which would otherwise be required to be

disclosed on Form 8264 is protected by

the common law attorney-client privilege

or the confidentiality privilege under section 7525(a), such promoter may omit the

information believed to be privileged

from Form 8264 if the promoter attaches

a statement to the Form 8264 as described

in these temporary regulations.

Section 6111(a)(1) requires a tax shelter to be registered not later than the day

on which the first offering for sale of interests in such shelter occurs. Section

6111(d)(4) provides that an offer to participate in a confidential corporate tax

shelter shall be treated as an offer for sale.

Registration under these temporary

regulations will be limited to confidential

corporate tax shelters that are offered for

sale after February 28, 2000. If interests

in a confidential corporate tax shelter

were first offered for sale on or before

February 28, 2000, the first offer for sale

of interests in the shelter that occurs after

February 28, 2000, shall be considered

the first offer for sale under this section.

The temporary regulations provide that

the IRS will consider a registration as

timely made for a confidential corporate

tax shelter in which interests are offered

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for sale after February 28, 2000, if the

confidential corporate tax shelter is registered no later than August 26, 2000.

If a transaction becomes a confidential

corporate tax shelter (e.g., because of a

change in the law or factual circumstances, or because the transaction becomes a listed transaction) subsequent to

the first offering for sale after February

28, 2000, and the transaction was not previously required to be registered as a confidential corporate tax shelter under this

section, the transaction must be registered

under this section if interests are offered

for sale after the transaction becomes a

confidential corporate tax shelter. The

transaction must be registered by the later

of the next offering for sale of interests in

the shelter or August 26, 2000. However,

because transactions identified as listed

transactions are generally considered to

have been structured for a significant tax

avoidance purpose, such transactions ordinarily will have been subject to registration under this section before becoming

listed transactions.

The temporary regulations provide that

if an interest in a confidential corporate

tax shelter is first offered for sale after

February 28, 2000, and that shelter is also

a tax shelter under section 6111(c), the

person responsible for registering the

shelter may either (1) complete and file

Form 8264, including the information required by these temporary regulations for

confidential corporate tax shelters, not

later than the day on which an interest in

the shelter is first offered for sale after

February 28, 2000, or (2) complete and

file Form 8264 for the section 6111(c) tax

shelter not later than the day on which an

interest in the tax shelter is first offered

for sale under section 6111(a) and then

file an amended Form 8264 with the information required by these temporary

regulations not later than August 26,

2000.

VI. Tax Shelter Promoter and Person

Required to Register

The temporary regulations provide that

the term “tax shelter promoter” as described in section 6111(d)(2) includes a

tax shelter organizer under section

6111(e)(1) and §301.6111–1T(Q&A-26

through Q&A-32) and any other person

who participates in the organization, management or sale of a tax shelter (other

March 13, 2000

than a person who merely performs services of the kind described in Q&A-33 of

§301.6111–1T) or any person related

(within the meaning of section 267 or

707) to such tax shelter organizer or such

other person.

In addition to the registration rules in

section

6111,

the

rules

in

§301.6111–1T(Q&A-34 through Q&A39) apply for determining who must register a confidential corporate tax shelter.

The temporary regulations specify that,

if all of the tax shelter promoters of a confidential corporate tax shelter are foreign

persons and none of such promoters registers the shelter, any person who discusses

participation in the shelter must register

the shelter under section 6111(a). Pursuant to the authority in section

6111(f)(4), under limited circumstances,

the temporary regulations apply to foreign

as well as United States persons. For example, a foreign corporation that participates in a tax shelter with a significant

purpose of reducing its United States

taxes would be required to register the tax

shelter if there were no U.S. promoters

and the other requirements of the temporary regulations were satisfied.

Under the temporary regulations, if all

the tax shelter promoters of a confidential

corporate tax shelter are foreign persons,

any person who discusses participation in

the confidential corporate tax shelter with

a tax shelter promoter must register the

shelter within 90 days of beginning such

discussions unless one or more of the following occurs: (1) the person does not

participate in the shelter and notifies the

promoter in writing, within the 90-day period, that the person will not participate;

or (2) within the 90-day period, the person obtains and reasonably relies on both

a written statement from one of the tax

shelter promoters that such promoter has

registered the tax shelter under this section and a copy of the registration.

To prevent avoidance of the purposes

of section 6111(d)(3), the temporary regulations treat any person that participates in

a shelter as having discussed that participation. Such discussion will be treated as

occurring on the date of the agreement to

participate or, if earlier, any other date the

person is treated as having discussed participation under any other provision of

these regulations. Thus, the participant is

treated as having discussed participation

March 13, 2000

in the shelter even if the agreement to participate is made without direct discussions

by the participant. This might occur, for

example, if participation is agreed to

through an intermediary acting on the participant’s behalf.

The temporary regulations also state

that a person (first person) will be treated

as participating indirectly in (and therefore as discussing) a tax shelter if a foreign person in which the first person has

at least a 10 percent interest participates

in the shelter with a significant purpose of

avoiding or evading the first person’s

Federal income tax. For example, if a foreign corporation participates in a confidential corporate tax shelter with a significant purpose of reducing its 10 percent

corporate shareholder’s Federal income

taxes, the temporary regulations would

require the shareholder to register the tax

shelter if all promoters are foreign.

For purposes of the registration requirements under section 6111(d)(3), it is

presumed that the tax shelter promoters

may receive fees in excess of $100,000 in

the aggregate unless the person who

would be responsible for registering the

tax shelter can show otherwise.

VII. Investor List Requirement of Section

6112

Any person who organizes or sells an

interest in a confidential corporate tax

shelter must maintain a list of persons

who were sold an interest in the tax shelter and such other information as required

by section 6112. See §301.6112–1T.

Amendments to the temporary regulations

under section 6112 have been published

concurrently with the temporary regulations under section 6111(d). Among other

things, the amended temporary regulations under section 6112 require lists to be

maintained with respect to transactions

for which the avoidance or evasion of

Federal income tax is considered to be a

significant purpose of the structure of the

transaction, as determined in these temporary regulations under section

6111(d)(1)(A), whether or not the transactions are offered under conditions of confidentiality.

VIII. Effective Date

The regulations apply to confidential

corporate tax shelters in which any interests

are offered for sale after February 28, 2000.

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Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations

will not have a significant economic impact on a substantial number of small entities. This certification is based upon the

fact that the persons responsible for promoting and registering the transactions

described in these regulations are principally large publicly traded corporations,

and the burden is not significant as described earlier in the preamble. Therefore, a Regulatory Flexibility Analysis

under the Regulatory Flexibility Act (5

U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal

Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on their impact on small business.

Drafting Information

The principal authors of these regulations are Mary Beth Collins and Richard

Castanon, Office of Chief Counsel

(Passthroughs and Special Industries) and

Rebecca Rosenberg, Office of Chief

Counsel (International). However, other

personnel from the IRS and Treasury Department participated in their development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 301 and 602

are amended as follows:

PART 301—PROCEDURE AND

ADMINISTRATION

Paragraph 1. The authority citation for

part 301 is amended by adding an entry in

numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 301.6111–2T also issued under

26 U.S.C. 6111(f)(4). * * *

Par. 2. Section 301.6111–2T is added to

read as follows:

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§301.6111–2T Confidential corporate tax

shelters (Temporary).

(a) In general—(1) Under section

6111(d) and this section, a confidential

corporate tax shelter is treated as a tax

shelter subject to the requirements of sections 6111(a) and (b).

