[Federal Register Volume 74, Number 193 (Wednesday, October 7, 2009)]
[Proposed Rules]
[Pages 51527-51535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-24112]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-160871-04]
RIN 1545-BH37


Period of Limitations on Assessment for Listed Transactions Not 
Disclosed Under Section 6011

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
exception to the general three-year period of limitations on assessment 
under section 6501(c)(10) of the Internal Revenue Code (Code) for 
listed transactions that a taxpayer failed to disclose as required 
under section 6011. These regulations will affect taxpayers who fail to 
disclose listed transactions in accordance with section 6011.

DATES: Written or electronic comments and requests for a public hearing 
must be received by January 5, 2010.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-160871-04), room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
160871-04), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-160871-04).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Audra M. Dineen at (202) 622-4910; concerning submissions of comments 
and requests for a public hearing, Oluwafunmilayo Taylor of the 
Publications and Regulations Branch at (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been reviewed and approved by the Office of Management 
and Budget in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) under control number 1545-1940. The collection of 
information in these proposed regulations is in Sec.  301.6501(c)-
1(g)(5). This information is required to provide the IRS, under 
penalties of perjury, with the information necessary to properly 
determine the taxpayer's applicable period of limitations. The 
collection of information in these proposed regulations is the same as 
the collection of information in Revenue Procedure 2005-26 (2005-1 CB 
965), which was previously reviewed and approved by the Office of 
Management and Budget under control number 1545-1940. The collection of 
information in Sec.  301.6501(c)-1(g)(6) is the same as the collection 
of information required under section 6112. See Sec.  
601.601(d)(2)(ii)(b).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains proposed amendments to the Procedure and 
Administration Regulations (26 CFR Part 301) under section 6501(c) 
relating to exceptions to the period of limitations on assessment. 
Section 6501(a) provides that, except as otherwise provided, if a 
return is filed, tax with respect to that return must be assessed 
within 3 years from the later of the date the return was filed or the 
original due date of the return. Section 6501(c) contains several 
exceptions to the general three-year period of limitations on 
assessment.
    Section 6501(c)(10) was added to the Code by section 814 of the 
American Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1418, 
1581 (2004)) (AJCA), enacted on October 22, 2004. Section 6501(c)(10) 
provides that, if a taxpayer fails to disclose a listed transaction as 
required under section 6011, the time to assess tax against the 
taxpayer with respect to that transaction will end no earlier than one 
year after the earlier of (1) the date on which the taxpayer furnishes 
the information required under section 6011, or (2) the date that a 
material advisor furnishes to the Secretary, upon written request, the 
information required under section 6112 with respect to the taxpayer 
related to the listed transaction. Accordingly, if neither the taxpayer 
nor a material advisor furnishes the requisite information, the period 
of limitations on assessment will remain open, and thus, the tax with 
respect to the listed

[[Page 51528]]

transaction may be assessed at any time. Section 6501(c)(10) is 
effective for taxable years with respect to which the period of 
limitations on assessment did not expire prior to October 22, 2004.
    As noted, section 6501(c)(10) applies when a taxpayer does not 
properly disclose a listed transaction (as defined in section 
6707A(c)(2)) as required under section 6011. Taxpayers are required 
under section 6011 and the regulations under section 6011 (collectively 
referred to as the ``section 6011 disclosure rules'') to disclose 
certain information regarding each reportable transaction in which the 
taxpayer participated. See Treas. Reg. Sec. Sec.  1.6011-4; 20.6011-4; 
25.6011-4; 31.6011-4; 53.6011-4; 54.6011-4; and 56.6011-4. Among the 
transactions that are reportable are ``listed transactions.'' See 
Treas. Reg. Sec.  1.6011-4(b)(2). Under the section 6011 disclosure 
rules, a listed transaction is a transaction that is the same as, or 
substantially similar to, a transaction that the IRS has determined to 
be a tax avoidance transaction and identified by notice, regulation, or 
other form of published guidance. Treas. Reg. Sec.  1.6011-4(b)(2). 
Section 6707A(c)(2) incorporates the same definition of listed 
transaction. For a list of transactions the IRS has identified as 
listed transactions, see Notice 2009-59, 2009-31 IRB 1. See Sec.  
601.601(d)(2).
    If the section 6011 disclosure rules require a taxpayer to disclose 
a listed transaction, the taxpayer must complete and file a disclosure 
statement in accordance with the section 6011 disclosure rules. The 
section 6011 disclosure rules currently require that Form 8886, 
``Reportable Transaction Disclosure Statement'' (or successor form), be 
used as the disclosure statement and be completed in accordance with 
the instructions to the form. The Form 8886 (or successor form) 
generally must be attached to the taxpayer's original or amended tax 
return for each taxable year for which a taxpayer participates in a 
listed transaction. Treas. Reg. Sec.  1.6011-4(e)(1). If a listed 
transaction results in a loss that is carried back to a prior year, 
Form 8886 (or successor form) must be attached to the taxpayer's 
application for tentative refund or amended tax return for that prior 
year. The taxpayer also must send a copy of Form 8886 (or successor 
form) to the IRS Office of Tax Shelter Analysis (OTSA), generally at 
the same time that a disclosure statement pertaining to a particular 
listed transaction is first filed. Under the current rules, when a 
transaction is identified as a listed transaction after the date on 
which the taxpayer files a tax return (including an amended return) for 
a taxable year reflecting the taxpayer's participation in the listed 
transaction and before the end of the period of limitations for 
assessment of tax for any taxable year in which the taxpayer 
participated in the listed transaction, then the taxpayer must file 
Form 8886 (or successor form) with OTSA within 90 calendar days after 
the date the transaction became a listed transaction.
    If a taxpayer does not disclose its participation in a listed 
transaction in accordance with all of the requirements of the section 
6011 disclosure rules and section 6501(c)(10) applies, then the time to 
assess tax related to the listed transaction will expire no earlier 
than the earlier of (1) one year after the date on which the 
information described in section 6501(c)(10)(A) is provided, or (2) one 
year after the date on which the information described in section 
6501(c)(10)(B) is provided.
    The IRS and Treasury Department issued Rev. Proc. 2005-26 (2005-1 
CB 965) on April 25, 2005, to provide interim guidance on section 
6501(c)(10). The revenue procedure prescribes how taxpayers and 
material advisors should disclose listed transactions that were not 
properly disclosed under section 6011 in order to start the one-year 
period under section 6501(c)(10). Taxpayers may continue to rely on 
Rev. Proc. 2005-26 until temporary or final regulations are issued 
under section 6501(c)(10). See Sec.  601.601(d)(2). In that revenue 
procedure, the IRS and Treasury Department also requested comments 
concerning the procedures set forth in the revenue procedure, 
especially their application to partners and partnerships. One comment 
was received but it did not address the limitations period.

