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-4 - Participation in a Tax Avoidance Transaction/Reportable Transaction

Current through Register Vol. XLI, No. 28, July 12, 2024
4.1. A taxpayer is
				required by W. Va. Code §
									11-10E-5
				to file each year a disclosure statement with respect to each reportable
				transaction in which the taxpayer participated.
4.2. The following applies to defining and
				determining when and whether a taxpayer has participated in a tax avoidance
				transaction:
4.2.1. Listed transactions. A
				taxpayer has participated in a listed transaction if the taxpayer's tax return
				reflects tax consequences or a tax strategy described in the published guidance
				that lists the transaction under Treasury Regulations Section 1.6011-4(b)(2)
				and as described in this rule. A taxpayer also has participated in a listed
				transaction if the taxpayer knows or has reason to know that the taxpayer's tax
				benefits are derived directly or indirectly from tax consequences or a tax
				strategy described in published guidance that lists a transaction described in
				Treasury Regulations Section 1.6011-4(b)(2) and as described in this rule.
				Published guidance may identify other types of classes of persons that will be
				treated as participants in a listed transaction.
4.2.2. Confidential transactions. A taxpayer
				has participated in a confidential transaction if the taxpayer's tax return
				reflects a tax benefit from the transaction and the taxpayer's disclosure of
				the tax treatment or tax structure of the transaction is limited in the manner
				described in Treasury Regulations Section 1.6011-4(b)(2) and this rule. If a
				partnership's, S corporation's or trust's disclosure is limited, and the
				partner's, shareholders, or beneficiary's disclosure is not limited, then the
				partnership, S corporation, or trust, and not the partner, shareholder, or
				beneficiary, has participated in the confidential transaction.
4.2.2.1. Minimum fee. For purposes of this
				subsection, the minimum fee is:
4.2.2.1.a.
				$250,000 for a transaction if the taxpayer is a corporation.
4.2.2.1.b. $50,000 for all other transactions
				unless the taxpayer is a partnership or trust, all of the owners or
				beneficiaries of which are corporations (looking through any partners or
				beneficiaries that are themselves partnerships or trusts), in which case the
				minimum fee is $250,000.
4.2.2.1.c.
				Determination of minimum fee. For purposes of this paragraph, a minimum fee
				includes all fees for a tax strategy or for services for advice (whether or not
				tax advice) or for the implementation of a transaction. These fees include
				consideration in whatever form paid, whether in cash or in kind, for services
				to analyze the transaction (whether or not related to the tax consequences of
				the transaction), for services to implement the transaction, for services to
				document the transaction, and for services to prepare tax returns to the extent
				that the fees exceed the fees customary for return preparation.
4.2.2.1.d. For purposes of this paragraph, a
				taxpayer also is treated as paying fees to an advisor if the taxpayer knows or
				should know that the amount it pays will be paid indirectly to the advisor,
				such as through a referral fee or fee-sharing arrangement. A fee does not
				include amounts paid to a person, including an advisor, in that person's
				capacity as a party to the transaction. For example, a fee does not include
				reasonable charges for the use of capital or the sale or use of
				property.
4.2.3. Transactions with contractual
				protection. A taxpayer has participated in a transaction with contractual
				protection if the taxpayer's tax return reflects a tax benefit from the
				transaction and, as described in Treasury Regulations Section 1.6011-4(b)(2)
				and this rule, the taxpayer has the right to the full or partial refund of fees
				or the fees are contingent. If a partnership, S corporation, or trust has the
				right to a full or partial refund of fees or has a contingent fee arrangement,
				and the partner, shareholder, or beneficiary does not individually have the
				right to the refund of fees or a contingent fee arrangement, then the
				partnership, S corporation, or trust, and not the partner, shareholder, or
				beneficiary, has participated in the transaction with contractual
				protection.
4.2.4. Loss
				transactions. A taxpayer has participated in a loss transaction if the
				taxpayer's tax return reflects a section 165 loss, as defined in I.R.C.
				§165 and this rule, and the amount of the section 165 loss equals or
				exceeds the threshold amount applicable to the taxpayer as described in
				Treasury Regulations Section 1.6011-4(b)(5)(i). If a taxpayer is a partner in a
				partnership, shareholder in an S corporation, or beneficiary of a trust and a
				section 165 loss as described in Treasury Regulations Section 1.6011-4(b)(5)
				flows through the entity to the taxpayer (disregarding netting at the entity
				level), the taxpayer has participated in a loss transaction if the taxpayer's
				tax return reflects a section 165 loss and the amount of the section 165 loss
				that flows through to the taxpayer equals or exceeds the threshold amounts
				applicable to the taxpayer as described in Treasury Regulations Section
				1.6011-4(b)(5)(i). For this purpose, a tax return is deemed to reflect the full
				amount of a section 165 loss described in this rule, allocable to the taxpayer
				under this subsection, regardless of whether all or part of the loss enters
				into the computation of a net operating loss under I.R.C. § 172 or net
				capital loss under I.R.C. § 1212 that the taxpayer may carry back or carry
				over to another year.
4.2.5.