(2) A confidential corporate tax shelter

is any transaction—

(i) A significant purpose of the structure of which is the avoidance or evasion

of Federal income tax, as described in

paragraph (b) of this section, for a direct

or indirect corporate participant;

(ii) That is offered to any potential participant under conditions of confidentiality, as described in paragraph (c) of this

section; and

(iii) For which the tax shelter promoters may receive fees in excess of

$100,000 in the aggregate, as described in

paragraph (d) of this section.

(3) For purposes of this section, references to the term transaction include all

of the factual elements necessary to support the tax benefits that are expected to

be claimed with respect to any entity,

plan, or arrangement, including any series

of related steps carried out as part of a

prearranged plan.

(4) A transaction described in paragraph (b) of this section is for a direct or

an indirect corporate participant if it is expected to provide Federal income tax benefits to any corporation (U.S. or foreign)

whether or not that corporation participates directly in the transaction.

(b) Transactions structured for avoidance or evasion of Federal income tax—

(1) In general. The avoidance or evasion

of Federal income tax will be considered

a significant purpose of the structure of a

transaction if the transaction is described

in paragraph (b)(2), (3), or (4) of this section. However, a transaction described in

paragraph (b)(3) or (4) of this section

need not be registered if the transaction is

described in paragraph (b)(5) of this section. For purposes of this section, Federal

income tax benefits include deductions,

exclusions from gross income, nonrecognition of gain, tax credits, adjustments (or

the absence of adjustments) to the basis of

property, and any other tax consequences

that may reduce a taxpayer’s Federal income tax liability by affecting the timing,

character, or source of any item of income, gain, deduction, loss, or credit.

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(2) Listed transactions. A transaction

is described in this paragraph (b)(2) if the

transaction is the same as or substantially

similar to one of the types of transactions

that the Internal Revenue Service (IRS)

has determined to be a tax avoidance

transaction and identified by notice, regulation, or other form of published guidance as a listed transaction for purposes of

section 6111. If a transaction becomes a

listed transaction after the date on which

registration would otherwise be required

under this section, and if the transaction

otherwise satisfies the confidentiality and

fee requirements of paragraphs (a)(2)(ii)

and (iii) of this section, registration shall

in all events be required with respect to

any interests in the transaction that are offered for sale after the transaction becomes a listed transaction. However, because a transaction identified as a listed

transaction is generally considered to

have been structured for a significant tax

avoidance purpose, such a transaction ordinarily will have been subject to registration under this section before becoming a

listed transaction if the transaction previously satisfied the confidentiality and fee

requirements of paragraphs (a)(2)(ii) and

(iii) of this section.

(3) Transactions lacking economic substance—(i) Except as provided in paragraph (b)(3)(ii) of this section, a transaction is described in this paragraph (b)(3) if

the present value of the participant’s reasonably expected pre-tax profit (after taking into account foreign taxes as expenses

and transaction costs) from the transaction is insignificant relative to the present

value of the participant’s expected net

Federal income tax savings from the

transaction.

(ii) If the substance of the transaction is

the borrowing of money or the acquisition

of financial capital by a corporate participant, the transaction is described in this

paragraph (b)(3) only if the present value

of the Federal income tax deductions of

the taxpayer to whom the loan or financial

capital is provided significantly exceeds

the present value of the pre-tax return of

the person providing the loan or financial

capital.

(4) Other tax-structured transactions.

A transaction is described in this paragraph (b)(4) if it has been structured to

produce Federal income tax benefits that

constitute an important part of the in-

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tended results of the transaction and the

tax shelter promoter (or other person who

would be responsible for registration

under this section) reasonably expects the

transaction to be presented in the same or

substantially similar form to more than

one potential participant, unless the promoter reasonably determines that—

(i) The potential participant is expected

to participate in the transaction in the ordinary course of its business (including transactions described in §1.6011–4T(b)(3)(iii))

in a form consistent with customary commercial practice; and

(ii) There is a long-standing and generally accepted understanding that the expected Federal income tax benefits from

the transaction (taking into account any

combination of intended tax consequences) are allowable under the Internal

Revenue Code for substantially similar

transactions.

(5) Excepted transactions. The avoidance or evasion of Federal income tax

will not be considered a significant purpose of the structure of a transaction if the

transaction is described in either paragraph (b)(5)(i) or (ii) of this section.

(i) In the case of a transaction other

than a transaction described in paragraph

(b)(2) of this section, the tax shelter promoter (or other person who would be responsible for registration under this section) reasonably determines that there is

no reasonable basis under Federal tax law

for denial of any significant portion of the

expected Federal income tax benefits

from the transaction. Such a determination must take into account the entirety of

the transaction and any combination of

tax consequences that are expected to result from any component steps of the

transaction, must not be based on any unreasonable or unrealistic factual assumptions, and must take into account all relevant aspects of Federal tax law, including

the statute and legislative history, treaties,

authoritative administrative guidance, and

judicial decisions that establish principles

of general application in the tax law (e.g.,

Gregory v. Helvering, 293 U.S. 465

(1935)).

(ii) The IRS makes a determination, by

published guidance, individual ruling

under paragraph (b)(6) of this section, or

otherwise, that the transaction is not subject to the registration requirements of

this section.

March 13, 2000

(6) Requests for ruling. If a tax shelter

promoter (or other person who would be

responsible for registration under this section) is uncertain whether a transaction is

properly classified as a confidential corporate tax shelter or is otherwise uncertain whether registration is required under

this section, that person may, on or before

the date that registration would otherwise

be required under this section, submit a

request to the IRS for a ruling as to

whether the transaction is subject to the

registration requirements of this section.

If the request fully discloses all relevant

facts relating to the transaction, that person’s potential obligation to register the

transaction will be suspended during the

period that the ruling request is pending

and, if the IRS subsequently concludes

that the transaction is a confidential corporate tax shelter subject to registration

under this section, until the sixtieth day

after the issuance of the ruling (or, if the

request is withdrawn, sixty days from the

date that the request is withdrawn). In the

alternative, that person may register the

transaction in accordance with the requirements of this section and append a

statement to the Form 8264, “Application

for Registration of a Tax Shelter,” which

states that the person is uncertain whether

the transaction is required to be registered

as a confidential corporate tax shelter, and

that the Form 8264 is being filed on a protective basis.

(7) Examples. The following examples

illustrate the application of paragraphs

(b)(1) through (b)(5) of this section. Assume, for purposes of these examples,

that the transactions are not the same as or

substantially similar to any of the types of

transactions that the IRS has identified as

listed transactions for purposes of section

6111 and thus are not described in paragraph (b)(2) of this section. The examples are as follows:

Example 1—(i) Facts. Promoter organizes a

transaction between X, a U.S. corporation, and FC, a

foreign entity that is not subject to Federal income

tax. FC contributes cash to PRS, a partnership, in

exchange for a 99 percent partnership interest in

PRS. Promoter is initially the only other partner in

PRS. FC will receive a market rate of return on its

cash contribution and a fee for participating in the

transaction. PRS purchases personal property and

then leases it. PRS sells its right to the lease payments in exchange for cash. PRS allocates 99 percent of the income from the sale to FC and one percent to Promoter. PRS retains the leased property.

Shortly after PRS’s sale of the lease payments, X

buys FC’s 99 percent partnership interest in PRS.

March 13, 2000

The depreciation deductions on the leased property

are then allocated 99 percent to X and one percent to

Promoter.

(ii) Analysis. The transaction is described in

paragraph (b)(3)(i) of this section because the present value of X’s reasonably expected pre-tax profit

from the transaction is insignificant relative to the

present value of X’s expected net Federal income

tax savings from the transaction. Therefore, unless

Promoter can reasonably determine that the IRS

would have no reasonable basis for denial of any

significant portion of the Federal income tax benefits intended for X, the transaction is described in

paragraph (b)(1) of this section.