Explanation of Provisions

    These proposed regulations provide rules reflecting the enactment 
of section 6501(c)(10) by the AJCA. They explain how to determine 
whether section 6501(c)(10) applies and, if so, the applicable period 
of limitations on assessment. As a preliminary matter, the effective 
date of section 6501(c)(10) limits its application to taxable years 
with respect to which the period of limitations on assessment was open 
on or after October 22, 2004 (the date the AJCA was enacted). Thus, for 
taxable years for which a return was due prior to October 22, 2004, an 
analysis under section 6501 must be conducted to determine if the 
period of limitations on assessment was open under the general three-
year period or an exception other than section 6501(c)(10).

1. Application of Section 6501(c)(10)

    The general rule for applying section 6501(c)(10) is set forth in 
Sec.  301.6501(c)-1(g)(1) of these proposed regulations. The first step 
in analyzing whether section 6501(c)(10) applies is to determine 
whether the taxpayer failed to comply with any disclosure obligation 
under the section 6011 disclosure rules with respect to a listed 
transaction (as defined in section 6707A(c)(2)) for any taxable year. 
The IRS and Treasury Department have issued several regulations under 
section 6011, some of which apply only to certain types of taxpayers. 
The disclosure requirements also vary among the regulations. Therefore, 
particular attention must be paid to the effective dates of the various 
section 6011 disclosure rules in order to determine whether there was a 
disclosure obligation.
    If there was no obligation to disclose the listed transaction, or 
if the taxpayer complied with its disclosure obligations, then section 
6501(c)(10) does not apply. If there was a disclosure obligation and a 
failure to disclose as required, then section 6501(c)(10) applies. 
Section 6501(c)(10) applies to all open years for which the taxpayer 
failed to disclose its participation in the transaction as required 
under the section 6011 disclosure rules, even if the disclosures 
required under section 6011 were not due in, or with a return for, the 
year of participation but were due in a later year when the transaction 
was subsequently identified as a listed transaction. If section 
6501(c)(10) applies because a taxpayer failed to disclose a listed 
transaction and the transaction is later removed from the category of 
listed transactions, section 6501(c)(10) will continue to apply with 
respect to the tax years for which disclosure was required. If section 
6501(c)(10) applies, then the period of limitations with respect to the 
listed transaction will remain open until at least the earlier of (1) 
one year after the date on which the taxpayer provides a disclosure to 
satisfy section 6501(c)(10)(A) (as provided in Sec.  301.6501(c)-
1(g)(5) described elsewhere in this preamble), or (2) one year after 
the date on which a material advisor provides the IRS with information 
concerning the taxpayer's participation in the transaction sufficient 
to satisfy section 6501(c)(10)(B) (as provided in Sec.  301.6501(c)-
1(g)(6) described elsewhere in this preamble). If either paragraph 
(g)(5) or (g)(6) is satisfied, the period of limitations on assessment 
will end under the circumstances described

[[Page 51529]]

in Sec.  301.6501(c)-1(g)(2) of these proposed regulations.
    Section 301.6501(c)-1(g)(2) of these proposed regulations also 
provides guidance on how section 6501(c)(10) interacts with the 
otherwise applicable period of limitations provided in the Internal 
Revenue Code. The proposed regulations confirm that section 6501(c)(10) 
does not operate to extend a limitations period that expired before the 
effective date of section 6501(c)(10) or before the date on which the 
failure to disclose occurs. In addition, a taxpayer or material advisor 
cannot shorten any other applicable period of limitations on assessment 
by following the procedures to begin the one-year period provided under 
section 6501(c)(10), including, but not limited to, a limitations 
period that has been extended by agreement under section 6501(c)(4), or 
the limitations period described in section 6501(c)(1) relating to a 
false or fraudulent return.
    The terms ``listed transaction,'' ``material advisor,'' and 
``taxable year(s) to which the failure to disclose relates'' are 
defined in Sec.  301.6501(c)-1(g)(3) of these proposed regulations by 
cross-reference to section 6707A and the relevant regulations under 
sections 6011 and 6111.
    Under section 6501(c)(10), the term ``listed transaction'' is 
defined by reference to section 6707A(c)(2), which defines a listed 
transaction as ``a reportable transaction that is the same as, or 
substantially similar to, a transaction specifically identified by the 
Secretary as a tax avoidance transaction for purposes of section 
6011.'' Although section 6707A was enacted by section 811 of the AJCA 
and is effective for returns and statements due after October 22, 2004, 
and which were not filed before that date, its definition of ``listed 
transactions'' incorporates transactions identified as listed 
transactions in the section 6011 disclosure rules before section 6707A 
was enacted. Accordingly, any transactions that were listed 
transactions as of October 22, 2004, under the section 6011 disclosure 
rules are listed transactions under section 6707A and, thus, for 
purposes of section 6501(c)(10). Therefore, section 6501(c)(10) applies 
to transactions that were identified as listed transactions prior to 
October 22, 2004.
    The term ``taxable year(s) to which the failure to disclose 
relates'' identifies the years to which section 6501(c)(10) applies. 
Clarification is necessary because a taxpayer may participate in a 
listed transaction over multiple years, because a transaction may be 
identified as a listed transaction after the taxpayer enters into the 
transaction, and because the section 6011 disclosure rules may require 
disclosure in a year in which the taxpayer did not participate in the 
listed transaction. The term ``taxable year(s) to which the failure to 
disclose relates'' means each taxable year that the taxpayer 
participated (as defined by the regulations under section 6011) in a 
transaction that was identified as a listed transaction and for which 
there was no proper disclosure when required under the section 6011 
disclosure rules. For these purposes, it does not matter whether the 
transaction was identified as a listed transaction before or after the 
taxpayer filed a tax return for any taxable year in which the taxpayer 
participated in the transaction. On occasion, the section 6011 
disclosure rule may require that a disclosure be filed in a taxable 
year or with a tax return for a taxable year other than the taxable 
year in which the taxpayer participated in the listed transaction. In 
those circumstances, the taxable year(s) to which the failure to 
disclose relates is not the taxable year in which the disclosure is 
required to be filed, but each taxable year that the taxpayer 
participated in the listed transaction.
    Section 301.6501(c)-1(g)(4) of these proposed regulations provides 
the rule for application of section 6501(c)(10) in the case of 
taxpayers who are partners in partnerships, shareholders in S 
corporations, or beneficiaries of trusts. If these taxpayers were 
required to disclose their participation in a listed transaction under 
the section 6011 disclosure rules, and failed to disclose, then the 
period of limitations on assessment with respect to each partner, 
shareholder, or beneficiary that failed to disclose will remain open 
under section 6501(c)(10) even if the partnership, S corporation, or 
trust disclosed in accordance with the section 6011 disclosure rules 
and even if another partner, shareholder, or beneficiary disclosed in 
accordance with the section 6011 disclosure rules. This rule is as 
adopted because the period of limitations on assessment is specific to 
each taxpayer. Consistent with the above rule, a failure to disclose by 
an entity will not cause section 6501(c)(10) to apply to all of the 
taxpayers who are partners, shareholders or beneficiaries of the 
entity.

