Section 6707A and the Failure To Include on Any Return or Statement any Information Required To Be Disclosed Under Section 6011 With Respect to a Reportable Transaction, 52784-52788 [E8-21161]

Download as PDF 52784 Federal Register / Vol. 73, No. 177 / Thursday, September 11, 2008 / Rules and Regulations FDC date State City Airport FDC No. 08/19/08 ...... 08/20/08 ...... IL IL Chicago ............................ Chicago ............................ Chicago-O’Hare Intl ............................... Chicago-O’Hare Intl ............................... 8/3952 8/4091 08/20/08 ...... IL Chicago ............................ Chicago-O’Hare Intl ............................... 8/4092 08/20/08 ...... MD Salisbury ........................... 8/4188 07/08/08 07/08/08 07/10/08 07/24/08 ...... ...... ...... ...... UT UT VA FM Salt Lake City ................... Salt Lake City ................... Richmond ......................... Pohnpei Island .................. Salisbury-Ocean City Wicomico Regional. Salt Lake City Intl ................................... Salt Lake City Intl ................................... Chesterfield County ............................... Pohnpei Intl ............................................ 8/4753 8/4754 8/6327 8/9241 07/24/08 ...... FM Pohnpei Island .................. Pohnpei Intl ............................................ 8/9246 [FR Doc. E8–20445 Filed 9–10–08; 8:45 am] BILLING CODE 4910–13–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 [TD 9425] RIN 1545–BF62 Section 6707A and the Failure To Include on Any Return or Statement any Information Required To Be Disclosed Under Section 6011 With Respect to a Reportable Transaction Internal Revenue Service (IRS), Treasury. ACTION: Temporary regulations. rmajette on PRODPC74 with RULES AGENCY: SUMMARY: This document contains temporary regulations regarding the imposition of penalties under section 6707A of the Internal Revenue Code (Code) for the failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. The text of the temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section of this issue of the Federal Register. DATES: Effective Date: These regulations are effective on September 11, 2008. Applicability Date: For dates of applicability, see § 301.6707A–1T(f). FOR FURTHER INFORMATION CONTACT: Matthew Cooper, (202) 622–4940 (not a toll-free number). SUPPLEMENTARY INFORMATION: VerDate Aug<31>2005 13:31 Sep 10, 2008 Jkt 214001 Background This document contains amendments to 26 CFR part 301 under section 6707A of the Code. Section 6707A was added to the Code by section 811 of the American Jobs Creation Act of 2004, Public Law 108–357 (118 Stat. 1418) (AJCA), enacted on October 22, 2004. Section 6707A provides a monetary penalty for the failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. The penalty applies to returns and statements the due date for which is after October 22, 2004, and which were not filed before that date. The amount of the section 6707A penalty for failure to include information required under section 6011 with respect to a reportable transaction, other than a listed transaction, is $10,000 in the case of an individual, and $50,000 in any other case. If the failure is with respect to a listed transaction, the penalty is increased to $100,000 in the case of an individual, and $200,000 in any other case. Section 6707A(d)(1) grants the Commissioner authority to rescind all or a portion of any penalty imposed under section 6707A if (1) the violation relates to a reportable transaction that is not a listed transaction and (2) rescission of the penalty would promote compliance with the requirements of the Code and effective tax administration. Section 6707A(d)(2) provides that the Commissioner’s determination whether to rescind the penalty may not be reviewed in any judicial proceeding. Rev. Proc. 2007–21, 2007–1 CB 613, provides the procedures to follow to request rescission of all or any portion of a penalty assessed under section 6707A with respect to a reportable PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 Subject RNAV (GPS) Z RWY 22L, ORIG ILS OR LOC RWY 14R, AMDT 30; ILS RWY 14R (CAT II), AMDT 30; ILS RWY 14R (CAT III), AMDT 30 ILS OR LOC RWY 14L, AMDT 29 ILS RWY 32, AMDT 6 RNAV (GPS) RWY 17, ORIG VOR/DME RWY 34R, AMDT 9 RNAV (GPS) RWY 33, ORIG NDB/DME RWY 9, AMDT 4. THIS NOTAM PUBLISHED IN TL08–19 IS HEREBY RESCINDED IN ITS ENTIRETY NDB OR GPS–B, AMDT 3. THIS NOTAM PUBLISHED IN TL08–19 IS HEREBY RESCINDED IN ITS ENTIRETY transaction other than a listed transaction. Section 6707A(e) requires a person that is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934, or consolidated reports with another person, to disclose in those reports for the periods specified by the Secretary, the requirement to pay the penalties set forth in section 6707A(e)(2) (for example, certain penalties under section 6662(h) and penalties under sections 6662A(c), 6707A(b)(2), or 6707A(e)). Rev. Proc. 2005–51, 2005–2 CB 296, which was amplified by Rev. Proc. 2007–25, 2007–1 CB 761, describes the reports on which the disclosures must be made, the information that must be disclosed, and the deadlines by which persons must make the disclosures on the reports to avoid additional penalties under section 6707A(e). If the person fails to disclose the requirement to pay the penalties, then section 6707A(e) requires that the failure be treated as a failure to disclose a listed transaction to which an additional section 6707A penalty applies. Because a penalty imposed under section 6707A(e) is treated as a penalty imposed with respect to a listed transaction, the penalty is not subject to rescission. To implement the pertinent provisions of the AJCA, the Treasury Department and the IRS proposed amendments to the rules relating to the disclosure of reportable transactions by taxpayers under section 6011 (see Prop. Treas. Reg. § 1.6011–4, 2006–49 IRB 1049) and finalized those proposed regulations in TD 9350 (72 FR 43146) published on August 3, 2007. Sections 1.6011–4(a) and (d) generally require that a taxpayer file a disclosure statement on Form 8886, ‘‘Reportable E:\FR\FM\11SER1.SGM 11SER1 rmajette on PRODPC74 with RULES Federal Register / Vol. 73, No. 177 / Thursday, September 11, 2008 / Rules and Regulations Transaction Disclosure Statement’’ (or successor form) for each reportable transaction in which the taxpayer participated. Section 1.6011–4(e)(1) provides that a disclosure statement for a reportable transaction must be attached to the taxpayer’s tax return for each taxable year for which a taxpayer participates in a reportable transaction. In addition, a disclosure statement for a reportable transaction must be attached to each amended return that reflects a taxpayer’s participation in a reportable transaction. The taxpayer also must send a copy of the disclosure statement to the IRS Office of Tax Shelter Analysis (OTSA) at the same time that any disclosure statement pertaining to a particular reportable transaction is first filed. If a reportable transaction results in a loss that is carried back to a prior year, the disclosure statement for the reportable transaction must be attached to the taxpayer’s application for tentative refund or amended tax return for that prior year. If a taxpayer who is a partner in a partnership, a shareholder in an S corporation, or a beneficiary of a trust receives a timely Schedule K–1, ‘‘Partner’s Share of Income, Deductions, Credits, etc.,’’ less than 10 calendar days before the due date of the taxpayer’s return (including extensions) and, based on receipt of the timely Schedule K–1, the taxpayer determines that the taxpayer participated in a reportable transaction, the disclosure statement will not be considered late if the taxpayer discloses the reportable transaction by filing a disclosure statement with OTSA within 60 calendar days after the due date of the taxpayer’s return (including extensions). For transactions entered into after August 2, 2007, § 1.6011–4(e)(2)(i) provides that if a transaction becomes a listed transaction or a transaction of interest after the filing of a taxpayer’s tax return (including an amended return) reflecting the taxpayer’s participation in the listed transaction or transaction of interest 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 or transaction of interest, then a disclosure statement must be filed with OTSA within 90 calendar days after the date on which the transaction became a listed transaction or a transaction of interest, regardless of whether the taxpayer participated in the transaction in the year the transaction became a listed transaction or a transaction of interest. Published guidance identifying listed transactions or transactions of interest involving estate, gift, employment, and certain excise taxes will specify the VerDate Aug<31>2005 13:31 Sep 10, 2008 Jkt 214001 manner in which taxpayers must disclose those transactions. See §§ 20.6011–4; 25.6011–4; 31.6011–4; 53.6011–4; 