Example 2—(i) Facts. Y has designed a combination of financial instruments to be issued as a

package by corporations. The financial instruments

are expected to be treated as equity for financial accounting purposes and as debt giving rise to allowable interest deductions for Federal income tax purposes. Y reasonably expects to present this method

of raising capital to more than one potential corporate participant. Assume the transaction is not described in paragraph (b)(3) of this section. Assume

that, because of the unusual nature of the combination of financial instruments, Y cannot conclude either that the transaction represented by the financial

instruments is in customary commercial form or that

there is a long-standing and generally accepted understanding that interest deductions are available to

issuers of substantially similar combinations of financial instruments. Further, assume that Y cannot

reasonably determine that the IRS would have no

reasonable basis to deny the deductions.

(ii) Analysis. The transaction represented by this

combination of financial instruments is a transaction

described in paragraph (b)(4) of this section. However, if Y is uncertain whether this transaction is described in paragraph (b)(4) of this section, or is otherwise uncertain whether registration is required, Y

may apply for a ruling under paragraph (b)(6) of this

section, and the transaction will not be required to be

registered while the ruling is pending or for sixty

days thereafter.

(c) Conditions of confidentiality—(1) In

general. All the facts and circumstances

relating to the transaction will be considered when determining whether an offer is

made under conditions of confidentiality

as described in section 6111(d)(2), including prior conduct of the parties. Pursuant

to section 6111(d)(2)(A), if an offeree’s

disclosure of the structure or tax aspects of

the transaction is limited in any way by an

express or implied understanding or

agreement with or for the benefit of any

tax shelter promoter, an offer is considered

made under conditions of confidentiality,

whether or not such understanding or

agreement is legally binding. Pursuant to

section 6111(d)(2)(B), an offer will also be

considered made under conditions of confidentiality in the absence of any such understanding or agreement if any tax shelter

promoter knows or has reason to know

that the transaction is protected from dis-

758

closure or use in any other manner, such as

where the transaction is claimed to be proprietary to the tax shelter promoter or any

party other than the offeree. An offeree’s

privilege to maintain the confidentiality of

a communication relating to a tax shelter

in which the taxpayer might participate or

has agreed to participate, including an offeree’s confidential communication with

the offeree’s attorney, is not itself a condition of confidentiality.

(2) Presumption. Unless facts and circumstances clearly indicate otherwise, an

offer is not considered made under conditions of confidentiality if the tax shelter

promoter enters into a written agreement

with each person who participates or discusses participation in the transaction and

such agreement expressly authorizes such

persons to disclose every aspect of the

transaction with any and all persons,

without limitation of any kind.

(d) Determination of fees. All the facts

and circumstances relating to the transaction will be considered when determining

the amount of fees, in the aggregate, that

the tax shelter promoters may receive.

For purposes of this paragraph (d), all

consideration that tax shelter promoters

may receive is taken into account, including contingent fees, fees in the form of

equity interests, and fees the promoters

may receive for other transactions as consideration for promoting the tax shelter.

For example, if a tax shelter promoter

may receive a fee for arranging a transaction that is a confidential corporate tax

shelter and a separate fee for another

transaction that is not a confidential corporate tax shelter, part or all of the fee

paid with respect to the other transaction

may be treated as a fee paid with respect

to the confidential corporate tax shelter if

the facts and circumstances indicate that

the fee paid for the other transaction is in

consideration for the confidential corporate tax shelter. For purposes of determining whether the tax shelter promoters

may receive fees in excess of $100,000,

the fees from all substantially similar

transactions are considered part of the

same tax shelter and must be aggregated.

(e) Registration—(1) Time for registering—(i) In general. A tax shelter must be

registered not later than the day on which

the first offering for sale of interests in the

shelter occurs. An offer to participate in a

confidential corporate tax shelter shall be

2000–11 I.R.B.

treated as an offer for sale. If interests in

a confidential corporate tax shelter were

first offered for sale on or before February

28, 2000, the first offer for sale of interests in the shelter that occurs after February 28, 2000, shall be considered the first

offer for sale under this section.

(ii) Certain registrations deemed

timely—(A) In general. The IRS will

consider a registration as timely made for

a confidential corporate tax shelter in

which interests are offered for sale after

February 28, 2000, if the tax shelter is

registered no later than August 26, 2000.

If an interest in a confidential corporate

tax shelter is first offered for sale after

February 28, 2000, and the tax shelter

also constitutes a tax shelter under section

6111(c), the persons responsible for registering the tax shelter may either complete

and file Form 8264, “Application for

Registration of a Tax Shelter”, including

the information required by paragraph

(e)(2) of this section, not later than the

day on which an interest in the tax shelter

is first offered for sale after February 28,

2000, or complete and file Form 8264,

“Application for Registration of a Tax

Shelter”, for the section 6111(c) tax shelter not later than the day on which an interest in the tax shelter is first offered for

sale under section 6111(a) and then file an

amended Form 8264 with the information

required by paragraph (e)(2) of this section not later than August 26, 2000.

(B) Special rule. If a transaction becomes a confidential corporate tax shelter

(e.g., because of a change in the law or

factual circumstances, or because the

transaction becomes a listed transaction)

subsequent to the first offering for sale

after February 28, 2000, and the transaction was not previously required to be

registered as a confidential corporate tax

shelter under this section, the transaction

must be registered under this section if interests are offered for sale after the transaction becomes a confidential corporate

tax shelter. The transaction must be registered by the later of the next offering for

sale of interests in the shelter or August

26, 2000.

(2) Procedures for registering—(i) In

general. To register a confidential corporate tax shelter, the person responsible for

registering the tax shelter must file Form

8264, “Application for Registration of a

Tax Shelter”. (Form 8264 is also used to

2000–11 I.R.B.

register tax shelters defined in section

6111(c).) The exemptions from the registration requirements contained in the instructions to the current Form 8264 apply

only to tax shelters defined in section

6111(c). Similar to the treatment provided under Q&A-22 and Q&A-48 of

§301.6111–1T, transactions involving

similar business assets and similar plans

or arrangements that are offered to corporate taxpayers by the same person or related persons are aggregated and considered part of a single tax shelter. However,

in contrast with the requirement of Q&A48 of §301.6111–1T, the tax shelter promoter may file a single Form 8264 with

respect to any such aggregated tax shelter,

provided an amended Form 8264 is filed

to reflect any material changes and to include any additional or revised written

materials presented in connection with an

offer to participate in the shelter. Furthermore, all transactions that are part of the

same tax shelter and that are to be carried

out by the same corporate participant (or

one or more other members of the same

affiliated group within the meaning of

section 1504) must be registered on the

same Form 8264.

(ii) Interim registration procedure.

Until Form 8264 and its instructions are

revised to incorporate the provisions of

this paragraph (e)(2)(ii), the person responsible for registering a confidential

corporate tax shelter must—

(A) Type or legibly print “Confidential

Corporate Tax Shelter Filed Under

§301.6111–2T” at the top of Form 8264

(Rev. 11-99), “Application for Registration of a Tax Shelter”;

(B) Complete Part I and lines 1a, 2, 3,

4, 6, and 12 in Part II of Form 8264;

(C) In the section titled “Explanation of

Items” on Form 8264, provide a detailed

description of the tax shelter, including a

description of the structure of the tax shelter and the intended tax benefits;

(D) Attach any written materials that

are presented to potential participants in

connection with the offering of sales of

interests in the tax shelter, including any

analyses or opinions relating to the intended tax benefits of the shelter; and

(E) Sign the Form 8264 and send it to

the Internal Revenue Service Center,

Kansas City, MO 64999.