2. One-Year Period Under Section 6501(c)(10)

    Guidance on the events that will start the one-year period under 
section 6501(c)(10) is provided in Sec.  301.6501(c)-1(g)(5) and (6) of 
these proposed regulations.
a. Disclosures by Taxpayers of Required Information
    Under section 6501(c)(10)(A), if there is a failure to disclose 
information related to a listed transaction as required under the 
section 6011 disclosure rules, the time to assess tax will end no 
earlier than one year after the date ``the Secretary is furnished the 
information so required.'' Section 301.6501(c)-1(g)(5)(i)(A)-(C) of 
these proposed regulations sets forth the general procedures for how to 
furnish the information to the IRS. These procedures are similar to the 
ones required under the section 6011 disclosure rules because failure 
to comply with those rules triggers the application of section 
6501(c)(10). Because the rules set forth in Sec.  301.6501(c)-
1(g)(5)(i) generally concern annual returns, Sec.  301.6501(c)-
1(g)(5)(ii) provides that the IRS may issue published guidance that 
prescribes alternative procedures to address particular listed 
transactions, if necessary, in the case of returns other than annual 
returns.
    Section 301.6501(c)-1(g)(5)(i)(A) of these proposed regulations 
provides that to begin the one-year period under section 6501(c)(10)(A) 
taxpayers must complete Form 8886 (or successor form) in accordance 
with the instructions to the form and these proposed regulations and 
submit the completed form with a cover letter (as described in Sec.  
301.6501(c)-1(g)(5)(i)(B)) to OTSA. Under the procedures set forth in 
Revenue Procedure 2005-26, taxpayers were required to submit the 
completed form and cover letter both to OTSA and the Internal Revenue 
Service Center where the taxpayer filed its original return in all 
cases and, if applicable, to an IRS examiner or Appeals officer. These 
proposed regulations simplify the procedures taxpayers need to follow 
by only requiring them to submit the information to one IRS office 
instead of two, unless the taxpayer also needs to submit a copy to an 
IRS examiner or Appeals officer, as discussed later in this Preamble.
    Taxpayers must complete the most current version of the form 
available at the time the taxpayer attempts to satisfy section 
6501(c)(10). In other words, if the Form 8886 (or successor form) 
changes between the date that the taxpayer was required to disclose the 
listed transaction under the section 6011 disclosure rules and the date 
that the taxpayer discloses the listed transaction for purposes of 
section 6501(c)(10), then the taxpayer must follow the rules in effect 
on the date of the section 6501(c)(10) disclosure.

[[Page 51530]]

    The taxpayer also must indicate on the form that the disclosure is 
for purposes of section 6501(c)(10) and the tax return(s) and taxable 
year(s) for which the taxpayer is making a section 6501(c)(10) 
disclosure. The section 6501(c)(10) disclosure will only be effective 
for the tax return(s) and taxable year(s) that the taxpayer specifies 
he or she is attempting to disclose for purposes of section 
6501(c)(10). Thus, for example, if a taxpayer failed to disclose the 
taxpayer's participation in a listed transaction in three taxable years 
but the taxpayer's section 6501(c)(10) disclosure only specifies one 
taxable year, then the period of limitations on assessment for the 
other two taxable years will remain open under section 6501(c)(10). If 
the Form 8886 (or successor form) contains a line for that purpose, 
then taxpayers may use that line, so long as the line is completed in 
accordance with the instructions to the form. If no line is provided on 
the form, then the taxpayer must include on the top of Page 1 of the 
Form 8886, and each copy of the form, the following statement: 
``Section 6501(c)(10) Disclosure'' followed by the tax return(s) and 
taxable year(s) for which the taxpayer is making a section 6501(c)(10) 
disclosure. This information is necessary to place the IRS on notice 
that the taxpayer is attempting to remedy its failure to properly 
disclose the listed transaction and, thus, the one-year period will 
start to run with respect to the tax years identified. Because the IRS 
may have as little as one year to determine whether to conduct an 
examination and, if it does conduct an examination, to determine 
whether any additional tax is due with respect to the listed 
transaction, it is important that the IRS receives proper notice that 
the one-year period has started.
    Taxpayers must submit a separate Form 8886 (or successor form) and 
cover letter (discussed elsewhere in this Preamble) for each listed 
transaction that the taxpayer did not properly disclose under the 
section 6011 disclosure rules. If the taxpayer participated in one 
listed transaction over multiple years, then the taxpayer may submit 
one Form 8886 (or successor form), so long as the taxpayer indicates on 
the Form 8886 all of the tax returns and taxable years for which the 
taxpayer is making a section 6501(c)(10) disclosure. If a taxpayer 
participated in more than one listed transaction, then the taxpayer 
must submit separate Forms 8886 (or successor form) for each listed 
transaction, unless the listed transactions are the same or 
substantially similar, in which case all the listed transactions may be 
reported on one Form 8886.
    Section 301.6501(c)-1(g)(5)(i)(B) of these proposed regulations 
provides the requirements for the cover letter. The cover letter must 
identify the tax return(s) and taxable year(s) for which the taxpayer 
is making a section 6501(c)(10) disclosure. In addition, the cover 
letter must include the statement provided in Sec.  301.6501(c)-
1(g)(5)(i)(B) signed under penalties of perjury by the taxpayer and, if 
applicable, by the paid preparer preparing the Form 8886. The cover 
letter is necessary because the Form 8886 does not currently contain a 
penalties-of-perjury statement or place for signature.
    A special rule for taxpayers under examination or Appeals 
consideration by the IRS is provided in Sec.  301.6501(c)-1(g)(5)(i)(C) 
of these proposed regulations. If the taxpayer wants to make a section 
6501(c)(10) disclosure for a taxable year or a listed transaction under 
examination or Appeals consideration, then, in addition to the 
otherwise applicable filing obligations set forth in Sec.  301.6501(c)-
1(g)(5)(i)(A), the taxpayer must submit a copy of the submission made 
under paragraph (g)(5)(i)(A) to the IRS examiner or Appeals officer 
examining or considering the taxable year to which the section 
6501(c)(10) disclosure relates. This rule is adopted to ensure that the 
IRS personnel who are considering the taxpayer's tax year(s) at issue 
are made aware as soon as possible that the one-year period under 
section 6501(c)(10) may have started to run, so that whatever action is 
necessary can be taken within the one-year period.
    Section 301.6501(c)-1(g)(5)(i)(D) provides guidance concerning the 
date on which the taxpayer is considered to have furnished the 
information to the IRS to satisfy section 6501(c)(10)(A) and start the 
running of the one-year period. The one-year period under section 
6501(c)(10)(A) will begin on the date that the taxpayer satisfies all 
the requirements set forth in Sec.  301.6501(c)-1(g)(5)(i)(A) through 
(C). If the required procedures are not completed on the same date, the 
one-year period will begin on the date that the last procedure is 
satisfied. For example, if a taxpayer mails a completed Form 8886 to 
OTSA but not to the IRS examiner or Appeals officer who is examining or 
considering the taxable year to which the section 6501(c)(10) 
disclosure relates, the one-year period under section 6501(c)(10)(A) 
will not begin until both events occur.
    Information provided under Sec.  301.6501(c)-1(g)(5) is deemed 
furnished on the date the IRS receives the information. Section 7502 
does not apply to the mailing of the information detailed in Sec.  
301.6501(c)-1(g)(5), because the information is not required to be 
filed within a prescribed period or on or before a prescribed date. 
Taxpayers can determine the date the IRS receives the information by 
using a delivery service that provides a way to track delivery, such as 
U.S. registered or certified mail, express or priority mail, or 
delivery confirmation from the U.S. post office or a private delivery 
service that provides tracking. Moreover, documentation from the post 
office or private delivery service showing the date the information was 
delivered to the IRS, together with evidence that the envelope was 
properly addressed to the office to which the information was required 
to be sent, generally will be sufficient proof that the IRS received 
the information, unless the IRS can establish that it did not in fact 
receive the information. Separate delivery confirmation documentation 
should be obtained to establish receipt by OTSA and the appropriate IRS 
revenue agent or Appeals officer, if applicable.
b. Disclosures by Material Advisors
    Under section 6501(c)(10)(B), if a taxpayer fails to disclose 
information related to a listed transaction as required under the 
section 6011 disclosure rules, the time to assess tax will end no 
earlier than one year after the date ``a material advisor meets the 
requirements of section 6112 with respect to a request by the Secretary 
under section 6112(b) relating to such transaction with respect to such 
taxpayer.'' Section 6112 requires material advisors to maintain lists 
of advisees and other information with respect to reportable 
transactions, including listed transactions, and to furnish that 
information to the IRS upon request. The term ``material advisor'' is 
defined in Sec.  301.6111-3(b). The IRS and Treasury Department 
finalized regulations under section 6112 in TD 9352 (72 FR 43154) 
published on August 3, 2007. Section 6112 and Sec.  301.6112-1 provide 
guidance relating to the preparation, content, maintenance, retention, 
and furnishing of lists by material advisors.
    Section 6501(c)(10)(B) provides that a material advisor must 
satisfy the requirements of section 6112 to begin the one-year period. 
Information provided in response to another method of inquiry, such as 
an Information Document Request in a section 6700 investigation, will 
not begin the one-year period. In addition, Sec.  301.6501(c)-
1(g)(6)(i) provides that the material advisor must furnish the 
information described in Sec.  301.6112-1(e) with