54.6011–4; and 56.6011–4. The Treasury Department and IRS issued Notice 2005–11, 2005–1 CB 493, providing interim guidance regarding the imposition and rescission of penalties under section 6707A (see § 601.601(d)(2)(ii)(b)). Specifically, the notice stated that the IRS will impose a penalty under section 6707A with respect to each failure to disclose a reportable transaction within the time and in the form and manner provided by section 6011 and the regulations thereunder. Accordingly, a taxpayer would be subject to a penalty under section 6707A for: (1) The failure to attach an appropriate reportable transaction disclosure statement to an original or amended return; or (2) the failure to provide a copy of an appropriate disclosure statement to OTSA, if required, within the time and in the form and manner provided by section 6011 and the regulations thereunder. A taxpayer that failed to attach a reportable transaction disclosure statement to an original or amended return and failed to provide a copy of a required disclosure statement to OTSA would be subject to a single penalty under section 6707A. Notice 2005–11 requested comments regarding the rules and standards relating to section 6707A, including the factors that should be considered in exercising the rescission authority under section 6707A(d) and how voluntary, but untimely disclosures (for example, if a taxpayer failed to make a required disclosure upon filing a return, but subsequently submits the required disclosure statement) should be treated in applying the section 6707A penalty. Since then, many have observed that there is little incentive for remedial action if a complete but delinquent disclosure statement is penalized as harshly as a complete failure to submit a disclosure statement. The Treasury Department and the IRS are currently considering whether it would be appropriate to publish a rule that would treat as timely a Form 8886 voluntarily filed prior to the date the IRS first contacts the taxpayer concerning a tax examination for the taxable period in which the taxpayer participated in the reportable transaction. Other appropriate dates by which filings must be made to qualify for relief would be considered as well. Comments are specifically requested on the necessity and appropriateness of publishing guidance addressing this issue. PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 52785 Explanation of Provisions These temporary regulations provide rules reflecting the AJCA enactment of the section 6707A penalty for the failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. These temporary regulations provide that a taxpayer may incur a separate penalty under section 6707A with respect to each reportable transaction that the taxpayer was required, but failed, to disclose within the time and in the form and manner required under § 1.6011–4(d) and (e) or as stated in other published guidance. A taxpayer who is required to disclose a reportable transaction on a Form 8886 (or successor form) filed with a return, amended return, or application for tentative refund and who also is required to disclose the transaction on a Form 8886 (or successor form) with OTSA, is subject to only a single section 6707A penalty for failure to make either one or both of those disclosures. Additionally, these temporary regulations define ‘‘reportable transaction’’ and ‘‘listed transaction’’ by reference to the regulations under section 6011. These temporary regulations restate the existing authority of the Secretary to prescribe the procedures to request rescission of a section 6707A penalty with respect to a nonlisted reportable transaction by revenue procedure or other guidance published in the Internal Revenue Bulletin. Rev. Proc. 2007–21 describes the procedures for requesting rescission of a penalty assessed under section 6707A, including the deadline by which a person must request rescission; the information the person must provide in the rescission request; the factors that weigh in favor of and against granting rescission; where the person must submit the rescission request; and the rules governing requests for additional information from the person requesting rescission. These temporary regulations adopt factors mentioned in the legislative history to section 6707A that the Commissioner (or the Commissioner’s delegate) should take into account during the determination whether to rescind all or a portion of any penalty imposed under section 6707A. See H.R. Conf. Rep. No. 755, 108th Cong., 2d Sess. at 599 (2004). Factors that these regulations identify as weighing in favor of rescission reflect circumstances that suggest that sustaining assessment of the penalty is against equity and good conscience. E:\FR\FM\11SER1.SGM 11SER1 rmajette on PRODPC74 with RULES 52786 Federal Register / Vol. 73, No. 177 / Thursday, September 11, 2008 / Rules and Regulations These temporary regulations generally adopt the list of factors stated in Rev. Proc. 2007–21. One additional factor these regulations identify as weighing in favor of granting rescission is whether the penalty assessed is disproportionately larger than the tax benefit received. The factors identified in these temporary regulations do not represent an exclusive list, and no single factor will be determinative of whether to grant rescission in any particular case. Rather, the Commissioner (or the Commissioner’s delegate) will consider and weigh all relevant factors, regardless of whether the factor is included in this list. Because it is the policy of the IRS to administer penalties in a manner that promotes voluntary compliance with the tax laws, it will weigh heavily in favor of rescission if a taxpayer voluntarily files the form required under section 6011: (i) Prior to the date the IRS first contacts the taxpayer (including contacts by the IRS with any partnership in which the taxpayer is a partner, any S corporation in which the taxpayer is a shareholder, or any trust in which the taxpayer is a beneficiary) concerning a tax examination for the tax period in which the taxpayer participated in the reportable transaction; and (ii) other circumstances suggest that the taxpayer did not delay filing an untimely but properly completed Form 8886 until after the IRS had taken steps to identify the taxpayer’s participation in the reportable transaction in question. See IRS Policy Statement 20–1 (June 29, 2004). The temporary regulations mirror Rev. Proc. 2007–21 in providing that a rescission request is not the appropriate forum to contest whether the elements necessary to support a penalty under section 6707A exist. That question is for the examining agent, the IRS Appeals Division, and the courts. A rescission determination is based on the premise that a violation of section 6707A exists but, nonetheless, the penalty should be rescinded (or abated). Accordingly, the temporary regulations provide that the Commissioner (or the Commissioner’s delegate) will not consider whether the taxpayer in fact failed to comply with section 6011. Furthermore, the temporary regulations provide that the Commissioner (or the Commissioner’s delegate) will not take into consideration doubt as to liability for, or collectibility of, the penalties in determining whether to rescind the penalty. Additionally, these temporary regulations restate the existing authority of the Secretary to prescribe by revenue VerDate Aug<31>2005 13:31 Sep 10, 2008 Jkt 214001 procedure or other guidance published in the Internal Revenue Bulletin the manner in which taxpayers must disclose the requirement to pay certain penalties on reports filed with the Securities and Exchange Commission. Rev. Procs. 