(iii) Use of subsequent versions of

Form 8264. If a person who is required to

759

register a confidential corporate tax shelter under section 6111 uses a subsequent

version of the Form 8264, the person

must complete the appropriate parts of the

revised form and follow the applicable instructions.

(iv) Tax shelters that constitute both

section 6111(c) and section 6111(d) tax

shelters. If a person is registering an

arrangement that is both a confidential

corporate tax shelter and a section 6111(c)

tax shelter, the person must follow the requirements of this section and the instructions for Form 8264. In such a situation,

the taxpayer must complete the entire

form because the tax shelter is a section

6111(c) tax shelter and, if using Form

8264 (Rev. 11-99), type or legibly print

“Confidential Corporate Tax Shelter filed

under §301.6111–2T” at the top of Form

8264 and include the information required

in paragraphs (e)(2)(ii)(C) and (D) of this

section because the tax shelter is also a

confidential corporate tax shelter. If an

arrangement is both a section 6111(c) tax

shelter and a confidential corporate tax

shelter and is a transaction described in

the “Exemptions from Registration” section of the instructions for Form 8264

(Rev. 11-99), the person registering the

arrangement must comply with the requirements of this section to register the

arrangement as a confidential corporate

tax shelter.

(3) Claims of privilege.(i) In any case

in which an attorney or federally authorized tax practitioner within the meaning

of section 7525 is the person required to

register a confidential corporate tax shelter, and that person believes that information required to be disclosed under paragraph (e)(2) of this section is protected by

the attorney-client privilege or by the confidentiality privilege of section 7525(a),

any information omitted from the Form

8264 on the basis of such a claim must be

supported by a statement attached to

Form 8264 which satisfies the requirements set forth in paragraph (e)(3)(ii) of

this section.

(ii) A statement supporting a claim of

privilege must be signed by the attorney

or federally authorized tax practitioner

under penalties of perjury, must identify

each document or category of information

for which a claim of privilege is made,

and must include the following representations with respect to each document or

March 13, 2000

category of information for which the

privilege is claimed—

(A) Specifically represent that the information was a confidential practitionerclient communication and, in the case of

information which a federally authorized

tax practitioner claims is privileged under

section 7525, that the omitted information

was not part of tax advice that constituted

the promotion of a tax shelter within the

meaning of section 7525(b);

(B) Specifically represent that the person required to register (and, to the best of

such person’s knowledge and belief, all

others in possession of the omitted information) did not disclose the omitted information to any person whose receipt of

such information would result in a waiver

of the privilege.

(f) Definition of tax shelter promoter.

For purposes of section 6111(d)(2) and

this section, the term “tax shelter promoter” includes a tax shelter organizer as

defined in section 6111(e)(1) and

§301.6111–1T(Q&A-26 through Q&A32) and any other person who participates

in the organization, management or sale

of a tax shelter (other than a person who

merely performs services of the kind described in Q&A-33 of §301.6111–1T) or

any person related (within the meaning of

section 267 or 707) to such tax shelter organizer or such other person. Any person

that satisfies this requirement must comply with the requirements under section

6112.

(g) Person required to register—(1) Tax

shelter promoters. In addition to the rules

in section 6111, taxpayers must use the

rules of §301.6111–1T (Q&A-34 through

Q&A-39) in determining the circumstances

under which a tax shelter promoter must

register a confidential corporate tax shelter

described in section 6111(d).

(2) Persons who discuss the transaction; all promoters are foreign persons—

(i) In general. If all of the tax shelter promoters of a confidential corporate tax

shelter are foreign persons, any person

who discusses participation in the transaction must register the shelter under this

section within 90 days after beginning

such discussions.

(ii) Exceptions. Registration by a person discussing participation in a transaction is not required if either—

(A) The person does not participate, directly or indirectly, in the shelter and noti-

March 13, 2000

fies the tax shelter promoter in writing,

within 90 days of beginning such discussions, that the person will not participate;

or

(B) Within 90 days after beginning

such discussions, the person obtains and

reasonably relies on both—

(1) A written statement from one of the

tax shelter promoters that such promoter

has registered the tax shelter under this

section; and

(2) A copy of the registration.

(iii) Determination of foreign status.

For purposes of this paragraph (g)(2), a

person must presume that all tax shelter

promoters are foreign persons unless the

person either—

(A) Discusses participation in the tax

shelter with a promoter that is a United

States person; or

(B) Obtains and reasonably relies on a

written statement from one of the promoters that at least one of the promoters is a

United States person.

(iv) Discussion. Discussing participation in a transaction includes discussing

such participation with any person that

conveys the tax shelter promoter’s proposal. For purposes of this paragraph

(g)(2), any person that participates directly or indirectly in a transaction will be

treated as having discussed participation

in the transaction not later than the date of

the agreement to participate. Thus, a tax

shelter participant will be treated as having discussed participation in the transaction even if all discussions were conducted by an intermediary and the

agreement to participate was made indirectly through another person acting on

the participant’s behalf (for example,

through an intermediary empowered to

commit the participant to participate in

the shelter).

(v) Special rule for controlled entities.

A person (first person) will be treated as

participating indirectly in a confidential

corporate tax shelter if a foreign person

controlled by the first person participates

in the shelter, and a significant purpose of

the shelter is the avoidance or evasion of

the first person’s Federal income tax. For

purposes of this paragraph (g)(2)(v), control of a foreign corporation or partnership will be determined under the rules of

section 6038(e)(2) and (3), except that

such section shall be applied by substituting “10” for “50” each place it appears

760

and “at least” for “more than” each place

it appears. In addition, section 6038(e)(2)

shall be applied for these purposes without regard to the constructive ownership

rules of section 318 and by treating stock

as owned if it is owned directly or indirectly. Section 6038(e)(3) shall be applied for these purposes without regard to

the last sentence of section 6038(e)(3)(B).

Any beneficiary with a 10 percent or

more interest in a foreign trust or estate

shall be treated as controlling that trust or

estate for purposes of this paragraph

(g)(2)(v).

(vi) Other rules—(A) For purposes of

the registration requirements under section 6111(d)(3), it is presumed that the tax

shelter promoters will receive fees in excess of $100,000 in the aggregate unless

the person responsible for registering the

tax shelter can show otherwise.

(B) Any person treated as a tax shelter

promoter under section 6111(d) solely by

reason of being related (within the meaning of section 267 or 707) to a foreign

promoter will be treated as a foreign promoter for purposes of this paragraph

(g)(2).

(h) Effective date. This section applies

to confidential corporate tax shelters in

which any interests are offered for sale

after February 28, 2000. If an interest is

sold after February 28, 2000, it is treated

as offered for sale after February 28,

2000, unless the sale was pursuant to a

written binding contract entered into on or

before February 28, 2000.

Par. 3. In §602.101, paragraph (b) is

amended by adding an entry for

§301.6111–2T to read as follows:

§602.101 OMB Control numbers.

*****

(b) * * *

Charles O. Rossotti,

Commissioner of Internal Revenue.

Approved February 23, 2000.

Jonathan Talisman,

Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on February 28, 2000, 8:45 a.m., and published in the issue

of the Federal Register for March 2, 2000, 65 F.R.

11215)

2000–11 I.R.B.

CFR Part or Section Where

Identified and Described

Current OMB

Control No.

*****

301.6111–2T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545–1687

*****

Section 6112.— Organizers and

Sellers of Potentially Abusive

Tax Shelters Must Keep Lists of

Investors

26 CFR 301.6112–1T: Questions and answers

relating to the requirement to maintain a list of

investors in potentially abusive tax shelters

(Temporary).