[[Page 51531]]

respect to the taxpayer that failed to properly disclose the listed 
transaction. Thus, if the material advisor furnishes the information 
described in Sec.  301.6112-1(e) for some, or even most, of its clients 
but not for a particular taxpayer that failed to properly disclose the 
listed transaction, then the assessment period for that taxpayer will 
remain open under section 6501(c)(10).
    Section 301.6501(c)-1(g)(6)(ii) of these proposed regulations 
clarifies that the one-year period will begin once the material advisor 
furnishes the information in response to an IRS request under section 
6112, regardless of whether the material advisor provides the 
information within 20 business days of the IRS's request as required by 
section 6708. If the material advisor furnishes the required 
information over the course of multiple days, the requirements of 
paragraph (g)(6) of this section will be deemed satisfied and the one-
year period will begin on the date that the IRS is furnished the 
information that, together with prior information, satisfies the 
requirements of section 6112 and Sec.  301.6112-1 with respect to the 
taxpayer. The information is deemed furnished for purposes of section 
6501(c)(10) on the date the material advisor is treated as satisfying 
the requirements of section 6112 under the rules applicable to that 
section.

3. Taxes That Can Be Assessed Under Section 6501(c)(10)

    Section 6501(c)(10) allows the IRS to assess any tax with respect 
to a listed transaction for the taxable year(s) to which the failure to 
disclose relates. Section 301.6501(c)-1(g)(7) of these proposed 
regulations provides that taxes with respect to the listed transaction 
include, but are not limited to, (1) adjustments made to the tax 
consequences claimed on the return, (2) adjustments to any item to the 
extent the item is affected by the listed transaction even if it is 
unrelated to the listed transaction, and (3) interest and penalties 
that are related to the listed transaction or the adjustments made to 
the tax consequences (see I.R.C. Sec. Sec.  6601(e)(1) and 6665(a)(2)). 
An example of an item affected by the listed transaction but not 
related to the listed transaction is the threshold for the medical 
expense deduction under section 213 that varies if there is a change in 
an individual's adjusted gross income. Examples of a penalty related to 
the adjustments made to the tax consequences are the accuracy-related 
penalties under sections 6662 and 6662A. An example of a penalty 
related to the listed transaction is the penalty under section 6707A 
for failure to file the disclosure statement reporting the taxpayer's 
participation in the listed transaction.

4. Examples

    Section 301.6501(c)-1(g)(8) of these proposed regulations contains 
examples of the application of section 6501(c)(10) to various types of 
taxpayers participating in listed transactions. Additional examples 
illustrate the application of the one-year period under section 
6501(c)(10), the coordination of section 6501(c)(10) with other 
limitations periods provided by the Internal Revenue Code, and tax that 
can be assessed with respect to a listed transaction.

Proposed Effective/Applicability Date

    When adopted as final regulations, these rules will apply to 
taxable years with respect to which the period of limitations on 
assessment did not expire before the date of publication of a Treasury 
decision adopting these rules as final regulations in the Federal 
Register. However, taxpayers may rely on these proposed regulations for 
taxable years with respect to which the period of limitations on 
assessment expired before the publication of the Treasury decision. 
Otherwise, Rev. Proc. 2005-26 continues to apply for taxable years to 
which these regulations do not apply and for which the period of 
limitations on assessment did not expire before April 8, 2005--the 
effective date of Rev. Proc. 2005-26.

Effect on Other Documents

    Upon the publication of final regulations under section 6501(c)(10) 
in the Federal Register, Rev. Proc. 2005-26 (2005-1 CB 965) will be 
superseded for taxable years with respect to which the period of 
limitations on assessment did not expire before the date of publication 
of a Treasury decision adopting these rules as final regulations in the 
Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations.
    It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities 
pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). 
Section 6501(c)(10) applies when taxpayers fail to comply with the 
reporting requirements set forth in section 6011. The Treasury 
Department and the IRS do not know the exact number and types of 
taxpayers that fail to comply with those requirements. However, 
although the Treasury Department and the IRS are aware that many tax 
avoidance transactions involve pass-through entities, when pass-through 
entities are utilized, the entities are not ultimately liable for the 
tax; rather, the taxpayers subject to section 6501(c)(10) will be the 
individuals and corporations owning, directly or indirectly, the 
interests in the pass-though entities. Therefore, the Treasury 
Department and the IRS have determined that these proposed regulations 
will not affect a substantial number of small entities.
    In addition, the Treasury Department and the IRS have determined 
that any impact on small entities resulting from these proposed 
regulations will not be significant. Most of the information required 
under these proposed regulations is already required by other 
regulations or forms, namely Sec.  1.6011-4, Sec.  301.6112-1, and Form 
8886, ``Reportable Transaction Disclosure Statement.'' The only new 
information required to be submitted to the IRS is a cover letter, 
which must contain a reference to the tax returns and taxable year(s) 
at issue and a statement signed under penalty of perjury. The cover 
letter should take minimal time and expense to prepare. Therefore, the 
additional requirement of the cover letter should not significantly 
increase the burden on taxpayers. Based on these facts, the Treasury 
Department and the IRS have determined that these proposed regulations 
will not have a significant economic impact on a substantial number of 
small entities. Pursuant to section 7805(f) of the Internal Revenue 
Code, this notice of proposed rulemaking will be submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and Treasury Department request comments on the substance 
of the proposed regulations, as well as on the clarity of the proposed 
rules and how they can be made easier to understand. All comments 
submitted by the public will be made available for public

