CCA 200950040: overview of tax shelter registration and investor-list penalties

Plain-English summary

This Chief Counsel Advice forwards slides summarizing promoter-penalty rules for tax shelters. The slides describe registration under IRC § 6111, the duty to maintain investor lists under § 6112, and penalties under §§ 6707 and 6708. They also outline tax shelter, material advisor, tax statement, and minimum-fee concepts, along with penalties for failing to provide or include registration information. The memorandum provides general internal guidance and does not decide a taxpayer's liability.

Ruling snapshot

• Question: What are the principal registration, investor-list, and penalty rules for tax shelters?
• Outcome: Advice given
• Key authorities: IRC §§ 6111, 6112, 6707, and 6708

Full text (IRS public release)

ID: CCA_2008112107450664 Number: 200950040
Release Date: 12/11/2009
Office: --------------
UILC: 6707.00-00, 6708.00-00

From: ------------------
Sent: Friday, November 21, 2008 7:45:10 AM
To: --------------------
Cc: ----------------------------------------------------------------------------
Subject: RE: Penalties

These are slides particular to promoter penalties. Probably too narrow for your purposes.

2

Promoter Penalties

TAX SHELTER REGISTRATION
REQUIREMENT- SECTION 6111

1. Registration-
   With IRS no later than first day offered
   for sale.
   Include Information identifying and
   describing the tax shelter.
   Include information describing the tax
   benefits represented or to be
   represented.

                           3
   

TAX SHELTER REGISTRATION
REQUIREMENT- SECTION 6111
continued
2. IRS assigns an identification number .

3. Organizer must provide identification
   number to investors.

4. Investors must include identification
   number on their returns.

TAX SHELTER REGISTRATION
REQUIREMENT- SECTION 6111
continued
5. Tax Shelter Definition
Tax benefits (credits and deductions)
meet a specified ratio to investment.
And
Meets technical registration
requirements under securities laws or
have > 5 investors with a total
investment > $250,000.

  Includes confidential corporate tax
  shelters.

                       4

PENALTY FOR FAILURE TO
REGISTER SHELTER-SECTION 6707

1. $500 or 1% of amount invested in
   shelter.

2. Confidential Corporate Shelters
   penalty > of $10,000 or 50% of fees
   paid to promoters (75% in the
   case of intentional acts).

PENALTY FOR FAILURE TO
FURNISH IDENTIFICATION NUMBER
TO INVESTORS - SECTION 6707

   $100 for each failure

                   5

PENALTY IMPOSED ON
TAXPAYER FOR FAILURE TO
INCLUDE REGISTRATION
NUMBER ON RETURN-
SECTION 6707

   $250 per failure

Reasonable cause exception

REQUIREMENT TO MAINTAIN LISTS
OF INVESTORS--Section 6112

1. Lists identifying investors in
   “potentially abusive tax
   shelters” must be maintained
   by “material advisors”

2. Lists must be made available to
   Secretary upon request

                                6
   

   DEFINITIONS -- Section 6112

“Potentially abusive tax shelters ”
Transactions required to be registered under
section 6111
Listed transactions (§1.6011-4(b)(2)) required
to be disclosed by the taxpayer
Other transactions that are, or are expected to
be, reportable transactions (§1.6011-4(b)(3)
through (7))
Interests in transactions that are transferred if
the type of transaction would be reportable
under §1.6011-4(b)

DEFINITIONS -- Section 6112
(cont’d)
“Transaction”
– Not specifically defined, but . . .
– Includes
All of the factual elements relevant to the expected tax treatment of an investment, entity, plan, or arrangement
Any series of steps carried out as part of a plan

7

DEFINITIONS -- Section 6112
(cont’d)
“Material advisor”
– Person required to register a transaction under
section 6111
– Person who meets a minimum fee requirement +
provides a “tax statement”
To or for the benefit of a person required to disclose the transaction under §1.6011-4
To or for the benefit of a person required to register under section 6111
To or for the benefit of a person who acquires an interest in a section 6111 tax shelter
To or for the benefit of certain transferees of interests in reportable transactions

DEFINITIONS -- Section 6112
(cont’d)
“Tax statement” –
– Oral or written statement
– that relates to a tax aspect of a transaction
and
– that causes the transaction to be a reportable
transaction or a section 6111 tax shelter

8

DEFINITIONS -- Section 6112
(cont’d)
“Minimum fee” (fee is per transaction)
– Listed transactions
$25,000 if persons for whose benefit the tax statement is made are corporations
$10,000 for all others
– Other transactions
$250,000 if persons for whose benefit the tax statement is made are corporations
$50,000 for all others

PENALTY FOR FAILURE TO
MAINTAIN LIST-SECTION 6708

1. Penalty of $50 for each person that
   fails to disclose.
2. The maximum penalty for each year is
   $100,000.
3. Reasonable cause exception.