T.D. 8875

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 301 and 602

Requirements to Maintain List of

Investors in Potentially Abusive

Tax Shelters

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations requiring the maintenance of lists of investors in potentially

abusive tax shelters described in section

6112. The temporary regulations affect

organizers of potentially abusive tax shelters. The text of these temporary regulations also serves as the text of the proposed regulations set forth in the notice of

proposed rulemaking on this subject in

REG–103736–00, page 768.

DATES: Effective date. These temporary

regulations are effective February 28,

2000.

Applicability date. For dates of applicability, see A-22 of §301.6112–1T of these

regulations.

FOR FURTHER INFORMATION CONTACT: Richard Castanon, (202) 6223080, or Mary Beth Collins, (202) 6223070, (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

2000–11 I.R.B.

These regulations are being issued

without prior notice and public procedure

pursuant to the Administrative Procedure

Act (5 U.S.C. 553). For this reason, the

collections of information contained in

these regulations have been reviewed

and, pending receipt and evaluation of

public comments, approved by the Office

of Management and Budget under control number 1545-1686. Responses to

these collections of information are

mandatory.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless the collection of information displays a valid

OMB control number.

For further information concerning these

collections of information, and where to

submit comments on the collections of information and the accuracy of the estimated

burden, and suggestions for reducing this

burden, please refer to the preamble to the

cross-referencing notice of proposed rulemaking REG–103736–00, page 768.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by 26 U.S.C. 6103.

Background

This document amends 26 CFR part

301 regarding the requirement to maintain

lists of investors in potentially abusive tax

shelters under section 6112. Section 6708

provides penalties for failing to maintain

the investor list under section 6112.

The temporary regulations have been

drafted in question and answer format.

No inference should be drawn regarding

issues not raised or because certain questions and not others are included. The

temporary regulations contained in this

document will remain in effect until additional temporary or final regulations are

761

published in the Federal Register.

Explanation of Provisions

I. Potentially Abusive Tax Shelter

Section 6112 provides that any person

who organizes or sells any interest in a

potentially abusive tax shelter must

maintain a list identifying each person

who was sold an interest in such shelter.

A potentially abusive tax shelter under

section 6112 includes any investment that

is required to be registered with the IRS

as a tax shelter under section 6111, and

any other entity, plan, or arrangement, if

specified in regulations, that has a potential for tax avoidance or evasion. Any

person who is required to maintain a list

under section 6112 must make the list

available for inspection upon request by

the Secretary of the Treasury, and generally must retain any information required

to be included on the list for seven years.

References in these regulations to the

term “transaction” include all of the factual elements necessary to support the tax

benefits that are expected to be claimed

with respect to any entity, plan, or

arrangement, including any series of related steps carried out as part of a prearranged plan.

Section 6112 authorizes the Secretary

of the Treasury to specify in regulations

transactions other than those subject to

registration under section 6111 that have a

potential for tax avoidance or evasion.

The conference report accompanying section 6112 explains that “in designating

these other arrangements, the Secretary

may, for example, specifically identify

types of investments, or may provide that

any investment falling within a modified

form of the definition of tax shelter for

registration purposes is subject to the listing requirement.” H.R. CONF. REP. NO.

861, 98th Cong., 2d Sess. 982 (1984).

Concurrent with the addition of these

amendments to the temporary regulations

March 13, 2000

under section 6112, the Service has issued

temporary and proposed regulations

under section 6111(d) relating to the registration of confidential corporate tax

shelters. These regulations under section

6112 follow a modified form of the definition of a confidential corporate tax shelter under section 6111(d)(1) for purposes

of defining the potentially abusive tax

shelters that are subject to the list requirement under section 6112. Under the modified definition, as under section

6111(d)(1)(A), the term “potentially abusive tax shelter” includes a transaction for

which a significant purpose of the structure of the transaction is the avoidance or

evasion of Federal income tax. The rules

set forth in the temporary regulations

under section 6111(d) are applicable in

determining whether a significant purpose

of the structure of a transaction is the

avoidance or evasion of Federal income

tax.

For purposes of section 6112, the definition of tax shelter under section

6111(d)(1) has been modified in two respects: (1) the limitation of section

6111(d)(1)(B) to transactions offered to

any potential participant under conditions

of confidentiality does not apply for purposes of section 6112; and (2) the limitation of section 6111(d)(1)(C) to transactions in which the promoters may receive

fees in excess of $100,000 does not apply

for purposes of section 6112. Therefore,

certain categories of transactions that are

not subject to registration under section

6111 may be subject to the list requirement of section 6112, including any nonconfidential transactions offered directly

or indirectly to corporate participants a

significant purpose of the structure of

which is the avoidance or evasion of Federal income tax within the meaning of

section 6111(d) and the regulations thereunder.

Section 301.6111–2T provides a procedure for obtaining rulings as to whether a

transaction is subject to registration under

§301.6111–2T. The same procedure shall

be available to a person who is uncertain

whether a transaction constitutes a potentially abusive tax shelter for which a list

must be maintained under section 6112,

and the requirement to maintain a list

available for inspection by the Secretary

shall be suspended during the period that

such ruling request is pending and for

March 13, 2000

sixty days thereafter.

II. Organizer Also Includes Promoter

The regulations provide that for purposes of the list requirement, an organizer

includes a promoter as defined in section

6111(d)(2), as well as any person designated as an organizer under the existing

temporary regulations. A promoter is any

person who participates in the organization, management, or sale of the tax shelter or any related person (within the

meaning of section 267 or 707).

III. Information to be Included on List

Section 6112 authorizes the Secretary

of the Treasury to specify the information

that organizers and sellers of interests in

potentially abusive tax shelters are required to include as part of the lists of persons who were sold interests in the tax

shelters. The temporary regulations modify the information that must be included

as part of the lists and made available for

inspection by the IRS. The regulations

provide that in addition to the information

currently required under A-17 of

§301.6112–1T, each list must include (1)

a detailed description of the tax shelter

that describes both the structure of the tax

shelter and the intended tax benefits for

participants in the tax shelter, (2) the

amount of money invested or to be invested by each person who is required to

be included on the list, (3) a summary or

schedule of the tax benefits that each such

person is intended or expected to derive

from participation in the tax shelter, if

known by the organizer or seller, and (4)

copies of any additional written materials,

including tax analyses and opinions, relating to the tax shelter that have been given

to any potential participant in the tax shelter or to any representatives, tax advisors,

or agents of potential participants by the

organizer or seller or by any other person

who has participated in the offering of the

tax shelter (excluding any written materials that the organizer or seller has never

possessed).

Generally, a separate list must be maintained for each potentially abusive tax

shelter. Moreover, the temporary regulations provide that interests in substantially

similar tax shelter transactions that are

sold to different persons generally are to

be treated as interests in the same tax

shelter for purposes of section 6112. To

762

ensure that the IRS is able to identify all

of the tax shelters that have been offered

by an organizer or seller and that are

structured in a similar manner, the regulations further provide that the list for each

tax shelter must identify each other tax

shelter (if any) that the organizer or seller

has offered that has not been treated as

part of the same tax shelter, but that utilizes a similar structure or is intended to

produce similar tax benefits.

It is recognized that, in the absence of a

limitation on the disclosure obligation

under section 6112, there could be situations in which section 6112 and the temporary regulations would require an organizer or a seller of a potentially abusive

tax shelter to disclose information that is

otherwise protected by the common law

attorney-client privilege or by the privilege for confidential tax advice under section 7525(a). The temporary regulations

provide that, in any case in which an organizer or a seller of a potentially abusive

tax shelter believes that information required to be maintained as part of the list

for that tax shelter is protected by the attorney-client privilege or constitutes confidential tax advice protected under section 7525(a), such information may be

withheld from disclosure to the Service,

provided that the organizer or seller provides the Service with a statement signed

under penalties of perjury with information and representations required in that

statement that are the same as those required by the regulations under section

6111(d) if the promoter of a confidential

corporate tax shelter asserts that information required to be included with Form

8264, “Application for Registration of a

Tax Shelter,” is privileged.