2005–51 and 2007–25 are the current published guidance items that provide these disclosure rules and remain effective until further guidance is issued in the form of regulations or other guidance that explicitly supersedes these two documents. Effect on Other Documents The temporary regulations supersede Notice 2005–11. Special Analyses It has been determined that this Treasury decision 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. The temporary regulations are necessary to promote taxpayers’ immediate compliance with the regulations recently finalized under section 6011 and to provide for regulatory relief in appropriate circumstances, including the additional taxpayer favorable factor of whether the penalty assessed is disproportionately larger than the tax benefit received. For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble to the cross-referenced notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Drafting Information The principal author of these regulations is Matthew Cooper 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. Amendments to the Regulations Accordingly, 26 CFR part 301 is amended as follows: I PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 PART 301—PROCEDURE AND ADMINISTRATION Paragraph 1. The authority citation for part 301 continues to read in part as follows: I Authority: 26 U.S.C. 7805 * * * I Par. 2. Section 301.6707A–1T is added to read as follows: § 301.6707A–1T Failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. (a) In general. Any person who fails to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction may be subject to a monetary penalty. The penalty for failure to include information with respect to a reportable transaction, other than a listed transaction, is $10,000 in the case of a natural person, and $50,000 in any other case. The penalty for failure to include information with respect to a listed transaction is $100,000 in the case of a natural person, and $200,000 in any other case. The section 6707A penalty is in addition to any other penalty that may be imposed. (b) Definitions—(1) Reportable transaction. The term ‘‘reportable transaction’’ is defined in § 1.6011– 4(b)(1) of this chapter. (2) Listed transaction. The term ‘‘listed transaction’’ is defined in section 6707A(c) of the Code and § 1.6011– 4(b)(2) of this chapter. (c) Assessment of the penalty—(1) In general. The Internal Revenue Service (IRS) may assess a penalty under section 6707A with respect to each failure to disclose a reportable transaction within the time and in the form and manner provided by § 1.6011–4(d) and (e) of this chapter or pursuant to the time, form, and manner stated in other published guidance. A taxpayer who is required to disclose a reportable transaction with a return, amended return, or application for tentative refund and who also is required to disclose the transaction on a Form 8886, ‘‘Reportable Transaction Disclosure Statement’’ (or successor form), filed with the IRS Office of Tax Shelter Analysis (OTSA), is subject to only a single section 6707A penalty for failure to make either one or both of those disclosures. If section 6011 and the regulations thereunder require a disclosure statement to be filed at the time that a return is filed, the disclosure statement is considered to be timely filed if it is filed at the same time as the return, even if the return is filed untimely after its due date. E:\FR\FM\11SER1.SGM 11SER1 Federal Register / Vol. 73, No. 177 / Thursday, September 11, 2008 / Rules and Regulations rmajette on PRODPC74 with RULES (2) Examples. The rules of paragraph (c)(1) of this section are illustrated by the following examples: Example 1. Taxpayer T is required to attach a Form 8886 to its return for the 2007 taxable year and to send a copy of the Form 8886 to OTSA at the time it files its return. Taxpayer T fails to attach the Form 8886 to its return and fails to send a copy of the Form 8886 to OTSA. Taxpayer T is subject to a single penalty under section 6707A for failure to disclose because Taxpayer T failed to comply with the disclosure requirements of section 6011. A penalty under section 6707A also would apply if Taxpayer T had failed to comply with only one of the two requirements. Example 2. Same as Example 1, except that Taxpayer T also subsequently files an amended return for 2007 that reflects Taxpayer T’s participation in the reportable transaction. Taxpayer T fails to attach a Form 8886 to the amended return as required by § 1.6011–4(e)(1) of this chapter. Taxpayer T is subject to an additional penalty under section 6707A for failing to disclose a reportable transaction. Example 3. In November 2009, Taxpayer U participates in a reportable transaction resulting in a loss that is carried back to 2008. Taxpayer U fails to attach a Form 8886 to its 2008 amended return claiming the loss carryback. Section 1.6011–4(e)(1) of this chapter requires Taxpayer U to attach a Form 8886 to its amended return for the 2008 taxable year. Taxpayer U is subject to a penalty under section 6707A. Example 4. Taxpayer P participates in a non-listed reportable transaction and is required to attach a Form 8886 to its return for the 2008 taxable year that is due on March 16, 2009. Taxpayer P timely files its return but fails to attach the Form 8886 to its return. After the due date of Taxpayer P’s return and without an extension of time to file, Taxpayer P files an amended return relating to the 2008 taxable year to which Taxpayer P attaches the Form 8886. Taxpayer P is subject to a penalty under section 6707A for failure to disclose because Taxpayer P failed to comply with the disclosure requirements of section 6011 by not attaching a Form 8886 to its return for the 2008 taxable year that was timely filed on or before the due date of March 16, 2009. A penalty under section 6707A also would apply if Taxpayer P had failed to attach a Form 8886 to its amended return. Taxpayer P, nevertheless, may file a complete and proper Form 8886 and request in writing rescission of the penalties assessed within 30 days after the date the IRS sends notice and demand for payment of the penalties in accordance with Rev. Proc. 2007–21. The filing of the untimely Form 8886 will weigh heavily in favor of rescission provided that Taxpayer P files the Form 8886 prior to the date the IRS first contacts the taxpayer concerning a tax examination for the 2008 taxable year and there are no other circumstances that suggest that Taxpayer P delayed filing the Form 8886 until after the IRS had taken steps to identify Taxpayer P’s participation in the reportable transaction in question. Example 5. Shareholder V, a shareholder in an S Corporation, receives a timely VerDate Aug<31>2005 13:31 Sep 10, 2008 Jkt 214001 Schedule K–1 ‘‘Partner’s Share of Income, Deductions, Credits, etc.,’’ on April 10, 2009, and determines that she is required to attach a Form 8886 to her individual income tax return for the 2008 taxable year. Shareholder V fails to attach the Form 8886 to her 2008 individual income tax return but files a proper and complete Form 8886 with OTSA on June 12, 2009. Section 1.6011–4(e)(1) of this chapter provides that if a taxpayer who is a partner in a partnership, a shareholder in an S corporation, or a beneficiary of a trust receives a timely Schedule K–1 less than 10 calendar days before the due date of the taxpayer’s return (including extensions) and, based on receipt of the timely Schedule K– 1, the taxpayer determines that the taxpayer participated in a reportable transaction, the disclosure statement will not be considered late if the taxpayer discloses the reportable transaction by filing a disclosure statement with OTSA within 60 calendar days after the due date of the taxpayer’s return (including extensions). Accordingly, Shareholder V is not subject to a penalty under section 6707A for failure to disclose. Example 6. In July 2008, Taxpayer W participates in Transaction Z, a transaction that is not reportable as of April 15, 2009, the date Taxpayer W files his individual income tax return for 2008. On July 15, 2009, Transaction Z is identified as a transaction of interest. Section 1.6011–4(e)(2)(i) of this chapter provides that if a transaction that is not otherwise a reportable transaction becomes a listed transaction or a transaction of interest after the taxpayer has filed a tax return (including an amended return) reflecting the taxpayer’s participation in the listed transaction or transaction of interest 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 or transaction of interest, then a disclosure statement must be filed with OTSA within 90 calendar days after the date on which the transaction became a listed transaction or transaction of interest, regardless of whether the taxpayer participated in the transaction in the year the transaction became a listed transaction or a transaction of interest. Taxpayer W fails to file a Form 8886 with OTSA by October 13, 2009, 90 calendar days after the date that the transaction was identified as a transaction of interest. Accordingly, Taxpayer W is subject to a penalty under section 6707A. Example 7. Taxpayer X is required to attach a Form 8886 to its return for the 2008 taxable year with respect to participation in a listed transaction. Taxpayer X attaches the Form 8886 to its return in a timely manner. The Form 8886, however, does not describe any of the potential tax benefits expected to result from this transaction and states that information will be provided upon request. Because the Form 8886 does not describe any of the potential tax benefits expected to result from the transaction and merely provides that the information will be provided upon request, the Form 8886 filed by Taxpayer X is incomplete and does not satisfy the requirements set forth in § 1.6011–4(d) of this chapter. Taxpayer X is subject to a penalty under section 6707A for failure to disclose in the appropriate manner. PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 52787 (d) Rescission authority—(1) In general. The Commissioner (or the Commissioner’s delegate) may rescind the section 6707A penalty if— (i) The violation relates to a reportable transaction that is not a listed transaction, and (ii) Rescinding the penalty would promote compliance with the requirements of the