The U.S. Treasury Department and the Internal Revenue Service have released amended “disclosure and list-maintenance” regulations, as part of ongoing efforts to address so-called abusive tax avoidance transactions.

Specifically, the regulations relate to a **”Requirement to Maintain a List of Investors in Potentially Abusive Tax Shelters”** and **”Tax Shelter Disclosure Statements”.** *(See links to both below)*

The first relate to the preparation, maintenance, and furnishing of lists of persons in potentially abusive tax shelters and apply to organisers and sellers of potentially abusive tax shelters.

The second modify the rules relating to the filing by certain taxpayers of a disclosure statement with their Federal tax returns, include conforming changes to the rules relating to the registration of confidential corporate tax shelters, and affect taxpayers participating in reportable transactions and persons responsible for registering confidential corporate tax shelters.

Effective Date for both regulations is January 1, 2003.

**Shutting Down Abusive Tax Avoidance Transactions**

A statement from Treasury advises that the amended regulations strengthen the rules for the disclosure by taxpayers of their participation in potentially abusive tax avoidance transactions and the maintenance of lists by promoters of taxpayers who have entered into such transactions.

Assistant Secretary for Tax Policy Pam Olson said Treasury is continuing its efforts to identify and shut down abusive tax avoidance transactions as quickly as possible, and that the new regulations will improve the system by helping the agency get the information needed to identify questionable transactions. She said, *”Getting the information is the first step in speeding up the process of getting out guidance to let taxpayers know that transactions may not work as advertised. The amended regulations improve the rules requiring taxpayers to disclose potentially questionable transactions on their returns and requiring promoters to maintain customer lists for the same transactions.”* According to Ms. Olson, the changes will provide greater clarity and make it easier for taxpayers and promoters to understand and comply with their obligations.

It is felt that a consistent definition of a transaction that must be disclosed will significantly enhance compliance and administration.

The six categories of transactions that taxpayers will be required to disclose, and on which promoters will be required to maintain investor lists are:

(1) Listed transactions (i.e., transaction that have been specifically identified by the IRS as tax avoidance transactions);

(2) Transactions marketed under conditions of confidentiality;

(3) Transactions with contractual protection (e.g., an indemnity in the event that the claimed tax benefits are not sustained);

(4) Transactions generating a tax loss exceeding specified amounts;

(5) Transactions resulting in a book-tax difference exceeding $10 million; and

(6) Transactions generating a tax credit when the underlying asset is held for a brief period of time.

These regulations will amend the existing temporary regulations under sections 6011 (taxpayer disclosure) and 6112 (promoter list maintenance) of the Code. Pending legislation would permit the Treasury Department to require promoters to register the same types of transactions with the IRS. The Treasury Department will amend the regulations under section 6111 (promoter registration) when such legislation is enacted.

The amended regulations generally apply to transactions entered into on or after January 1, 2003. The existing temporary regulations will continue to apply until that time.