IV. Effective Date

An organizer or a seller must maintain

a list with respect to any interest acquired

by an investor in a potentially abusive tax

shelter after February 28, 2000. If a transaction becomes a potentially abusive tax

shelter after interests are acquired by investors, an organizer or a seller must

maintain a list with respect to any interest

in the transaction acquired after the transaction becomes a potentially abusive tax

shelter. Additionally, the IRS will not ask

to inspect any list for a potentially abusive

tax shelter, other than a tax shelter described in section 6111(c), until August

2000–11 I.R.B.

26, 2000. The lists required by the preceding two sentences with regard to interests acquired in potentially abusive tax

shelters must contain the information required by A-17 of this section as it relates

to such interests. The rules that apply

with respect to interests acquired in potentially abusive tax shelters on or before

February 28, 2000, are contained in 26

CFR part 301 revised as of April 1, 1999.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations

will not have a significant economic impact on a substantial number of small entities. This certification is based upon the

fact that persons responsible for maintaining the investor lists described in the regulations are principally large publicly

traded corporations and the burden is not

significant, as described in the preamble.

Therefore, a Regulatory Flexibility

Analysis under the Regulatory Flexibility

Act (5 U.S.C. chapter 6) is not required.

Pursuant to section 7805(f) of the Internal

Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on its impact

on small business.

Drafting Information

The principal authors of these regulations are Mary Beth Collins and Richard

Castanon, Office of Chief Counsel

(Passthroughs and Special Industries).

However, other personnel from the IRS

and Treasury Department participated in

their development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 301 and

602 are amended as follows:

PART 301—PROCEDURE AND

ADMINISTRATION

2000–11 I.R.B.

Paragraph 1. The authority citation for

part 301 is amended by adding an entry in

numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 301.6112–1T also issued under

26 U.S.C. 6112.* * *

Par. 2. Section 301.6112–1T is

amended as follows:

1. The last sentence of A-3 is revised.

2. A-4 is revised.

3. Two sentences are added at the end

of A-5.

4. A sentence is added at the end of A7.

5. Paragraph (c) of A-8 is revised.

6. The first sentence of A-9 is removed

and two new sentences are added in its

place.

7. The second sentence of the introductory text of A-11 is revised.

8. Paragraphs (a) and (b) of A-13 are

revised.

9. A-14 is revised.

10. The first sentence of the introductory text of A-15 is revised.

11. A-17 is revised.

12. Two sentences are added at the end

of A-18.

13. A-22 is revised.

The additions and revisions read as follows:

§301.6112–1T Questions and answers relating to the requirement to maintain a list

of investors in potentially abusive tax

shelters (temporary).

*****

A-3. * * * See §301.6111–1T for rules

relating to tax shelter registration and

§301.6111–2T for rules relating to confidential corporate tax shelter registration.

*****

A-4. (a) Yes. For purposes of the list

requirement, a tax shelter includes any tax

shelter that is a projected income investment, as defined in A-57A of

§301.6111–1T, and any transaction a significant purpose of the structure of which

is the avoidance or evasion of Federal income tax within the meaning of section

6111(d)(1)(A) and §301.6111–2T(b). For

this purpose, as under §301.6111–2T, the

term transaction includes all of the factual elements necessary to support the tax

benefits that are expected to be claimed

with respect to any entity, plan, or

arrangement, including any series of related steps carried out as part of a prearranged plan.

763

(b) Section 301.6111–2T provides a

procedure for obtaining rulings as to

whether a transaction is subject to registration under §301.6111–2T. The same

procedure shall be available to a person

who is uncertain whether a transaction

constitutes a tax shelter for which a list

must be maintained under this section.

The requirement to make a list which contains the information required by this section available for inspection by the Secretary shall be suspended during the period

that such ruling request is pending and for

sixty days thereafter; however, if it is ultimately determined that the transaction is a

tax shelter, the pendency of such a ruling

request shall not affect the requirement to

maintain the list or limit the participants

required to be included on the list or the

other information required to be included

as part of the list.

*****

A-5. * * * An organizer also includes a

promoter described in section 6111(d)(2).

Under section 6111(d)(2), a promoter is

any person who participates in the organization, management, or sale of the tax

shelter or any related person (within the

meaning of section 267 or 707).

*****

A-7. * * * In addition, in any case in

which a person has directly or indirectly

paid consideration to an organizer or

seller for the right to participate in a tax

shelter, for services necessary to the organization or structure of such tax shelter, or

for information that is integral to participation in such tax shelter, the participant

shall be considered to have acquired an

interest in the tax shelter and to have been

sold an interest in the tax shelter by the

organizer or seller.

*****

A-8. * * * (c) Any transfer of an interest made by or through a person related

(as defined in section 465(b)(3)(C)) to the

organizer or the tax shelter (provided the

organizer is involved in the tax shelter on

the date of the transfer);

*****

A-9. An organizer has a duty to make a

reasonable inquiry only with respect to

transfers of interests in the tax shelter

made by a seller described in paragraph

(a) of A-6 of this section who acquired the

interests from the organizer or a person

related (as defined in section

465(b)(3)(C)) to the organizer, or the tax

March 13, 2000

shelter or a person related (as defined in

section 465(b)(3)(C)) to the tax shelter

(provided the organizer is involved in the

tax shelter on the date the interest is transferred to the seller). See Q&A-8 of this

section. * * *

*****

A-11. * * * Organizers and sellers may

not designate one person to maintain a list

for the tax shelter, however, unless the tax

shelter is timely and properly registered

under section 6111 or unless the tax shelter is described in Q&A-4 of this section.* * *

*****

A-13. (a) If the tax shelter is required to

be registered under section 6111 at the

time an agreement under A-12 of this section is signed, a seller or an organizer who

signs the agreement shall not be subject to

penalty under section 6708 for failing to

maintain a list provided that the seller or

organizer—

(1) Submits to the designated person all

of the information that the organizer or

seller otherwise would be required to

maintain on a list (as described in A-8, A10, and A-17 of this section); and

(2) Provides to each investor (within

the meaning of paragraph (c) of A-6 of

this section) otherwise required to be included on a list maintained by such organizer or seller a notice in the form prescribed in paragraph (c) of this A-13.

(b) If the tax shelter is described in A-4

of this section at the time an agreement

under A-12 of this section is signed, a

seller or an organizer who signs the agreement shall not be subject to penalty under

section 6708 for failing to maintain a list

provided that the seller or organizer submits to the designated person all of the information that the organizer or seller otherwise would be required to maintain on a

list (as described in A-8, A-10, and A-17

of this section). If the tax shelter ceases

to be a projected income investment

under A-57G of §301.6111–1T, or the tax

shelter becomes subject to the registration

requirements under section 6111, the designated person must provide to each investor (within the meaning of paragraph

(c) of A-6 of this section) required to be

included on the list an explanation that the

tax shelter has ceased to be projected income investment or that the tax shelter is

subject to the registration requirements of

section 6111, whichever applies, and a

March 13, 2000

notice substantially in the form prescribed

in paragraph (c) of this A-13.

