Tax shelters.

The IRS has issued temporary regulations (TD 9017) revising the categories of transactions that must be disclosed on returns under Temp. Regs. Sec. 1.6011-4T. (For background, see Sawyers, "Registration, Listing and Disclosure of Potentially Abusive Corporate Tax Shelters," TTA, Aug. 2000, p. 568.)

Under the current temporary regulations, taxpayers such as partnerships and S corporations must disclose their direct or indirect participation in "reportable transactions," defined in Temp. Regs. Sec. 1.6011-4T as a listed transaction or a transaction that meets two of five characteristics, satisfies a projected-tax-effect test and does not meet any of the provided exceptions.

The revised temporary regulations define a reportable transaction as one that falls into one of six categories. They eliminate the projected-tax-effect test and the general exceptions. The six categories of reportable transactions are:

1. Listed transactions.

2. Confidential transactions.

3. Transactions with contractual protection.

4. Loss transactions.

5. Transactions with a significant book-tax difference.

6. Transactions involving a brief asset holding period.

Definitions are provided for each category.

The new rules require all direct and indirect participants to disclose all reportable transactions. Participants must attach to their returns Form 8886, "Reportable Transaction Disclosure Statement," which will become available when the regulations become effective.

The temporary rules also permit taxpayers to request a ruling on whether a transaction must be disclosed. A transaction will not be a reportable transaction (or part of one) if the IRS determines--in published guidance or an administrative ruling--that it is not reportable and does not need to be disclosed. The temporary regulations will be effective on Jan. 1, 2003; the existing temporary regulations continue to be effective until then.

List maintenance: Another set of temporary regulations (TD 9018) requires organizers and sellers to maintain lists of investors in potentially abusive tax shelters.

Sec. 6112 requires any person who "organizes a potentially abusive tax shelter" or "sells any interest in such a shelter" to maintain a list of investors who bought an interest. Under the temporary regulations, a transaction will be treated as a potentially abusive tax shelter if it is a listed transaction or a "material adviser" knew or had reason to know that the transaction was a reportable one. A material adviser is someone who received (or expects to receive) at least $50,000 ($250,000, if the participants are corporations other than S corporations) in fees in the transaction, or provides a written or oral opinion as to the transaction's tax consequences.

The temporary rules outline how to compute a minimum fee and when the list requirement starts. Lists must be maintained for 10 years. The temporary regulations will generally be effective on Jan. 1, 2003, but can have retroactive effect.

Proposed regulations (REG-103735-00 and REG-103736-00) have also been issued to conform other regulations to the temporary provisions.