[[Page 51532]]

inspection and copying. A public hearing will be scheduled if requested 
in writing by any person that timely submits written comments. If a 
public hearing is scheduled, notice of the date, time, and place for 
the public hearing will be published in the Federal Register.

Drafting Information

    The principal author of these regulations is Audra M. Dineen of the 
Office of the Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR Part 301 is proposed to be amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 continues to read 
in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 301.6501(c)-1 is amended by adding paragraph (g) to 
read as follows:


Sec.  301.6501(c)-1  Exceptions to general period of limitations on 
assessment and collection.

    (g) Listed transactions--(1) In general. If a taxpayer is required 
to disclose a listed transaction under section 6011 and the regulations 
under section 6011 and does not do so in the time and manner required, 
then the time to assess any tax attributable to that listed transaction 
for the taxable year(s) to which the failure to disclose relates (as 
defined in paragraph (g)(3)(iii) of this section) will not expire 
before the earlier of one year after the date on which the taxpayer 
makes the disclosure described in paragraph (g)(5) of this section or 
one year after the date on which a material advisor makes a disclosure 
described in paragraph (g)(6) of this section.
    (2) Limitations period if paragraph (g)(5) or (g)(6) is satisfied. 
If one of the disclosure provisions described in paragraphs (g)(5) or 
(g)(6) of this section is satisfied, then the tax attributable to the 
listed transaction may be assessed at any time before the expiration of 
the limitations period that would have otherwise applied under this 
section (determined without regard to paragraph (g)(1) of this section) 
or the period ending one year after the date that one of the disclosure 
provisions described in paragraphs (g)(5) or (g)(6) of this section was 
satisfied, whichever is later. If both disclosure provisions are 
satisfied, the one-year period will begin on the earlier of the dates 
on which the provisions were satisfied. Paragraph (g)(1) of this 
section does not apply to any period of limitations on assessment that 
expired before the date on which the failure to disclose the listed 
transaction under section 6011 occurred.
    (3) Definitions--(i) Listed transaction. The term listed 
transaction means a transaction described in section 6707A(c)(2) of the 
Code and Sec.  1.6011-4(b)(2) of this chapter.
    (ii) Material advisor. The term material advisor means a person 
described in section 6111(b)(1) of the Code and Sec.  301.6111-3(b) of 
this chapter.
    (iii) Taxable year(s) to which the failure to disclose relates. The 
taxable year(s) to which the failure to disclose relates are each 
taxable year that the taxpayer participated (as defined under section 
6011 and the regulations under section 6011) in a transaction that was 
identified as a listed transaction and the taxpayer failed to disclose 
the listed transaction as required under section 6011. If the taxable 
year in which the taxpayer participated in the listed transaction is 
different from the taxable year in which the taxpayer is required to 
disclose the listed transaction under section 6011, the taxable year(s) 
to which the failure to disclose relates are each taxable year that the 
taxpayer participated in the transaction.
    (4) Application of paragraph with respect to pass-through entities. 
In the case of taxpayers who are partners in partnerships, shareholders 
in S corporations, or beneficiaries of trusts and are required to 
disclose a listed transaction under section 6011 and the regulations 
under section 6011, paragraph (g)(1) of this section will apply to a 
particular partner, shareholder, or beneficiary if that particular 
taxpayer does not disclose within the time and in the form and manner 
provided by section 6011 and Sec.  1.6011-4(d) and (e), regardless of 
whether the partnership, S corporation, or trust or another partner, 
shareholder, or beneficiary discloses in accordance with section 6011 
and the regulations under section 6011. Similarly, because paragraph 
(g)(1) of this section applies on a taxpayer-by-taxpayer basis, the 
failure of a partnership, S corporation, or trust that has a disclosure 
obligation under section 6011 and does not disclose within the time or 
in the form and manner provided by Sec.  1.6011-4(d) and (e) will not 
cause paragraph (g)(1) of this section to apply automatically to all 
the partners, shareholders or beneficiaries of the entity. Instead, the 
application of paragraph (g)(1) of this section will be determined 
based on whether the particular taxpayer satisfied their disclosure 
obligation under section 6011 and the regulations under section 6011.
    (5) Taxpayer's disclosure of a listed transaction that taxpayer did 
not properly disclose under section 6011--(i) In general--(A) Method of 
disclosure. The taxpayer must complete the most current version of Form 
8886, ``Reportable Transaction Disclosure Statement'' (or successor 
form), available on the date the taxpayer attempts to satisfy this 
paragraph in accordance with Sec.  1.6011-4(d) (in effect on that date) 
and the instructions to that form. The taxpayer must indicate on the 
Form 8886 that the form is being submitted for purposes of section 
6501(c)(10) and the tax return(s) and taxable year(s) for which the 
taxpayer is making a section 6501(c)(10) disclosure. The section 
6501(c)(10) disclosure will only be effective for the tax return(s) and 
taxable year(s) that the taxpayer specifies he or she is attempting to 
disclose for purposes of section 6501(c)(10). If the Form 8886 contains 
a line for this purpose then the taxpayer must complete the line in 
accordance with the instructions to that form. Otherwise, the taxpayer 
must include on the top of Page 1 of the Form 8886, and each copy of 
the form, the following statement: ``Section 6501(c)(10) Disclosure'' 
followed by the tax return(s) and taxable year(s) for which the 
taxpayer is making a section 6501(c)(10) disclosure. For example, if 
the taxpayer did not properly disclose its participation in a listed 
transaction the tax consequences of which were reflected on the 
taxpayer's Form 1040 for the 2005 taxable year, the taxpayer must 
include the following statement: ``Section 6501(c)(10) Disclosure; 2005 
Form 1040'' on the form. The taxpayer must submit the properly 
completed Form 8886 and a cover letter, which must be completed in 
accordance with the requirements set forth in paragraph (g)(5)(i)(B) of 
this section, to the Office of Tax Shelter Analysis (OTSA). The 
taxpayer is permitted, but not required, to file an amended return with 
the Form 8886 and cover letter. Separate Forms 8886 and separate cover 
letters must be submitted for each listed transaction the taxpayer did 
not properly disclose under section 6011. If the taxpayer participated 
in one listed transaction