Code and effective tax administration. (2) Requesting rescission. The Secretary may prescribe the procedures for a taxpayer to request rescission of a section 6707A penalty with respect to a reportable transaction other than a listed transaction by publishing a revenue procedure or other guidance in the Internal Revenue Bulletin. (3) Factors that weigh in favor of granting rescission. In determining whether rescission would promote compliance with the requirements of the Code and effective tax administration, the Commissioner (or the Commissioner’s delegate) will take into account the following list of factors that weigh in favor of granting rescission. This is not an exclusive list and no single factor will be determinative of whether to grant rescission in any particular case. Rather, the Commissioner (or the Commissioner’s delegate) will consider and weigh all relevant factors, regardless of whether the factor is included in this list. (i) The taxpayer, upon becoming aware that it failed to disclose a reportable transaction properly, filed a complete and proper, albeit untimely, Form 8886 (or successor form). This factor will weigh heavily in favor of rescission provided that— (A) the taxpayer files the Form 8886 prior to the date the IRS first contacts the taxpayer (including contacts by the IRS with any partnership in which the taxpayer is a partner, any S corporation in which the taxpayer is a shareholder, or any trust in which the taxpayer is a beneficiary) concerning a tax examination for the tax period in which the taxpayer participated in the reportable transaction; and (B) other circumstances suggest that the taxpayer did not delay filing an untimely but properly completed Form 8886 until after the IRS had taken steps to identify the taxpayer’s participation in the reportable transaction in question. (ii) The failure to disclose properly was due to an unintentional mistake of fact that existed despite the taxpayer’s reasonable attempts to ascertain the correct facts with respect to the transaction. (iii) The taxpayer has an established history of properly disclosing other E:\FR\FM\11SER1.SGM 11SER1 rmajette on PRODPC74 with RULES 52788 Federal Register / Vol. 73, No. 177 / Thursday, September 11, 2008 / Rules and Regulations reportable transactions and complying with other tax laws. (iv) The taxpayer demonstrates that the failure to include on any return or statement any information required to be disclosed under section 6011 arose from events beyond the taxpayer’s control. (v) The taxpayer cooperates with the IRS by providing timely information with respect to the transaction at issue that the Commissioner (or the Commissioner’s delegate) may request in consideration of the rescission request. In considering whether a taxpayer cooperates with the IRS, the Commissioner (or the Commissioner’s delegate) will take into account whether the taxpayer meets the deadlines described in Rev. Proc. 2007–21 (or successor document) (see § 601.601(d)(2)(ii)(b) of this chapter) for complying with requests for additional information. (vi) Assessment of the penalty weighs against equity and good conscience, including whether the penalty is disproportionate to the tax benefit received and whether the taxpayer demonstrates that there was reasonable cause for, and the taxpayer acted in good faith with respect to, the failure to timely file or to include on any return any information required to be disclosed under section 6011. An important factor in determining reasonable cause and good faith is the extent of the taxpayer’s efforts to ensure that persons who prepared the taxpayer’s return were informed of the taxpayer’s participation in the reportable transactions. The presence of reasonable cause, however, will not necessarily be determinative of whether to grant rescission. (4) Absence of favorable factors weighs against rescission. The absence of facts establishing the factors described in paragraph (d)(3) of this section weighs against granting rescission. The absence of any one of these factors, however, will not necessarily be determinative of whether to grant rescission. (5) Factors not considered. In determining whether to grant rescission, the Commissioner (or the Commissioner’s delegate) will not consider doubt as to liability for, or collectibility of, the penalties. (e) Reports to the Securities and Exchange Commission (SEC)—(1) In general. Under section 6707A(e), a taxpayer who is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934 (or is required to file consolidated reports with another person) must disclose in periodic reports filed with the SEC the VerDate Aug<31>2005 13:31 Sep 10, 2008 Jkt 214001 requirement to pay each of the following penalties: (i) The penalty imposed by section 6707A(a) in the amount of $200,000 for failure to disclose a listed transaction. (ii) The accuracy-related penalty imposed by section 6662A(a) at the 30percent rate determined under section 6662A(c) for a reportable transaction understatement with respect to which the relevant facts affecting the tax treatment of the reportable transaction were not adequately disclosed in accordance with regulations prescribed under section 6011. (iii) The accuracy-related penalty imposed by section 6662(a) at the 40percent rate determined under section 6662(h) for a gross valuation misstatement, if the taxpayer (but for the exclusionary rule of section 6662A(e)(2)(C)(ii)) would have been subject to the accuracy-related penalty under section 6662A(a) at the 30percent rate determined under section 6662A(c). (iv) The penalty described in paragraph (e)(3) of this section for failure to disclose in periodic reports filed with the SEC the requirement to pay any of the penalties described in paragraphs (e)(1)(i) through (iii) or (e)(3) of this section. (2) Manner and content of disclosure. The Secretary may prescribe the manner in which disclosure of the requirement to pay the penalties identified in paragraph (e)(1) of this section must be made on reports filed with the SEC, including identification of the specific SEC form and section thereof in which the taxpayer must make the disclosure as well as specification of the timing and contents of the disclosure, by publishing a revenue procedure or other guidance in the Internal Revenue Bulletin. (3) Penalty for failure to disclose in SEC filings. Any taxpayer who is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934 (or is required to file consolidated reports with another person) may be subject to a penalty in the amount of $200,000 for each failure to disclose the requirement to pay a penalty identified in paragraphs (e)(1)(i) through (e)(1)(iii) of this section in the manner specified by revenue procedure or other guidance published in the Internal Revenue Bulletin. The taxpayer also may be subject to an additional penalty in the amount of $200,000 for each failure to disclose a penalty arising under this section in the manner specified by revenue procedure or other guidance published in the Internal Revenue Bulletin. The penalty provided by this paragraph is not subject to PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 rescission as described in paragraph (d) of this section. (f) Effective/applicability date—(1) The rules of this section apply to disclosure statements that are due after September 11, 2008. (2) The applicability of this section expires on or before September 9, 2011. L.E. Stiff, Deputy Commissioner for Services and Enforcement. Approved: September 5, 2008. Eric Solomon, Assistant Secretary of the Treasury, (Tax Policy). [FR Doc. E8–21161 Filed 9–10–08; 8:45 am] BILLING CODE 4830–01–P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [Docket No. USCG–2008–0900] Safety Zone; Milwaukee Harbor, Milwaukee, WI Coast Guard, DHS. Notice of enforcement of regulation. AGENCY: ACTION: SUMMARY: The Coast Guard will enforce the Milwaukee Harbor Safety Zone in Milwaukee Harbor from 8:30 p.m. through 8:45 p.m. on September 29, 2008. This action is necessary to protect vessels and people from the hazards associated with fireworks displays. This safety zone will restrict vessel traffic from portions of the Captain of the Port Lake Michigan Zone. DATES: The regulation in 33 CFR 165.935 will be enforced from 8:30 p.m. through 8:45 p.m. on September 29, 2008. FOR FURTHER INFORMATION CONTACT: Petty Officer Eric Vogel, Prevention Department, Coast Guard Sector Lake Michigan, Milwaukee, WI at (414) 747– 7154. SUPPLEMENTARY INFORMATION: The Coast Guard will enforce Safety Zone, Milwaukee Harbor, Milwaukee, WI, 33 CFR 165.935 for the following event: Milwaukee Brewers Rally Monday, on September 29, 2008, from 8:30 p.m. through 8:45 p.m. All vessels must obtain permission from the Captain of the Port or his designated representative to enter, move within, or exit the safety zone. Vessels and persons granted permission to enter the safety zone shall obey all lawful orders or directions of the Captain of the E:\FR\FM\11SER1.SGM 11SER1

