Final regs. provide rules for assessment limitation period for undisclosed listed transactions

The IRS issued final regulations regarding the exception to the general three-year assessment limitation period for listed transactions that a taxpayer did not disclose as required under Sec. 6011.

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

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

The regulations finalize proposed regulations issued in 2009 (REG-160871-04) with four clarifications:

1. The one-year period in Sec. 6501(c)(10) serves only to extend the existing limitation period, and in no case will the application of the special rule for listed transactions cause the limitation period to end before the three-year period under the general rule in Sec. 6501(a).
2. If a taxpayer fails to disclose information related to a listed transaction, unless a material adviser furnishes the information in response to an IRS written request for the list, except in very limited circumstances, the one-year period will not begin. Accordingly, receipt of information from a person other than a material adviser with respect to the taxpayer will not satisfy the requirements.
3. Information received other than in response to a Sec. 6112 request for a list of a material adviser’s advisees, such as in response to an information document request or a summons, will not begin the one-year period.
4. If a material adviser furnishes the required information about a listed transaction but does not specifically identify the taxpayer who entered into it, the one-year period under Sec. 6501(c)(10)(B) will not be triggered for that taxpayer.

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

• T.D. 9718

—By Sally P. Schreiber, J.D., a JofA senior editor.