[[Page 51533]]

over multiple years, the taxpayer may submit one Form 8886 (or 
successor form) and cover letter and indicate on that form all of the 
tax returns and taxable years for which the taxpayer is making a 
section 6501(c)(10) disclosure. If a taxpayer participated in more than 
one listed transaction, then the taxpayer must submit separate Forms 
8886 (or successor form) for each listed transaction, unless the listed 
transactions are the same or substantially similar, in which case all 
the listed transactions may be reported on one Form 8886.
    (B) Cover letter. A cover letter to which a Form 8886 is to be 
attached must identify the tax return(s) and taxable year(s) for which 
the taxpayer is making a section 6501(c)(10) disclosure and include the 
following statement signed under penalties of perjury by the taxpayer 
and if the Form 8886 is prepared by a paid preparer, the Form 8886 must 
be signed under penalties of perjury by the paid preparer as well:

    Under penalties of perjury, I declare that I have examined this 
reportable transaction disclosure statement and, to the best of my 
knowledge and belief, this reportable transaction disclosure 
statement is true, correct, and complete. Declaration of preparer 
(other than taxpayer) is based on all information of which the 
preparer has any knowledge.

    (C) Taxpayer under examination or Appeals consideration. A taxpayer 
making a disclosure under paragraph (g)(5) of this section with respect 
to a taxable year under examination or Appeals consideration by the IRS 
must satisfy the requirements of paragraphs (g)(5)(i)(A) and (B) of 
this section and also submit a copy of the submission to the IRS 
examiner or Appeals officer examining or considering the taxable 
year(s) to which the disclosure under paragraph (g) of this section 
relates.
    (D) Date the one-year period will begin to run if paragraph (g)(5) 
satisfied. Unless an earlier expiration is provided for in paragraph 
(g)(6) of this section, the time to assess tax under paragraph (g) of 
this section will not expire before one year after the date on which 
the Secretary is furnished the information from the taxpayer that 
satisfies all the requirements of paragraphs (g)(5)(i)(A) and (B) of 
this section and, if applicable, paragraph (g)(5)(i)(C) of this 
section. If the taxpayer does not satisfy all of the requirements on 
the same date, the one-year period will begin on the date that the IRS 
is furnished the information that, together with prior disclosures of 
information, satisfies the requirements of paragraph (g)(5) of this 
section. For purposes of paragraph (g)(5) of this section, the 
information is deemed furnished on the date the IRS receives the 
information.
    (ii) Exception for returns other than annual returns. The IRS may 
prescribe alternative procedures to satisfy the requirements of this 
paragraph (g)(5) in a revenue procedure, notice, or other guidance 
published in the Internal Revenue Bulletin for circumstances involving 
returns other than annual returns.
    (6) Material advisor's disclosure of a listed transaction not 
properly disclosed by a taxpayer under section 6011--(i) Method of 
disclosure. In response to a written request of the IRS under section 
6112, a material advisor with respect to a listed transaction must 
furnish to the IRS the information described in section 6112 and Sec.  
301.6112-1(b) in the form and manner prescribed by section 6112 and 
Sec.  301.6112-1(e). If the information the material advisor furnishes 
identifies the taxpayer as a person who engaged in the listed 
transaction, regardless of whether the material advisor provides the 
information before or after the taxpayer's failure to disclose the 
listed transaction under section 6011, then the requirements of this 
paragraph (g)(6) will be satisfied for that taxpayer. The requirements 
of this paragraph (g)(6) will be considered satisfied even if the 
material advisor furnishes the information required under section 6112 
to the IRS after the date prescribed in section 6708 or published 
guidance relating to section 6708.
    (ii) Date the one-year period will begin if paragraph (g)(6) is 
satisfied. Unless an earlier expiration is provided for in paragraph 
(g)(5) of this section, the time to assess tax under paragraph (g) of 
this section will expire one year after the date on which the material 
advisor satisfies the requirements of paragraph (g)(6)(i) of this 
section with respect to the taxpayer. For purposes of paragraph (g)(6) 
of this section, information is deemed to be furnished on the date 
that, in response to a request under section 6112, the IRS receives the 
information from a material advisor that satisfies the requirements of 
paragraph (g)(6)(i) of this section with respect to the taxpayer.
    (7) Tax assessable under this section. If the period of limitations 
on assessment for a taxable year remains open under this section, the 
Secretary has authority to assess any tax with respect to the listed 
transaction in that year. This includes, but is not limited to, 
adjustments made to the tax consequences claimed on the return plus 
interest, additions to tax, additional amounts, and penalties that are 
related to the listed transaction or adjustments made to the tax 
consequences. This also includes any item to the extent the item is 
affected by the listed transaction even if it is unrelated to the 
listed transaction. An example of an item affected by, but unrelated 
to, a listed transaction is the threshold for the medical expense 
deduction under section 213 that varies if there is a change in an 
individual's adjusted gross income. An example of a penalty related to 
the listed transaction is the penalty under section 6707A for failure 
to file the disclosure statement reporting the taxpayer's participation 
in the listed transaction. Examples of penalties related to the 
adjustments made to the tax consequences are the accuracy-related 
penalties under sections 6662 and 6662A.
    (8) Examples. The rules of paragraph (g) of this section are 
illustrated by the following examples:

    Example 1. No requirement to disclose under section 6011. P, an 
individual, is a partner in a partnership that entered into a 
transaction in 2001 that was the same as or substantially similar to 
the transaction identified as a listed transaction in Notice 2000-44 
(2000-2 CB 255). P claimed a loss from the transaction on his Form 
1040 for the tax year 2001. P filed the Form 1040 prior to June 14, 
2002. P did not disclose his participation in the listed transaction 
because P was not required to disclose the transaction under the 
applicable section 6011 regulations (TD 8961). Although the 
transaction was a listed transaction and P did not disclose the 
transaction, P had no obligation to include on any return or 
statement any information with respect to a listed transaction 
within the meaning of section 6501(c)(10) because TD 8961 only 
applied to corporations, not individuals. Accordingly, section 
6501(c)(10) does not apply.
    Example 2. Taxable year to which the failure to disclose relates 
when transaction is identified as a listed transaction after 
taxpayer files a tax return for that year. (i) In January 2009, A, a 
calendar year taxpayer, enters into a transaction that at the time 
is not a listed transaction. A reports the tax consequences from the 
transaction on its individual income tax return for 2009 timely 
filed on April 15, 2010. The time for the IRS to assess tax against 
A under the general three-year period of limitations for A's 2009 
taxable year would expire on April 15, 2013. A only participated in 
the transaction in 2009. On March 1, 2012, the IRS identifies the 
transaction as a listed transaction. A does not file the Form 8886 
with OTSA by May 30, 2012.
    (ii) The period of limitations on assessment for A's 2009 
taxable year was open on the date the transaction was identified as 
a listed transaction. Under the applicable section 6011 regulations 
(TD 9350, 2007-38 IRB 607), A must disclose its participation in the 
transaction by filing a completed Form 8886 with OTSA on or before 
May 30, 2012, which is 90 days after the date the transaction became 
a listed transaction. A did not disclose the transaction as 
required. A's failure to disclose relates to taxable year 2009