Agencies

[Federal Register Volume 73, Number 177 (Thursday, September 11, 2008)]
[Rules and Regulations]
[Pages 52784-52788]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-21161]


=======================================================================
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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9425]
RIN 1545-BF62


Section 6707A and the Failure To Include on Any Return or 
Statement any Information Required To Be Disclosed Under Section 6011 
With Respect to a Reportable Transaction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains temporary regulations regarding the 
imposition of penalties under section 6707A of the Internal Revenue 
Code (Code) for the failure to include on any return or statement any 
information required to be disclosed under section 6011 with respect to 
a reportable transaction. The text of the temporary regulations also 
serves as the text of the proposed regulations set forth in the notice 
of proposed rulemaking on this subject in the Proposed Rules section of 
this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on September 11, 
2008.
    Applicability Date: For dates of applicability, see Sec.  
301.6707A-1T(f).

FOR FURTHER INFORMATION CONTACT: Matthew Cooper, (202) 622-4940 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 301 under section 
6707A of the Code. Section 6707A was added to the Code by section 811 
of the American Jobs Creation Act of 2004, Public Law 108-357 (118 
Stat. 1418) (AJCA), enacted on October 22, 2004. Section 6707A provides 
a monetary penalty for the failure to include on any return or 
statement any information required to be disclosed under section 6011 
with respect to a reportable transaction. The penalty applies to 
returns and statements the due date for which is after October 22, 
2004, and which were not filed before that date.
    The amount of the section 6707A penalty for failure to include 
information required under section 6011 with respect to a reportable 
transaction, other than a listed transaction, is $10,000 in the case of 
an individual, and $50,000 in any other case. If the failure is with 
respect to a listed transaction, the penalty is increased to $100,000 
in the case of an individual, and $200,000 in any other case.
    Section 6707A(d)(1) grants the Commissioner authority to rescind 
all or a portion of any penalty imposed under section 6707A if (1) the 
violation relates to a reportable transaction that is not a listed 
transaction and (2) rescission of the penalty would promote compliance 
with the requirements of the Code and effective tax administration. 
Section 6707A(d)(2) provides that the Commissioner's determination 
whether to rescind the penalty may not be reviewed in any judicial 
proceeding. Rev. Proc. 2007-21, 2007-1 CB 613, provides the procedures 
to follow to request rescission of all or any portion of a penalty 
assessed under section 6707A with respect to a reportable transaction 
other than a listed transaction.
    Section 6707A(e) requires a person that is required to file 
periodic reports under section 13 or 15(d) of the Securities Exchange 
Act of 1934, or consolidated reports with another person, to disclose 
in those reports for the periods specified by the Secretary, the 
requirement to pay the penalties set forth in section 6707A(e)(2) (for 
example, certain penalties under section 6662(h) and penalties under 
sections 6662A(c), 6707A(b)(2), or 6707A(e)). Rev. Proc. 2005-51, 2005-
2 CB 296, which was amplified by Rev. Proc. 2007-25, 2007-1 CB 761, 
describes the reports on which the disclosures must be made, the 
information that must be disclosed, and the deadlines by which persons 
must make the disclosures on the reports to avoid additional penalties 
under section 6707A(e). If the person fails to disclose the requirement 
to pay the penalties, then section 6707A(e) requires that the failure 
be treated as a failure to disclose a listed transaction to which an 
additional section 6707A penalty applies. Because a penalty imposed 
under section 6707A(e) is treated as a penalty imposed with respect to 
a listed transaction, the penalty is not subject to rescission.
    To implement the pertinent provisions of the AJCA, the Treasury 
Department and the IRS proposed amendments to the rules relating to the 
disclosure of reportable transactions by taxpayers under section 6011 
(see Prop. Treas. Reg. Sec.  1.6011-4, 2006-49 IRB 1049) and finalized 
those proposed regulations in TD 9350 (72 FR 43146) published on August 
3, 2007.
    Sections 1.6011-4(a) and (d) generally require that a taxpayer file 
a disclosure statement on Form 8886, ``Reportable

[[Page 52785]]

Transaction Disclosure Statement'' (or successor form) for each 
reportable transaction in which the taxpayer participated. Section 
1.6011-4(e)(1) provides that a disclosure statement for a reportable 
transaction must be attached to the taxpayer's tax return for each 
taxable year for which a taxpayer participates in a reportable 
transaction. In addition, a disclosure statement for a reportable 
transaction must be attached to each amended return that reflects a 
taxpayer's participation in a reportable transaction. The taxpayer also 
must send a copy of the disclosure statement to the IRS Office of Tax 
Shelter Analysis (OTSA) at the same time that any disclosure statement 
pertaining to a particular reportable transaction is first filed. If a 
reportable transaction results in a loss that is carried back to a 
prior year, the disclosure statement for the reportable transaction 
must be attached to the taxpayer's application for tentative refund or 
amended tax return for that prior year. If a taxpayer who is a partner 
in a partnership, a shareholder in an S corporation, or a beneficiary 
of a trust receives a timely Schedule K-1, ``Partner's Share of Income, 
Deductions, Credits, etc.,'' less than 10 calendar days before the due 
date of the taxpayer's return (including extensions) and, based on 
receipt of the timely Schedule K-1, the taxpayer determines that the 
taxpayer participated in a reportable transaction, the disclosure 
statement will not be considered late if the taxpayer discloses the 
reportable transaction by filing a disclosure statement with OTSA 
within 60 calendar days after the due date of the taxpayer's return 
(including extensions).
    For transactions entered into after August 2, 2007, Sec.  1.6011-
4(e)(2)(i) provides that if a transaction becomes a listed transaction 
or a transaction of interest after the filing of a taxpayer's tax 
return (including an amended return) reflecting the taxpayer's 
participation in the listed transaction or transaction of interest 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 or transaction of interest, then a disclosure statement 
must be filed with OTSA within 90 calendar days after the date on which 
the transaction became a listed transaction or a transaction of 
interest, regardless of whether the taxpayer participated in the 
transaction in the year the transaction became a listed transaction or 
a transaction of interest.
    Published guidance identifying listed transactions or transactions 
of interest involving estate, gift, employment, and certain excise 
taxes will specify the manner in which taxpayers must disclose those 
transactions. See Sec. Sec.  20.6011-4; 25.6011-4; 31.6011-4; 53.6011-
4; 54.6011-4; and 56.6011-4.
    The Treasury Department and IRS issued Notice 2005-11, 2005-1 CB 
493, providing interim guidance regarding the imposition and rescission 
of penalties under section 6707A (see Sec.  601.601(d)(2)(ii)(b)). 
Specifically, the notice stated that the IRS will impose a penalty 
under section 6707A with respect to each failure to disclose a 
reportable transaction within the time and in the form and manner 
provided by section 6011 and the regulations thereunder. Accordingly, a 
taxpayer would be subject to a penalty under section 6707A for: (1) The 
failure to attach an appropriate reportable transaction disclosure 
statement to an original or amended return; or (2) the failure to 
provide a copy of an appropriate disclosure statement to OTSA, if 
required, within the time and in the form and manner provided by 
section 6011 and the regulations thereunder. A taxpayer that failed to 
attach a reportable transaction disclosure statement to an original or 
amended return and failed to provide a copy of a required disclosure 
statement to OTSA would be subject to a single penalty under section 
6707A.
    Notice 2005-11 requested comments regarding the rules and standards 
relating to section 6707A, including the factors that should be 
considered in exercising the rescission authority under section 
6707A(d) and how voluntary, but untimely disclosures (for example, if a 
taxpayer failed to make a required disclosure upon filing a return, but 
subsequently submits the required disclosure statement) should be 
treated in applying the section 6707A penalty. Since then, many have 
observed that there is little incentive for remedial action if a 
complete but delinquent disclosure statement is penalized as harshly as 
a complete failure to submit a disclosure statement. The Treasury 
Department and the IRS are currently considering whether it would be 
appropriate to publish a rule that would treat as timely a Form 8886 
voluntarily filed prior to the date the IRS first contacts the taxpayer 
concerning a tax examination for the taxable period in which the 
taxpayer participated in the reportable transaction. Other appropriate 
dates by which filings must be made to qualify for relief would be 
considered as well. Comments are specifically requested on the 
necessity and appropriateness of publishing guidance addressing this 
issue.

