Sec. 6708 regs. permit material advisers to request extension

BY SALLY P. SCHREIBER, J.D.
March 7, 2013

On Thursday, the IRS issued proposed regulations under Sec. 6708 governing the penalty for failure of material advisers to provide lists of advisees (i.e., investors) in reportable transactions (as required by Sec. 6112), which applies if the advisers do not supply the lists to the IRS within 20 business days after a written request (REG-160873-04). The proposed regulations define when the 20-day period starts, outline how the lists may be delivered, and allow for extensions of the period.

The penalty for failure to provide the list is $10,000 for each day after the 20-day period until the list is provided, with no maximum penalty. Under Sec. 6708(a)(2), no penalty is imposed for any day on which there is reasonable cause for the failure.

Prop. Regs. Sec. 301.6708-1(b) starts the 20-business-day period on the first business day following the earlier of the date that the IRS (1) mails by certified or registered mail the request for the list to the person required to maintain the list; (2) hand delivers the request for the list directly to that person; or
(3) leaves the list request at that person’s last and usual place of abode or usual place of business.

To comply with the requirement to provide the list, that person may deliver the list to the IRS by either hand delivery, U.S. mail, or a private delivery service; or may arrange with the IRS to produce the list by another agreed-upon method within the 20-business-day period after the list request (Prop. Regs. Sec. 301.6708-1(c)). 

Because there are situations in which material advisers cannot comply with the request for a list within 20 days, the IRS is permitting persons to request an extension of the 20-business-day response period under Prop. Regs. Sec. 301.6708-1(c)(3). The IRS will grant an extension at its discretion if, before the 20-business-day period expires, the person establishes that the person cannot reasonably meet the 20-business-day deadline despite diligent efforts to maintain the materials for the list.

The IRS may grant the person’s extension request in full or in part, and the IRS’s failure to grant the person’s extension request in full or in part is not subject to judicial review. Because the penalty is a “time-sensitive” penalty, the IRS says it will not grant extensions when a significant reason for the request is to delay producing the list. The regulations require people who are requesting extensions to provide certain information (Prop. Regs. Sec. 301.6708-1(c)(3)(ii)).

The IRS has scheduled a public hearing on July 2 in Washington, D.C., and is requesting comments on the proposed rules. It is particularly interested in comments on the following issues that are related to the request for an extension of time to provide a requested list:

  • Whether the IRS needs the information it is proposing to collect, including whether the information will have practical utility;
  • The accuracy of the estimated burden associated with the proposed collection of information or of the certification;
  • How to improve the quality, utility, and clarity of the information to be collected;
  • How to minimize the burden of complying with the proposed collection of information; and
  • Estimates of capital or startup costs and costs of operation, maintenance, and purchases of service to provide the information.


The regulations are proposed to apply to written requests for lists made after the rules are published as final in the Federal Register, but taxpayers are permitted to rely on the rules for list requests before that date.

Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

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