West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-10E - Tax Shelter Voluntary Compliance Program › Section 110-10E-3 - Definitions

Current through Register Vol. XLI, No. 28, July 12, 2024
3.1. General rule.
				- Terms used in this rule have the meaning ascribed to them in W. Va. Code
				§
									11-10-4,
				unless the context in which the term is used clearly requires a different
				meaning, or the term is defined in the following subsection 3.2.
3.2. Terms defined. - For purposes of this
				rule, the term:
3.2.1. "Abusive tax schemes"
				or "abusive tax shelters" means transactions promoted for the promise of tax
				benefits with no meaningful change in the taxpayer's control over or benefit
				from the taxpayer's income or assets. These transactions typically have no
				economic purpose other than reducing taxes, or may involve the use of multiple
				layers of domestic and foreign pass-through entities including: partnerships, S
				corporations, limited liability companies, and trusts.
3.2.2. "Commissioner" or "Tax Commissioner"
				means the West Virginia State Tax Commissioner or his/her delegate.
3.2.3. "Confidential transactions" means a
				transaction that is offered to a taxpayer under conditions of confidentiality
				and for which the taxpayer has paid an advisor a minimum fee.
3.2.4. "Department" means the West Virginia
				State Tax Department.
3.2.5.
				"Eligible taxpayer" means an individual, partnership, estate, trust,
				corporation, limited liability company, joint stock company, or any other
				company, trustee, receiver, assignee, referee, society, association, business
				or any other person as described in the tax law of this State, who or which has
				a tax liability relating to income tax imposed under W. Va. Code §
										11-21-1 et
				seq. or W. Va. Code §
										11-24-1 et
				seq.
3.2.6. "Interest" means
				interest imposed pursuant to W. Va. Code §§
										11-10-17 and
				11-10-17a.
3.2.7. "Investor lists" means any list
				required to be maintained under I.R.C. § 6112 and Treasury Regulations
				Section 301.6112-1 with respect to a potentially abusive tax shelter, and to be
				considered complete shall at a minimum include the following information:
3.2.7.1. The name of each transaction that is
				a potentially abusive tax shelter and the registration number, if any, obtained
				under I.R.C. § 6111;
3.2.7.2.
				The tax identification number, if any, of each transaction;
3.2.7.3. The name, address, and tax
				identification number of each person required to be on the list;
3.2.7.4. If applicable, the number of units
				(i.e., percentage of profits, number of shares, etc.) acquired by each person
				required to be included on the list;
3.2.7.5. The date on which each interest was
				acquired;
3.2.7.6. The amount
				invested in each transaction by each person required to be included on the
				list;
3.2.7.7. A detailed
				description of each transaction that describes both the structure and its
				expected tax consequences;
3.2.7.8.
				A summary or schedule of the tax consequences that each person is intended or
				expected to derive from participation in each transaction, if known by the
				material advisor;
3.2.7.9. Copies
				of any additional written materials, including tax analyses or opinions,
				relating to each transaction that have been shown or provided to any person who
				acquired an interest in the transaction, or their representatives, tax
				advisors, or agents, by the material advisor or any related party or agent of
				the material advisor; and
3.2.7.10.
				For each person, if the interest in the transaction was not acquired from the
				material advisor maintaining the list, the name of the person from whom the
				interest was acquired.
3.2.8. "Listed transaction" means a
				transaction that is the same as or substantially similar to one of the types of
				transactions that the Internal Revenue Service has determined to be a tax
				avoidance transaction and identified by notice, regulation, or other form of
				published guidance as a listed transaction.
3.2.9. "Loss transactions" means any
				transaction resulting in the taxpayer claiming a loss under I.R.C. § 165
				of at least:
3.2.9.1. $10,000,000 in any
				single taxable year or $20,000,000 in any combination of taxable years for
				corporations;
3.2.9.2. $10,000,000
				in any single taxable year or $20,000,000 in any combination of taxable years
				for partnerships that have only corporations as partners (looking through any
				partners that are themselves partnerships), whether or not any losses flow
				through to one or more partners; or $2,000,000 in any single taxable year or
				$4,000,000 in any combination of taxable years for all other partnerships,
				whether or not any losses flow through to one or more partners;
3.2.9.3. $2,000,000 in any single taxable
				year or $4,000,000 in any combination of taxable years for individuals, S
				corporations, or trusts, whether or not any losses flow through to one or more
				shareholders or beneficiaries; or
3.2.9.4. $50,000 in any single taxable year
				for individuals or trusts, whether or not the loss flows through from an S
				corporation or partnership, if the loss arises with respect to a section 988
				transaction (as defined in I.R.C. §988(c)(1) relating to foreign currency
				transactions).
3.2.10.
				"Material advisor" means any person who:
3.2.10.1. Must register the transaction as a
				tax shelter under federal law.
3.2.10.2. Receives, or expects to receive, at
				least a minimum fee in connection with a transaction that is a potentially
				abusive tax shelter; and
3.2.10.3.
				Makes or provides any oral or written statement to any person about the
				potential tax consequences of that transaction.
3.2.10.4. The minimum fee is $250,000 if the
				acquiring entities are corporations, other than S corporations. For all other
				transactions, the minimum fee is $50,000. When calculating the minimum fee,
				each transaction is evaluated separately to determine whether the minimum fee
				threshold is satisfied.
3.2.11. "Organizer" means any person who
				discovers, creates, investigates, or initiates the tax shelter investment,
				devises the business or financial plans for the investment or carries out those
				plans through negotiations or transactions with others. This term also includes
				any other person who participates in the organization or management of the tax
				shelter.
