Reportable_Transactions - Reportable Transactions: What You...

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assessed. (If the reportable transaction is dis- closed, taxpayers are still subject to a 20% penalty on the understatement of tax.) In addition to the penalties, the statute of limita- tions is suspended for any listed transaction that is not disclosed. The IRS has additional information available on its web site (including Treasury Regulations discussed here- in) at http://www.irs.gov/businesses/corpora - tions/article/0,,id=97384,00.html . Reportable Transactions Defined Reportable transactions are defined by Treasury Regulation Section 1.6011-4 and generally include the following. Many times these transactions are perfectly legitimate; however, the government requires disclosure. Confidential transactions - These are transactions offered under conditions of confi- dentiality and for a minimum fee of $250,000 for corporations or partnerships or trusts wholly owned by corporations and $50,000 for all others. Some tax professionals or investment pro- moters require clients to sign agreements stipulating the client may not disclose a tax strategy to oth- ers. Sometimes this is because the profes- sional or promoter does not want competitors to find out about the strategy, but sometimes it is because the professional or promoter does not want the taxing authorities to find out. Transactions with contractual protec- tion - These are transactions with the right to a refund of fees or investment if the trans- action’s intended tax consequences do not T he American Jobs Creation Act of 2004 (2004 Jobs Act) imposes new penalties on taxpayers who fail to adequately disclose “reportable transactions” to the IRS. Before the 2004 Jobs Act, taxpayers were generally only penalized for not disclosing a reportable transac- tion if the IRS was successful in chal- lenging the trans- action. Accordingly, many taxpayers were not overly concerned about disclosing these transactions, especially if the tax benefits of the transaction were clearly legitimate and/or there was little chance of a successful IRS challenge. In an attempt to curb the use of abu- sive tax shelters, new, stiff penalties are in effect for failure to adequately disclose a reportable transaction to the IRS on a return due after October 22, 2004 (the date the 2004 Jobs Act was signed into law). Unlike most other penalties, the law signifi- cantly limits the IRS’s ability to rescind or abate these penalties for reasonable cause or other reasons. Accordingly, taxpayers should be extra vigilant in identifying and disclosing these transactions. Taxpayers should not fall into the trap of thinking reportable transactions are limited to abu- sive tax shelters. The definition of a reportable transaction is very broad and includes many transactions that are routine and perfectly legitimate. Natural persons who fail to disclose a
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This note was uploaded on 03/03/2010 for the course ACG 6845 taught by Professor Kelliher during the Spring '09 term at University of Central Florida.

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Reportable_Transactions - Reportable Transactions: What You...

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