Explanation of Provisions

    These temporary regulations provide rules reflecting the AJCA 
enactment of the section 6707A penalty for the failure to include on 
any return or statement any information required to be disclosed under 
section 6011 with respect to a reportable transaction.
    These temporary regulations provide that a taxpayer may incur a 
separate penalty under section 6707A with respect to each reportable 
transaction that the taxpayer was required, but failed, to disclose 
within the time and in the form and manner required under Sec.  1.6011-
4(d) and (e) or as stated in other published guidance. A taxpayer who 
is required to disclose a reportable transaction on a Form 8886 (or 
successor form) filed with a return, amended return, or application for 
tentative refund and who also is required to disclose the transaction 
on a Form 8886 (or successor form) with OTSA, is subject to only a 
single section 6707A penalty for failure to make either one or both of 
those disclosures. Additionally, these temporary regulations define 
``reportable transaction'' and ``listed transaction'' by reference to 
the regulations under section 6011.
    These temporary regulations restate the existing authority of the 
Secretary to prescribe the procedures to request rescission of a 
section 6707A penalty with respect to a nonlisted reportable 
transaction by revenue procedure or other guidance published in the 
Internal Revenue Bulletin. Rev. Proc. 2007-21 describes the procedures 
for requesting rescission of a penalty assessed under section 6707A, 
including the deadline by which a person must request rescission; the 
information the person must provide in the rescission request; the 
factors that weigh in favor of and against granting rescission; where 
the person must submit the rescission request; and the rules governing 
requests for additional information from the person requesting 
rescission.
    These temporary regulations adopt factors mentioned in the 
legislative history to section 6707A that the Commissioner (or the 
Commissioner's delegate) should take into account during the 
determination whether to rescind all or a portion of any penalty 
imposed under section 6707A. See H.R. Conf. Rep. No. 755, 108th Cong., 
2d Sess. at 599 (2004). Factors that these regulations identify as 
weighing in favor of rescission reflect circumstances that suggest that 
sustaining assessment of the penalty is against equity and good 
conscience.

[[Page 52786]]

    These temporary regulations generally adopt the list of factors 
stated in Rev. Proc. 2007-21. One additional factor these regulations 
identify as weighing in favor of granting rescission is whether the 
penalty assessed is disproportionately larger than the tax benefit 
received. The factors identified in these temporary regulations do not 
represent an exclusive list, and no single factor will be determinative 
of whether to grant rescission in any particular case. Rather, the 
Commissioner (or the Commissioner's delegate) will consider and weigh 
all relevant factors, regardless of whether the factor is included in 
this list.
    Because it is the policy of the IRS to administer penalties in a 
manner that promotes voluntary compliance with the tax laws, it will 
weigh heavily in favor of rescission if a taxpayer voluntarily files 
the form required under section 6011: (i) Prior to the date the IRS 
first contacts the taxpayer (including contacts by the IRS with any 
partnership in which the taxpayer is a partner, any S corporation in 
which the taxpayer is a shareholder, or any trust in which the taxpayer 
is a beneficiary) concerning a tax examination for the tax period in 
which the taxpayer participated in the reportable transaction; and (ii) 
other circumstances suggest that the taxpayer did not delay filing an 
untimely but properly completed Form 8886 until after the IRS had taken 
steps to identify the taxpayer's participation in the reportable 
transaction in question. See IRS Policy Statement 20-1 (June 29, 2004).
    The temporary regulations mirror Rev. Proc. 2007-21 in providing 
that a rescission request is not the appropriate forum to contest 
whether the elements necessary to support a penalty under section 6707A 
exist. That question is for the examining agent, the IRS Appeals 
Division, and the courts. A rescission determination is based on the 
premise that a violation of section 6707A exists but, nonetheless, the 
penalty should be rescinded (or abated). Accordingly, the temporary 
regulations provide that the Commissioner (or the Commissioner's 
delegate) will not consider whether the taxpayer in fact failed to 
comply with section 6011. Furthermore, the temporary regulations 
provide that the Commissioner (or the Commissioner's delegate) will not 
take into consideration doubt as to liability for, or collectibility 
of, the penalties in determining whether to rescind the penalty.
    Additionally, these temporary regulations restate the existing 
authority of the Secretary to prescribe by revenue procedure or other 
guidance published in the Internal Revenue Bulletin the manner in which 
taxpayers must disclose the requirement to pay certain penalties on 
reports filed with the Securities and Exchange Commission. Rev. Procs. 
2005-51 and 2007-25 are the current published guidance items that 
provide these disclosure rules and remain effective until further 
guidance is issued in the form of regulations or other guidance that 
explicitly supersedes these two documents.

Effect on Other Documents

    The temporary regulations supersede Notice 2005-11.

Special Analyses

    It has been determined that this Treasury decision 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. The temporary 
regulations are necessary to promote taxpayers' immediate compliance 
with the regulations recently finalized under section 6011 and to 
provide for regulatory relief in appropriate circumstances, including 
the additional taxpayer favorable factor of whether the penalty 
assessed is disproportionately larger than the tax benefit received. 
For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 
6), refer to the Special Analyses section of the preamble to the cross-
referenced notice of proposed rulemaking published in the Proposed 
Rules section in this issue of the Federal Register. Pursuant to 
section 7805(f) of the Code, these regulations have been submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on their impact on small business.

Drafting Information

    The principal author of these regulations is Matthew Cooper 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.

Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

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

0
Par. 2. Section 301.6707A-1T is added to read as follows:


Sec.  301.6707A-1T   Failure to include on any return or statement any 
information required to be disclosed under section 6011 with respect to 
a reportable transaction.

    (a) In general. Any person who fails to include on any return or 
statement any information required to be disclosed under section 6011 
with respect to a reportable transaction may be subject to a monetary 
penalty. The penalty for failure to include information with respect to 
a reportable transaction, other than a listed transaction, is $10,000 
in the case of a natural person, and $50,000 in any other case. The 
penalty for failure to include information with respect to a listed 
transaction is $100,000 in the case of a natural person, and $200,000 
in any other case. The section 6707A penalty is in addition to any 
other penalty that may be imposed.
    (b) Definitions--(1) Reportable transaction. The term ``reportable 
transaction'' is defined in Sec.  1.6011-4(b)(1) of this chapter.
    (2) Listed transaction. The term ``listed transaction'' is defined 
in section 6707A(c) of the Code and Sec.  1.6011-4(b)(2) of this 
chapter.
    (c) Assessment of the penalty--(1) In general. The Internal Revenue 
Service (IRS) may assess a penalty under section 6707A with respect to 
each failure to disclose a reportable transaction within the time and 
in the form and manner provided by Sec.  1.6011-4(d) and (e) of this 
chapter or pursuant to the time, form, and manner stated in other 
published guidance. A taxpayer who is required to disclose a reportable 
transaction with a return, amended return, or application for tentative 
refund and who also is required to disclose the transaction on a Form 
8886, ``Reportable Transaction Disclosure Statement'' (or successor 
form), filed with the IRS Office of Tax Shelter Analysis (OTSA), is 
subject to only a single section 6707A penalty for failure to make 
either one or both of those disclosures. If section 6011 and the 
regulations thereunder require a disclosure statement to be filed at 
the time that a return is filed, the disclosure statement is considered 
to be timely filed if it is filed at the same time as the return, even 
if the return is filed untimely after its due date.

[[Page 52787]]

    (2) Examples. The rules of paragraph (c)(1) of this section are 
illustrated by the following examples:

    Example 1. Taxpayer T is required to attach a Form 8886 to its 
return for the 2007 taxable year and to send a copy of the Form 8886 
to OTSA at the time it files its return. Taxpayer T fails to attach 
the Form 8886 to its return and fails to send a copy of the Form 
8886 to OTSA. Taxpayer T is subject to a single penalty under 
section 6707A for failure to disclose because Taxpayer T failed to 
comply with the disclosure requirements of section 6011. A penalty 
under section 6707A also would apply if Taxpayer T had failed to 
comply with only one of the two requirements.
    Example 2. Same as Example 1, except that Taxpayer T also 
subsequently files an amended return for 2007 that reflects Taxpayer 
T's participation in the reportable transaction. Taxpayer T fails to 
attach a Form 8886 to the amended return as required by Sec.  
1.6011-4(e)(1) of this chapter. Taxpayer T is subject to an 
additional penalty under section 6707A for failing to disclose a 
reportable transaction.
    Example 3. In November 2009, Taxpayer U participates in a 
reportable transaction resulting in a loss that is carried back to 
2008. Taxpayer U fails to attach a Form 8886 to its 2008 amended 
return claiming the loss carryback. Section 1.6011-4(e)(1) of this 
chapter requires Taxpayer U to attach a Form 8886 to its amended 
return for the 2008 taxable year. Taxpayer U is subject to a penalty 
under section 6707A.
    Example 4. Taxpayer P participates in a non-listed reportable 
transaction and is required to attach a Form 8886 to its return for 
the 2008 taxable year that is due on March 16, 2009. Taxpayer P 
timely files its return but fails to attach the Form 8886 to its 
return. After the due date of Taxpayer P's return and without an 
extension of time to file, Taxpayer P files an amended return 
relating to the 2008 taxable year to which Taxpayer P attaches the 
Form 8886. Taxpayer P is subject to a penalty under section 6707A 
for failure to disclose because Taxpayer P failed to comply with the 
disclosure requirements of section 6011 by not attaching a Form 8886 
to its return for the 2008 taxable year that was timely filed on or 
before the due date of March 16, 2009. A penalty under section 6707A 
also would apply if Taxpayer P had failed to attach a Form 8886 to 
its amended return. Taxpayer P, nevertheless, may file a complete 
and proper Form 8886 and request in writing rescission of the 
penalties assessed within 30 days after the date the IRS sends 
notice and demand for payment of the penalties in accordance with 
Rev. Proc. 2007-21. The filing of the untimely Form 8886 will weigh 
heavily in favor of rescission provided that Taxpayer P files the 
Form 8886 prior to the date the IRS first contacts the taxpayer 
concerning a tax examination for the 2008 taxable year and there are 
no other circumstances that suggest that Taxpayer P delayed filing 
the Form 8886 until after the IRS had taken steps to identify 
Taxpayer P's participation in the reportable transaction in 
question.
    Example 5. Shareholder V, a shareholder in an S Corporation, 
receives a timely Schedule K-1 ``Partner's Share of Income, 
Deductions, Credits, etc.,'' on April 10, 2009, and determines that 
she is required to attach a Form 8886 to her individual income tax 
return for the 2008 taxable year. Shareholder V fails to attach the 
Form 8886 to her 2008 individual income tax return but files a 
proper and complete Form 8886 with OTSA on June 12, 2009. Section 
1.6011-4(e)(1) of this chapter provides that if a taxpayer who is a 
partner in a partnership, a shareholder in an S corporation, or a 
beneficiary of a trust receives a timely Schedule K-1 less than 10 
calendar days before the due date of the taxpayer's return 
(including extensions) and, based on receipt of the timely Schedule 
K-1, the taxpayer determines that the taxpayer participated in a 
reportable transaction, the disclosure statement will not be 
considered late if the taxpayer discloses the reportable transaction 
by filing a disclosure statement with OTSA within 60 calendar days 
after the due date of the taxpayer's return (including extensions). 
Accordingly, Shareholder V is not subject to a penalty under section 
6707A for failure to disclose.
    Example 6. In July 2008, Taxpayer W participates in Transaction 
Z, a transaction that is not reportable as of April 15, 2009, the 
date Taxpayer W files his individual income tax return for 2008. On 
July 15, 2009, Transaction Z is identified as a transaction of 
interest. Section 1.6011-4(e)(2)(i) of this chapter provides that if 
a transaction that is not otherwise a reportable transaction becomes 
a listed transaction or a transaction of interest after the taxpayer 
has filed a tax return (including an amended return) reflecting the 
taxpayer's participation in the listed transaction or transaction of 
interest 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 or transaction of interest, 
then a disclosure statement must be filed with OTSA within 90 
calendar days after the date on which the transaction became a 
listed transaction or transaction of interest, regardless of whether 
the taxpayer participated in the transaction in the year the 
transaction became a listed transaction or a transaction of 
interest. Taxpayer W fails to file a Form 8886 with OTSA by October 
13, 2009, 90 calendar days after the date that the transaction was 
identified as a transaction of interest. Accordingly, Taxpayer W is 
subject to a penalty under section 6707A.
    Example 7. Taxpayer X is required to attach a Form 8886 to its 
return for the 2008 taxable year with respect to participation in a 
listed transaction. Taxpayer X attaches the Form 8886 to its return 
in a timely manner. The Form 8886, however, does not describe any of 
the potential tax benefits expected to result from this transaction 
and states that information will be provided upon request. Because 
the Form 8886 does not describe any of the potential tax benefits 
expected to result from the transaction and merely provides that the 
information will be provided upon request, the Form 8886 filed by 
Taxpayer X is incomplete and does not satisfy the requirements set 
forth in Sec.  1.6011-4(d) of this chapter. Taxpayer X is subject to 
a penalty under section 6707A for failure to disclose in the 
appropriate manner.