[[Page 51534]]

even though the obligation to disclose did not arise until 2012. 
Section 6501(c)(10) operates to keep the period of limitations on 
assessment open for the 2009 taxable year with respect to the listed 
transaction until at least one year after the date A satisfies the 
requirements of paragraph (g)(5) of this section or a material 
advisor satisfies the requirements of paragraph (g)(6) of this 
section with respect to A.
    Example 3. Requirements of paragraph (g)(6) satisfied. Same 
facts as Example 2, except that on April 5, 2013, the IRS hand 
delivers to Advisor J, who is a material advisor, a section 6112 
request related to the listed transaction. Advisor J furnishes the 
required list with all the information required by section 6112 and 
Sec.  301.6112-1, including all the information required with 
respect to A, to the IRS on May 13, 2013. The submission satisfies 
the requirements of paragraph (g)(6) even though Advisor J furnishes 
the information outside of the 20-business-day period provided in 
section 6708. Accordingly, under section 6501(c)(10), the period of 
limitations with respect to A's taxable year 2009 will end on May 
13, 2014, one year after the IRS received the required information, 
unless the period of limitations remains open under another 
exception. Any tax for the 2009 taxable year not attributable to the 
listed transaction must be assessed by April 15, 2013.
    Example 4. Requirements of paragraph (g)(5) also satisfied.
    Same facts as Examples 2 and 3, except that on May 23, 2013, A 
files a properly completed Form 8886 and signed cover letter with 
OTSA both identifying that the section 6501(c)(10) disclosure 
relates to A's Form 1040 for 2009. A satisfied the requirements of 
paragraph (g)(5) of this section as of May 23, 2013. Because the 
requirements of paragraph (g)(6) were satisfied first as described 
in Example 3, under section 6501(c)(10) the period of limitations 
will end on May 13, 2014 (one year after the requirements of 
paragraph (g)(6) were satisfied) instead of May 23, 2014 (one year 
after the requirements of paragraph (g)(5) were satisfied). Any tax 
for the 2009 taxable year not attributable to the listed transaction 
must be assessed by April 15, 2013.
    Example 5. Period to assess tax remains open under another 
exception.
    Same facts as Examples 2, 3, and 4, except that on April 1, 
2013, A signed Form 872, consenting to extend, without restriction, 
its period of limitations on assessment for taxable year 2009 under 
section 6501(c)(4) until July 15, 2014. In that case, although under 
section 6501(c)(10) the period of limitations would otherwise expire 
on May 13, 2014, the IRS may assess tax with respect to the listed 
transaction at any time up to and including July 15, 2014, pursuant 
to section 6501(c)(4). Section 6501(c)(10) can operate to extend the 
assessment period but cannot shorten any other applicable assessment 
period.
    Example 6. Requirements of (g)(5) not satisfied.
    In 2009, X, a corporation, enters into a listed transaction. On 
March 15, 2010, X timely files its 2009 Form 1120, reporting the tax 
consequences from the transaction. X does not disclose the 
transaction as required under section 6011 when it files its 2009 
return. The failure to disclose relates to taxable year 2009. On 
February 12, 2014, X completes and files a Form 8886 with respect to 
the listed transaction with OTSA but does not submit a cover letter, 
as required. The requirements of paragraph (g)(5) of this section 
have not been satisfied. Therefore, the time to assess tax against X 
with respect to the transaction for taxable year 2009 remains open 
under section 6501(c)(10).
    Example 7. Taxable year to which the failure to disclose relates 
when transaction is identified as a listed transaction after first 
year of participation.
    (i) On December 30, 2003, Y, a corporation, enters into a 
transaction that at the time is not a reportable transaction. On 
March 15, 2004, Y timely files its 2003 Form 1120, reporting the tax 
consequences from the transaction. On April 1, 2004, the IRS issues 
Notice 2004-31 that identifies the transaction as a listed 
transaction. Y also reports tax consequences from the transaction on 
its 2004 Form 1120, which it timely filed on March 15, 2005. Y did 
not attach a completed Form 8886 to its 2004 Form 1120 and did not 
send a copy of the form to OTSA. The general three-year period of 
limitations on assessment for Y's 2003 and 2004 taxable years would 
expire on March 15, 2007, and March 17, 2008, respectively.
    (ii) The period of limitations on assessment for Y's 2003 
taxable year was open on the date the transaction was identified as 
a listed transaction. Under the applicable section 6011 regulations 
(TD 9108), Y should have disclosed its participation in the 
transaction with its next filed return, which was its 2004 Form 
1120, but Y did not disclose its participation. Y's failure to 
disclose with the 2004 Form 1120 relates to taxable years 2003 and 
2004. Section 6501(c)(10) operates to keep the period of limitations 
on assessment open for the 2003 and 2004 taxable years with respect 
to the listed transaction until at least one year after the date Y 
satisfies the requirements of paragraph (g)(5) of this section or a 
material advisor satisfies the requirements of paragraph (g)(6) of 
this section with respect to Y.
    Example 8. Section 6501(c)(10) applies to keep one partner's 
period of limitations on assessment open.
    T and S are partners in a partnership, TS, that enters into a 
listed transaction in 2010. T and S each receive a Schedule K-1 from 
TS on April 11, 2011. On April 15, 2011, TS, T and S each file their 
2010 returns. Under the applicable section 6011 regulations, TS, T, 
and S each are required to disclose the transaction. TS attaches a 
completed Form 8886 to its 2010 Form 1065 and sends a copy of Form 
8886 to OTSA. Neither T nor S files a disclosure statement with 
their respective returns nor sends a copy to OTSA on April 15, 2011. 
On May 17, 2011, T timely files a completed Form 8886 with OTSA 
pursuant to Sec.  1.6011-4(e)(1). T's disclosure is timely because T 
received the Schedule K-1 within 10 calendar days before the due 
date of the return and, thus, T had 60 calendar days to file Form 
8886 with OTSA. TS and T properly disclosed the transaction in 
accordance with the applicable regulations under section 6011, but S 
did not. S's failure to disclose relates to taxable year 2010. The 
time to assess tax with respect to the transaction against S for 
2010 remains open under section 6501(c)(10) even though TS and T 
disclosed the transaction.
    Example 9. Section 6501(c)(10) satisfied before expiration of 
three-year period of limitations under section 6501(a).
    Same facts as Example 8, except that on August 27, 2012, S 
satisfies the requirements of paragraph (g)(5) of this section. No 
material advisor satisfied the requirements of paragraph (g)(6) of 
this section with respect to S on a date earlier than August 27, 
2012. Under section 6501(c)(10), the period of time in which the IRS 
may assess tax against S with respect to the listed transaction 
would expire no earlier than August 27, 2013, one year after the 
date S satisfied the requirements of paragraph (g)(5). As the 
general three-year period of limitations on assessment under section 
6501(a) does not expire until April 15, 2014, the IRS will have 
until that date to assess any tax with respect to the listed 
transaction.
    Example 10. No section 6112 request.
    B, a calendar year taxpayer, entered into a listed transaction 
in 2010. B did not comply with the applicable disclosure 
requirements under section 6011 for taxable year 2010; therefore, 
section 6501(c)(10) applies to keep the period of limitations on 
assessment open with respect to the tax related to the transaction 
until at least one year after B satisfies the requirements of 
paragraph (g)(5) of this section or a material advisor satisfies the 
requirements of paragraph (g)(6) of this section with respect to B. 
In June 2011, the IRS conducts a section 6700 investigation of 
Advisor K, who is a material advisor to B with respect to the listed 
transaction. During the course of the investigation, the IRS obtains 
the name, address, and TIN of all of Advisor K's clients who engaged 
in the transaction, including B. The information provided does not 
satisfy the requirements of paragraph (g)(6) with respect to B 
because the information was not provided pursuant to a section 6112 
request. Therefore, the time to assess tax against B with respect to 
the transaction for taxable year 2010 remains open under section 
6501(c)(10).
    Example 11. Section 6112 request but the requirements of 
paragraph (g)(6) are not satisfied with respect to B.
    Same facts as Example 10, except that on January 2, 2014, the 
IRS sends by certified mail a section 6112 request to Advisor L, who 
is another material advisor to B with respect to the listed 
transaction. Advisor L furnishes some of the information required 
under section 6112 and Sec.  301.6112-1 to the IRS for inspection on 
January 13, 2014. The list includes information with respect to many 
clients of Advisor L, but it does not include any information with 
respect to B. The submission does not satisfy the requirements of 
paragraph (g)(6) of this section with respect to B. Therefore, the 
time to assess tax against B with respect to the transaction for 
taxable year 2010 remains open under section 6501(c)(10).
    Example 12. Section 6112 submission made before taxpayer failed 
to disclose a listed transaction.