				Transactions with a significant book-tax difference. A taxpayer has
				participated in a transaction with a significant book-tax difference if the
				taxpayer's tax treatment of an item from the transaction differs from the book
				treatment of that item as described in Treasury Regulations Section
				1.6011-4(b)(6) and this rule. In determining whether a transaction results in a
				significant book-tax difference for a taxpayer, differences that arise solely
				because a subsidiary of the taxpayer is consolidated with the taxpayer, in
				whole or in part, for book purposes, but not for tax purposes, are not taken
				into account: Provided, That transactions with a significant book-tax
				difference entered into or on 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.
For purposes of this subsection, the amount of an item for
				  book purposes is determined by applying U.S. generally accepted accounting
				  principles (U.S. GAAP) for worldwide income. However, if a taxpayer, in the
				  ordinary course of its business, keeps books for reporting financial results to
				  shareholders, creditors, or regulators on a basis other than U.S. GAAP, and
				  does not maintain U.S. GAAP books for any purpose, then the taxpayer may
				  determine the amount of a book item for purposes of this subsection by using
				  the books maintained by the taxpayer, provided the books are kept on the same
				  basis consistently from year to year. Adjustments to any reserve for taxes are
				  disregarded for purposes of determining the book-tax difference.
4.2.5.1. In general, this category of
				reportable transactions applies only to:
4.2.5.1.a. Taxpayers that are reporting
				companies under the Security Exchange Act of 1934 and are related businesses;
				or
4.2.5.1.b. Business entities
				that have $250,000,000 or more in gross assets for book purposes at the end of
				any financial accounting period that ends with or within the entity's taxable
				year in which the transaction occurs (for purposes of this determination, the
				assets of all related business entities) must be aggregated.
4.2.6. Transactions
				involving a brief asset holding period. A taxpayer has participated in a
				transaction involving a brief asset holding period if the taxpayer's tax return
				reflects items giving rise to a tax credit described in Treasury Regulations
				Section 1.6011-4(b)(7) and section 3 of this rule. If a taxpayer is a partner
				in a partnership, shareholder in an S corporation, or beneficiary of a trust
				and the items giving rise to a tax credit described in Treasury Regulations
				Section 1.6011-4(b)(7) flow through the entity to the taxpayer (disregarding
				netting at the entity level), the taxpayer has participated in a transaction
				involving a brief asset holding period if the taxpayer's tax return reflects
				the tax credit and the amount of the tax credit claimed by the taxpayer exceeds
				$250,000.
4.2.7. Shareholders of
				foreign corporations. A reporting shareholder of a foreign corporation
				participates in a transaction described in Treasury Regulations Section
				1.6011-4(b)(2) through (5) and (b)(7) and section 4 of this rule if the foreign
				corporation would be considered to participate in the transaction under the
				rules of Treasury Regulations Section 1.6011-4(c)(3) if it were a domestic
				corporation filing a tax return that reflects the items from the transaction. A
				reporting shareholder participates in a transaction described in Treasury
				Regulations Section 1.6011-4(b)(6) only if the foreign corporation would be
				considered to participate in the transaction under the rules of Treasury
				Regulations Section 1.6011-4(c)(3) if it were a domestic corporation and the
				transaction reduces or eliminates an income inclusion that otherwise would be
				required under I.R.C. § 551, 951, or 1293. A reporting shareholder (and
				any successor in interest) is considered to participate in a transaction under
				Treasury Regulations Section 1.6011-4(c)(3)(i)(G) only for its first taxable
				year with or within which ends the first taxable year of the foreign
				corporation in which the foreign corporation participates in the transaction,
				and for the reporting shareholder's five succeeding taxable years.
4.2.8. Reporting shareholder. The term
				reporting shareholder means a United States shareholder (as defined in I.R.C.
				§551(a)) in a foreign personal holding company (as defined in I.R.C.
				§ 552), a United States shareholder (as defined in I.R.C. § 951(b))
				in a controlled foreign corporation (as defined inI.R.C. § 957) or a 10
				percent shareholder (by vote or value) of a qualified electing fund (as defined
				in I.R.C. § 1295).
4.2.9.
				Exceptions -- A transaction will not be considered a reportable transaction, or
				will be excluded from any individual category of reportable transaction if the
				Commissioner of Internal Revenue makes a determination by published guidance
				that the transaction is not subject to the reporting requirements of this
				section. The Commissioner may make a determination by individual letter ruling
				that an individual letter ruling request on a specific transaction or type of
				transaction satisfies the reporting requirements of this section with regard to
				that transaction or type of transaction for the taxpayer who requests the
				individual letter ruling.
4.2.9.1. Special
				rule for regulated investment companies. For purposes of this subsection, a
				regulated investment company (RIC) as defined in I.R.C. § 851 or an
				investment vehicle that is owned 95 percent or more by one or more RICs at all
				times during the course of the transaction are not required to disclose a tax
				avoidance transaction unless the transaction is also a listed
				transaction.
4.2.9.2. Special rule
				for lease transactions. For purposes of this subdivision, leasing transactions
				of the type excepted from the registration requirements under I.R.C. §
				6111(d) and the list maintenance requirements under I.R.C. § 6112 as
				described in Notice 2001-18 (2001-1 C.B. 731) are not classified as tax
				avoidance transactions.