    (d) Rescission authority--(1) In general. The Commissioner (or the 
Commissioner's delegate) may rescind the section 6707A penalty if--
    (i) The violation relates to a reportable transaction that is not a 
listed transaction, and
    (ii) Rescinding the penalty would promote compliance with the 
requirements of the Code and effective tax administration.
    (2) Requesting rescission. The Secretary may prescribe the 
procedures for a taxpayer to request rescission of a section 6707A 
penalty with respect to a reportable transaction other than a listed 
transaction by publishing a revenue procedure or other guidance in the 
Internal Revenue Bulletin.
    (3) Factors that weigh in favor of granting rescission. In 
determining whether rescission would promote compliance with the 
requirements of the Code and effective tax administration, the 
Commissioner (or the Commissioner's delegate) will take into account 
the following list of factors that weigh in favor of granting 
rescission. This is not an exclusive list and no single factor will be 
determinative of whether to grant rescission in any particular case. 
Rather, the Commissioner (or the Commissioner's delegate) will consider 
and weigh all relevant factors, regardless of whether the factor is 
included in this list.
    (i) The taxpayer, upon becoming aware that it failed to disclose a 
reportable transaction properly, filed a complete and proper, albeit 
untimely, Form 8886 (or successor form). This factor will weigh heavily 
in favor of rescission provided that--
    (A) the taxpayer files the Form 8886 prior to the date the IRS 
first contacts the taxpayer (including contacts by the IRS with any 
partnership in which the taxpayer is a partner, any S corporation in 
which the taxpayer is a shareholder, or any trust in which the taxpayer 
is a beneficiary) concerning a tax examination for the tax period in 
which the taxpayer participated in the reportable transaction; and
    (B) other circumstances suggest that the taxpayer did not delay 
filing an untimely but properly completed Form 8886 until after the IRS 
had taken steps to identify the taxpayer's participation in the 
reportable transaction in question.
    (ii) The failure to disclose properly was due to an unintentional 
mistake of fact that existed despite the taxpayer's reasonable attempts 
to ascertain the correct facts with respect to the transaction.
    (iii) The taxpayer has an established history of properly 
disclosing other

[[Page 52788]]

reportable transactions and complying with other tax laws.
    (iv) The taxpayer demonstrates that the failure to include on any 
return or statement any information required to be disclosed under 
section 6011 arose from events beyond the taxpayer's control.
    (v) The taxpayer cooperates with the IRS by providing timely 
information with respect to the transaction at issue that the 
Commissioner (or the Commissioner's delegate) may request in 
consideration of the rescission request. In considering whether a 
taxpayer cooperates with the IRS, the Commissioner (or the 
Commissioner's delegate) will take into account whether the taxpayer 
meets the deadlines described in Rev. Proc. 2007-21 (or successor 
document) (see Sec.  601.601(d)(2)(ii)(b) of this chapter) for 
complying with requests for additional information.
    (vi) Assessment of the penalty weighs against equity and good 
conscience, including whether the penalty is disproportionate to the 
tax benefit received and whether the taxpayer demonstrates that there 
was reasonable cause for, and the taxpayer acted in good faith with 
respect to, the failure to timely file or to include on any return any 
information required to be disclosed under section 6011. An important 
factor in determining reasonable cause and good faith is the extent of 
the taxpayer's efforts to ensure that persons who prepared the 
taxpayer's return were informed of the taxpayer's participation in the 
reportable transactions. The presence of reasonable cause, however, 
will not necessarily be determinative of whether to grant rescission.
    (4) Absence of favorable factors weighs against rescission. The 
absence of facts establishing the factors described in paragraph (d)(3) 
of this section weighs against granting rescission. The absence of any 
one of these factors, however, will not necessarily be determinative of 
whether to grant rescission.
    (5) Factors not considered. In determining whether to grant 
rescission, the Commissioner (or the Commissioner's delegate) will not 
consider doubt as to liability for, or collectibility of, the 
penalties.
    (e) Reports to the Securities and Exchange Commission (SEC)--(1) In 
general. Under section 6707A(e), a taxpayer who is required to file 
periodic reports under section 13 or 15(d) of the Securities Exchange 
Act of 1934 (or is required to file consolidated reports with another 
person) must disclose in periodic reports filed with the SEC the 
requirement to pay each of the following penalties:
    (i) The penalty imposed by section 6707A(a) in the amount of 
$200,000 for failure to disclose a listed transaction.
    (ii) The accuracy-related penalty imposed by section 6662A(a) at 
the 30-percent rate determined under section 6662A(c) for a reportable 
transaction understatement with respect to which the relevant facts 
affecting the tax treatment of the reportable transaction were not 
adequately disclosed in accordance with regulations prescribed under 
section 6011.
    (iii) The accuracy-related penalty imposed by section 6662(a) at 
the 40-percent rate determined under section 6662(h) for a gross 
valuation misstatement, if the taxpayer (but for the exclusionary rule 
of section 6662A(e)(2)(C)(ii)) would have been subject to the accuracy-
related penalty under section 6662A(a) at the 30-percent rate 
determined under section 6662A(c).
    (iv) The penalty described in paragraph (e)(3) of this section for 
failure to disclose in periodic reports filed with the SEC the 
requirement to pay any of the penalties described in paragraphs 
(e)(1)(i) through (iii) or (e)(3) of this section.
    (2) Manner and content of disclosure. The Secretary may prescribe 
the manner in which disclosure of the requirement to pay the penalties 
identified in paragraph (e)(1) of this section must be made on reports 
filed with the SEC, including identification of the specific SEC form 
and section thereof in which the taxpayer must make the disclosure as 
well as specification of the timing and contents of the disclosure, by 
publishing a revenue procedure or other guidance in the Internal 
Revenue Bulletin.
    (3) Penalty for failure to disclose in SEC filings. Any taxpayer 
who is required to file periodic reports under section 13 or 15(d) of 
the Securities Exchange Act of 1934 (or is required to file 
consolidated reports with another person) may be subject to a penalty 
in the amount of $200,000 for each failure to disclose the requirement 
to pay a penalty identified in paragraphs (e)(1)(i) through (e)(1)(iii) 
of this section in the manner specified by revenue procedure or other 
guidance published in the Internal Revenue Bulletin. The taxpayer also 
may be subject to an additional penalty in the amount of $200,000 for 
each failure to disclose a penalty arising under this section in the 
manner specified by revenue procedure or other guidance published in 
the Internal Revenue Bulletin. The penalty provided by this paragraph 
is not subject to rescission as described in paragraph (d) of this 
section.
    (f) Effective/applicability date--(1) The rules of this section 
apply to disclosure statements that are due after September 11, 2008.
    (2) The applicability of this section expires on or before 
September 9, 2011.

L.E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: September 5, 2008.
Eric Solomon,
Assistant Secretary of the Treasury, (Tax Policy).
[FR Doc. E8-21161 Filed 9-10-08; 8:45 am]
BILLING CODE 4830-01-P

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