*****

A-14. Yes. Any seller described in

paragraph (a) of A-6 of this section who

does not sign a designation agreement

under A-12 of this section (including organizers who are such sellers) with respect to a tax shelter that is required to be

registered under section 6111 must provide a notice to all investors (within the

meaning of paragraph (c) of A-6 of this

section) who acquire interests in the tax

shelter from the seller. The notice must

be substantially in the form prescribed in

paragraph (c) of A-13 of this section except that the notice must include the name

and address of the designated person. In

the case of a tax shelter described in A-4

of this section, a notice to investors need

not be provided until such time, if any, as

the tax shelter ceases to be a projected income investment under A-57G of

§301.6111–1T, or the tax shelter becomes

subject to the registration requirements

under section 6111. In such a case, the

seller shall provide, with the notice, an

explanation that the tax shelter has ceased

to be a projected income investment, or

that the tax shelter has otherwise become

subject to the registration requirements

under section 6111, whichever applies.

*****

A-15. An investor who retransfers an

interest in a tax shelter that is described in

A-4 of this section, is not required to

maintain a list with respect to the retransfer unless prior to the retransfer the tax

shelter ceases to be a projected income investment under A-57G of §301.6111–1T

or otherwise becomes subject to the registration requirements under section 6111.

*****

A-17. (a) A list must contain the following information—

(1) The name of the tax shelter and the

registration number, if any, obtained

under section 6111;

(2) The TIN (as defined in section

7701(a)(41)), if any, of the tax shelter;

(3) The name, address, and TIN (as defined in section 7701(a)(41)) of each person who is required to be included on the

list under A-8 or A-10 of this section and,

in the case of a tax shelter that is a transaction described in section 6111(d)(1)(A)

and §301.6111–2T(b), the name, address,

and TIN of any indirect corporate partici-

764

pant in the shelter if known to the organizer or seller;

(4) If applicable, the number of units

(i.e., percentage of profits, number of

shares, etc.) acquired by each person who

is required to be included on the list;

(5) The date on which each interest was

acquired;

(6) The amount of money invested in

the tax shelter by each person required to

be included on the list under A-8 or A-10

of this section;

(7) A detailed description of the tax

shelter that describes both the structure of

the tax shelter and the intended tax benefits for participants in the tax shelter;

(8) A summary or schedule of the tax

benefits that each person is intended or

expected to derive from participation in

the tax shelter, if known by the organizer

or seller;

(9) Copies of any additional written

materials, including tax analyses or opinions, relating to the tax shelter that have

been given to any potential participants in

the tax shelter or to any representatives,

tax advisors, or agents of such potential

participants by the organizer or seller or

by any other person who has participated

in the offering of the tax shelter (excluding any written materials that the organizer or seller has never possessed);

(10) If the interest was not acquired

from the person maintaining the list, the

name of the person from whom the interest was acquired; and

(11) The name and address of each

agent of the person maintaining the list

who is described in paragraph (b) of A-6

of this section.

(b) In any case in which an organizer or

a seller of a potentially abusive tax shelter

believes that information required to be

maintained as part of the list for that tax

shelter is protected by the attorney-client

privilege or constitutes confidential tax

advice protected under section 7525(a),

such information may be withheld from

disclosure to the Service, provided that

the organizer or seller provides the Service with a statement signed under penalties of perjury with information and representations required in that statement that

are the same as those required by

§301.6111–2T if the promoter of a confidential corporate tax shelter asserts that

information required to be included with

Form 8264, “Application for Registration

2000–11 I.R.B.

of a Tax Shelter,” is privileged.

*****

A-18. * * * Interests in substantially

similar tax shelter transactions that are

sold to different persons generally are to

be treated as interests in the same tax

shelter for purposes of this section. Further, the list for each tax shelter must

identify each other tax shelter (if any) that

the organizer or seller has offered that has

not been treated as part of the same tax

shelter, but that utilizes a similar structure

or is intended to produce similar tax benefits.

*****

A-22. An organizer or seller must

maintain a list with respect to any interest

acquired by an investor (within the meaning of paragraph (c) of A-6 of this section)

in a potentially abusive tax shelter after

February 28, 2000. If a transaction be-

comes a potentially abusive tax shelter

after interests are acquired by investors,

an organizer or a seller must maintain a

list with respect to any interest in the

transaction acquired after the transaction

becomes a potentially abusive tax shelter.

Additionally, the Internal Revenue Service will not ask to inspect any list for a

potentially abusive tax shelter, other than

a tax shelter described in section 6111(c),

until August 26, 2000. The lists required

by the preceding two sentences with regard to interests acquired in potentially

abusive tax shelters must contain the information required by A-17 of this section

as it relates to such interests. The rules

that apply with respect to interests acquired in potentially abusive tax shelters

acquired on or before February 28, 2000,

are contained in 26 CFR part 301 revised

as of April 1, 1999.

CFR Part or Section Where

Identified and Described

Par. 3. In §602.101, paragraph (b) is

amended by revising the entry for

§301.6112–1T to read as follows:

§602.101 OMB Control numbers.

*****

(b) * * *

Charles O. Rossotti,

Commissioner of Internal Revenue.

Approved February 23, 2000.

Jonathan Talisman,

Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on February 28, 2000, 8:45 a.m. , and published in the issue

of the Federal Register for March 2, 2000, 65 F.R.

11211)

Current OMB

Control No.

*****

301.6112–1T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545–0865

1545-1686

*****

2000–11 I.R.B.

765

March 13, 2000

Part III. Administrative, Procedural, and Miscellaneous

26 CFR 601.201: Rulings and determination

letters.(Also Part I, §§412, 4971.)

This revenue procedure provides for a

waiver of the 100 percent tax imposed

under § 4971(b) of the Internal Revenue

Code (the “Code”) on an employer who

maintains a pension plan for which there

is an accumulated funding deficiency

under § 412. The waiver is applicable to

certain terminated single-employer defined benefit plans if specific conditions

are satisfied.

(“ERISA”), Pub. L. 93–406, 1974–3 C.B.

166, provides that the Secretary of the

Treasury may waive the imposition of the

tax imposed under § 4971(b) of the Code

in appropriate cases.

.04 Rev. Rul. 79–237, 1979–2 C.B.

190, provides that in the year of termination of a plan, the tax imposed by §

4971(b) applies unless the accumulated

funding deficiency, as of the end of the

plan year in which the plan is terminated,

is reduced to zero.

.05 Rev. Proc. 81–44, 1981–2 C.B.

618, outlines the procedure for requesting

a waiver of the tax imposed under §

4971(b).

Section 2. Background

Section 3. Conditions for Waiver

.01 Section 4971(a) provides for the

imposition of an initial tax of ten percent

(five percent in the case of a multiemployer plan) on the amount of the accumulated funding deficiency under a plan

as determined under § 412.

.02 Section 4971(b) provides for an

additional tax equal to 100 percent of any

uncorrected accumulated funding deficiency on which an initial tax is imposed

under § 4971(a).

.03 Section 3002(b) of the Employee

Retirement Income Security Act of 1974

The tax imposed on an employer under

§ 4971(b) for failure to meet the minimum funding standards with respect to a

defined benefit plan is waived for all applicable years, if the four conditions enumerated below are satisfied:

.01 The plan is subject to Title IV of

ERISA and is terminated in a standard termination under section 4041 of ERISA.

.02 Plan participants are not entitled to

any portion of residual assets remaining

after all liabilities of the plan to participants

and their beneficiaries have been satisfied.

Rev. Proc. 2000–17

Section 1. Purpose

March 13, 2000

766

.03 Excise taxes that have been or

could be imposed under § 4971(a) of the

Code have been paid for all taxable years,

including the taxable year related to the

year of plan termination.

.04 All applicable forms in the 5500 series, including Schedules B (Actuarial Information), have been filed for the plan

for all plan years including the year of

plan termination.

Section 4. Effective Date

This procedure applies to the excise

taxes under § 4971(b) of the Code with

respect to plans terminating with termination dates under section 4041 of ERISA

that occur on or after January 1, 2000.