3.2.12. "Penalty" means
				any civil money penalties imposed by W. Va. Code §
										11-10-19 and
				any other civil money penalty imposed by any article of Chapter 11 of the West
				Virginia Code administered under W. Va. §
										11-10-1 et
				seq.
3.2.13. "Potentially abusive
				tax shelter" means any tax shelter required to be registered with the Internal
				Revenue Service as a potentially abusive tax shelter under I.R.C. §6111,
				is a transaction that has the potential for tax avoidance or evasion, or is a
				reportable transaction under present federal law or West Virginia
				law.
3.2.14. "Reportable
				transaction" means any transaction the Internal Revenue Service or this State
				determines as having a potential for tax avoidance or evasion, and includes,
				but is not limited to, the following transactions:
3.2.14.1. Listed transactions;
3.2.14.2. Confidential
				transactions;
3.2.14.3.
				Transactions with contractual protection;
3.2.14.4. Loss transactions;
3.2.14.5. Transactions with a significant
				book-tax difference: Provided, That transactions with a significant book-tax
				difference entered into on or after January 6, 2006 that do not describe any
				other reportable transaction in Treasury Regulation Section 1.6011-4, will no
				longer be classified as reportable transactions: Provided, however, That the
				removal of such significant book-tax difference transactions from the
				categories of reportable transactions does not relieve taxpayers, tax shelter
				organizers, advisors, or any other person from any disclosure, registration or
				list maintenance obligations for transactions that should have been disclosed
				or registered, or for transactions for which lists should have been prepared
				and maintained, prior to January 6, 2006; and
3.2.14.6. Transactions involving a brief
				asset holding period.
3.2.15. "Reportable transaction
				understatement" means the product of:
3.2.15.1. The amount of the increase (if any)
				in taxable income, as determined by reference to the amount of post-apportioned
				income that results from a difference between the proper tax treatment of an
				item to which this subsection applies and the taxpayer's treatment of that item
				as shown on the taxpayer's return, including an amended return filed prior to
				the date the taxpayer is first contacted by the Tax Commissioner regarding the
				examination of the return; and
3.2.15.2. The applicable tax rates.
3.2.16. "Section 165 loss" means a
				loss, as defined in I.R.C. §165, sustained during the taxable year, not
				compensated for by insurance or otherwise, and computed and restricted as
				defined and provided for in that section.
3.2.17. "Substantially similar" means and
				includes any transaction that is expected to obtain the same or similar types
				of tax consequences and that is either factually similar or based on the same
				or similar tax strategy. Receipt of an opinion regarding the tax consequences
				of the transaction is not relevant to the determination of whether the
				transaction is the same as or substantially similar to another transaction.
				Further, the term substantially similar shall be broadly construed in favor of
				disclosure.
3.2.18. "Tax avoidance
				transaction" means a plan or arrangement devised for the principal purpose of
				avoiding federal or state income tax, or both. Tax avoidance transactions
				include, but are not limited to, "listed transactions" as defined in Treasury
				Regulations §1.6011-4(b)(2), as well as reportable transactions as defined
				in this section.
3.2.19. "Tax
				shelter" means a tax avoidance transaction.
3.2.20. "Tax structure" means any fact that
				may be relevant to understanding the purported or claimed West Virginia
				Personal Income Tax treatment or West Virginia Corporation Net Income Tax
				treatment of the transaction.
3.2.21. "Tax treatment" means the tax
				treatment of a transaction that is the purported or claimed West Virginia
				Personal Income Tax treatment or West Virginia Corporation Net Income Tax
				treatment of the transaction.
3.2.22. "Transaction" means and includes all
				of the factual elements relevant to the expected tax treatment of any
				investment, entity, plan, or arrangement, and includes any series of steps
				carried out as a part of a plan.
3.2.23. "Transactions involving a brief asset
				holding period" means any transaction resulting in the taxpayer claiming a tax
				credit exceeding $250,000 (including a foreign tax credit) if the underlying
				asset giving rise to the credit is held by the taxpayer for 45 days or less.
				For purposes of determining the holding period, the principles of I.R.C.
				§246(c)(3) and (c)(4) apply. Transactions resulting in a foreign tax
				credit for withholding taxes or other taxes imposed in respect of a dividend
				that are not disallowed under I.R.C. §901(k)(4) are excluded from this
				term.
3.2.24. "Transaction with a
				significant book tax difference" means a transaction where the amount for tax
				purposes of any item or items of income, gain, expense, or loss from the
				transaction differs by more than $10,000,000 on a gross basis from the amount
				of the item or items for book purposes in any taxable year.
3.2.25. "Transactions with contractual
				protection" means a transaction for which the taxpayer or a related party (as
				described in I.R.C. §267(b) or I.R.C. §707(b)) has the right to a
				full or partial refund of fees if all or part of the intended tax consequences
				from the transaction are not sustained. A transaction with contractual
				protection also is a transaction for which fees are contingent on the
				taxpayer's realization of tax benefits from the transaction.
3.2.25.a. Termination of transaction. A
				transaction is not considered to have contractual protection solely because a
				party to the transaction has the right to terminate the transaction upon the
				happening of an event affecting the taxation of one or more parties to the
				transaction.
3.2.26.
				"Voluntary Compliance Program" means the tax shelter compliance program
				authorized by the West Virginia Tax Shelter Voluntary Compliance Act of 2006,
				as set forth in W. Va. Code §
										11-10E-1
				et seq., and this rule.