[[Page 51535]]

    Advisor M, who is a material advisor, advises C, an individual, 
in 2010 with respect to a transaction that is not a reportable 
transaction at that time. C files its return claiming the tax 
consequences of the transaction on April 15, 2011. The time for the 
IRS to assess tax against C under the general three-year period of 
limitations for C's 2010 taxable year would expire on April 15, 
2014. The IRS identifies the transaction as a listed transaction on 
November 1, 2013. On December 5, 2013, the IRS hand delivers to 
Advisor M a section 6112 request related to the transaction. Advisor 
M furnishes the information to the IRS on December 30, 2013. The 
information contains all the required information with respect to 
Advisor M's clients, including C. C does not disclose the 
transaction on or before January 30, 2014, as required under section 
6011 and the regulations under section 6011. Advisor M's submission 
under section 6112 satisfies the requirements of paragraph (g)(6) of 
this section even though it occurred prior to C's failure to 
disclose the listed transaction. Thus, under section 6501(c)(10), 
the period of limitations to assess tax against C with respect to 
the listed transaction will end on December 30, 2014 (one year after 
the requirements of paragraph (g)(6) of this section were 
satisfied), unless the period of limitations remains open under 
another exception.
    Example 13. Transaction removed from the category of listed 
transactions after taxpayer failed to disclose.
    D, a calendar year taxpayer, entered into a listed transaction 
in 2011. D did not comply with the applicable disclosure 
requirements under section 6011 for taxable year 2011; therefore, 
section 6501(c)(10) applies to keep the period of limitations on 
assessment open with respect to the tax related to the transaction 
until at least one year after D satisfies the requirements of 
paragraph (g)(5) of this section or a material advisor satisfies the 
requirements of paragraph (g)(6) of this section with respect to D. 
In 2016, the IRS removes the transaction from the category of listed 
transactions because of a change in law. Section 6501(c)(10) 
continues to apply to keep the period of limitations on assessment 
open for D's taxable year 2011.
    Example 14. Taxes assessed with respect to the listed 
transaction.
    (i) F, an individual, enters into a listed transaction in 2009. 
F files its 2009 Form 1040 on April 15, 2010, but does not disclose 
his participation in the listed transaction in accordance with 
section 6011 and the regulations under section 6011. F's failure to 
disclose relates to taxable year 2009. Thus, section 6501(c)(10) 
applies to keep the period of limitations on assessment open with 
respect to the tax related to the listed transaction for taxable 
year 2009 until at least one year after the date F satisfies the 
requirements of paragraph (g)(5) of this section or a material 
advisor satisfies the requirements of paragraph (g)(6) of this 
section with respect to F.
    (ii) On July 1, 2014, the IRS completes an examination of F's 
2009 taxable year and disallows the tax consequences claimed as a 
result of the listed transaction. The disallowance of a loss 
increased F's adjusted gross income. Due to the increase of F's 
adjusted gross income, certain credits, such as the child tax 
credit, and exemption deductions were disallowed or reduced because 
of limitations based on adjusted gross income. In addition, F now is 
liable for the alternative minimum tax. The examination also 
uncovered that F claimed two deductions on Schedule C to which F was 
not entitled. Under section 6501(c)(10), the IRS can timely issue a 
statutory notice of deficiency (and assess in due course) against F 
for the deficiency resulting from (1) disallowing the loss, (2) 
disallowing the credits and exemptions to which F was not entitled 
based on F's increased adjusted gross income, and (3) being liable 
for the alternative minimum tax. In addition, the IRS can assess any 
interest and applicable penalties related to those adjustments, such 
as the accuracy-related penalty under sections 6662 and 6662A and 
the penalty under section 6707A for F's failure to disclose the 
transaction as required under section 6011 and the regulations under 
section 6011. The IRS cannot, however, pursuant to section 
6501(c)(10), assess the increase in tax that would result from 
disallowing the two deductions on F's Schedule C because those 
deductions are not related to, or affected by, the adjustments 
concerning the listed transaction.

    (9) Effective/applicability date. The rules of this paragraph (g) 
apply to taxable years with respect to which the period of limitations 
on assessment did not expire before the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register. However, taxpayers may rely on the rules of this 
paragraph (g) for taxable years with respect to which the period of 
limitations on assessment expired before the date of publication of the 
Treasury decision. If an individual does not choose to rely on the 
rules of this paragraph (g), Rev. Proc. 2005-26 (2005-1 CB 965) will 
continue to apply to taxable years with respect to which the period of 
limitations on assessment expired on or after April 8, 2005, and before 
the date of publication of the Treasury decision adopting these rules 
as final regulations in the Federal Register.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E9-24112 Filed 10-6-09; 8:45 am]
BILLING CODE 4830-01-P