Drafting Information

The principal author of this revenue

procedure is Bill Kerr of the Tax Exempt

and Government Entities Division. For

further information regarding this revenue

procedure, call Employee Plans Taxpayer

Assistance at (202) 622-6076 (not a toll

free number) between 2:30 and 3:30 Eastern time, Monday through Thursday. Mr.

Kerr’s number is (202) 622-8055 (also

not a toll free number).

2000–11 I.R.B.

Part IV. Items of General Interest

Notice of Proposed Rulemaking

and Notice of Public Hearing

Corporate Tax Shelter

Registration

REG–110311–98

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Cross-reference notice of proposed rulemaking and notice of public

hearing.

SUMMARY: In T.D. 8876, page 753, the

IRS is issuing temporary regulations requiring the registration of confidential corporate

tax shelters pursuant to section 6111(d) as

amended by section 1028(a) of the Taxpayer Relief Act of 1997 (the Act). The

temporary regulations affect persons responsible for registering confidential corporate tax shelters and corporations participating in confidential corporate tax shelters.

The text of those temporary regulations also

serves as the text of these proposed regulations. This document also gives notice of a

public hearing on this subject.

DATES: Written comments must be received by May 31, 2000. Requests to

speak and outlines of topics to be discussed at the public hearing scheduled for

Tuesday, June, 20, 2000, from 10 a.m.

through 1 p.m. must be received by May

31, 2000.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–110311–98),

room 5226, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington, DC

20044. Submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (REG–110311–98),

Courier’s Desk, Internal Revenue Service,

1111 Constitution Avenue NW., Washington

DC. Alternatively, taxpayers may submit

comments electronically via the Internet by

selecting the “Tax Regs” option of the IRS

Home Page or by submitting comments directly to the IRS Internet site at

http://www.irs.gov/tax_regs/regslist.html. A

public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations,

2000–11 I.R.B.

Richard Castanon or Mary Beth Collins,

(202) 622-3070; concerning submissions

and the hearings, Guy Traynor, (202)6227180.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of

Management and Budget for review in accordance with the Paperwork Reduction

Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections of information

should be sent to the Office of Management and Budget, Attn: Desk Officer for

the Department of the Treasury, Office of

Information and Regulatory Affairs,

Washington, DC 20503, with copies to

the Internal Revenue Service, Attn: IRS

Reports Clearance Officer, OP:FS:FP,

Washington, DC 20224. Comments on

the collections of information should be

received by May 1, 2000. Comments are

specifically requested concerning:

Whether the proposed collections of information is necessary for the proper performance of the functions of the Internal

Revenue Service, including whether the

information will have practical utility;

The accuracy of the estimated burden

associated with the proposed collection of

information (see below);

How the quality, utility, and clarity of

the information to be collected may be

enhanced;

How the burden of complying with the

proposed collections of information may

be minimized, including through the

application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs

and costs of operation, maintenance, and

purchase of service to provide

information.

The collections of information in this

proposed

regulation

are

in

§301.6111–2T(b)(6), (e)(1)(ii)(A), (e)(2),

(e)(3), (g)(2)(ii) and (g)(2)(iii). This information is required to comply with the

registration requirements of section

6111(d) and to avoid the penalty provisions of section 6707 for failing to register a confidential corporate tax shelter.

767

This information will be used to ensure

compliance with the Federal tax laws.

The collections of information are mandatory. The likely respondents and recordkeepers are business or other for-profit institutions.

The burden for the collection of information in §301.6111–2T(b)(6), (e)(1)(ii)(A),

(e)(2), and (e)(3) will be reflected on Form

8264. The burden for the collection of information in §301.6111–2T(g)(2)(ii) and

(iii) is as follows:

Estimated total annual reporting and/or

recordkeeping burden: 1 hour.

Estimated average annual burden hours

per respondent and/or recordkeeper: 15

minutes

Estimated number of respondents

and/or recordkeepers: 4

Estimated annual frequency of responses: On occasion

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless it displays a valid control number assigned by

the Office of Management and Budget.

Books or records relating to a collection of information must be retained as

long as their contents may become

material in the administration of any internal revenue law. Generally, tax returns

and tax return information are confidential, as required by 26 U.S.C. 6103.

Background

The temporary regulations amend the

Income Tax Regulations (26 CFR part 1)

relating to section 6111. These regulations provide the guidance necessary to

activate the registration requirements of

section 6111 and the penalty provisions of

section 6707 for confidential corporate

tax shelters.

The text of the temporary regulations

also serves as the text of these proposed

regulations. The preamble to the temporary regulations explains the regulations.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has

also been determined that section 553(b)

March 13, 2000

of the Administrative Procedure Act (5

U.S.C. chapter 5) does not apply to these

regulations. It is hereby certified that the

collection of information in these regulations will not have a significant economic

impact on a substantial number of small

entities. This certification is based upon

the fact that the persons responsible for

promoting and registering the transactions

described in the regulations are principally large publicly traded corporations,

and the burden is not significant as described earlier in the preamble. Therefore, a Regulatory Flexibility Analysis

under the Regulatory Flexibility Act (5

U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal

Revenue Code, this notice of proposed

rulemaking will be submitted to the Chief

Counsel for Advocacy of the Small Business Administration for comment on its

impact on small business.

immediate entrance area more than 15

minutes before the hearing starts. For information about having your name placed

on the access list to attend the hearing, see

the “FOR FURTHER INFORMATION

CONTACT” section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply

to the hearing. Persons who wish to present

oral comments at the hearing must submit

timely written comments and an outline of

the topics to be discussed and the time to be

devoted to each topic (signed original and

eight (8) copies) by May 31, 2000. A period of 10 minutes will be allotted to each

person for making comments. An agenda

showing the scheduling of the speakers will

be prepared after the deadline for receiving

outlines has passed. Copies of the agenda

will be available free of charge at the hearing.

Comments and Public Hearing

The principal authors of these regulations are Mary Beth Collins and Richard

Castanon, Office of Assistant Chief Counsel (Passthroughs and Special Industries).

However, other personnel from the IRS

and Treasury Department participated in

their development.

* * * * *

Before these proposed regulations are

adopted as final regulations, consideration will be given to any written comments (preferably a signed original and

eight (8) copies) or electronically generated comments that are submitted timely

to the IRS. The IRS and Treasury specifically request comments on the clarity of

the proposed regulations and how they

may be made easier to understand.

Further, the IRS and Treasury specifically request comments on (1) the scope

and breadth of the characteristics used in

the proposed regulations to identify transactions structured for the avoidance or

evasion of Federal income tax; (2) the exceptions to registration provided for in the

proposed regulations; and (3) whether

particular types of transactions should be

identified as excepted from registration.

All comments will be available for public

inspection and copying.

A public hearing has been scheduled

for June 20, 2000, from 10 a.m. through 1

p.m., in the IRS Auditorium, Internal

Revenue Building, 1111 Constitution Avenue NW., Washington, DC. Due to

building security procedures, visitors

must enter at the 1111 Constitution Avenue entrance, located between 10th and

12th streets. In addition, all visitors must

present photo identification to enter the

building. Because of access restrictions,

visitors will not be admitted beyond the

March 13, 2000

Drafting Information

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for

part 301 is amended by adding an entry in

numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 301.6111–2T also issued under

26 U.S.C. 6111(f)(4). * * *

Par. 2. Section 301.6111–2 is added to

read as follows:

§301.6111–2 Confidential corporate tax

shelters.

[The text of this proposed section is the

same as the text of §301.6111–2T published elsewhere in T.D. 8876.]

Charles O. Rossotti,

Commissioner of Intern

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