The IRS issued new regulations to make it harder for people to use shady tax strategies to avoid paying taxes. Now, anyone who takes part in certain types of transactions has to tell the IRS about it. This is a change from the old rules, which were easier to get around. The new regulations require disclosure of participation in any of six types of “reportable transactions,” including ones that involve secrecy, protecting against losses, or differences between financial and tax records. A listed transaction is a type of transaction that the IRS has identified as a way for people to avoid paying taxes. Some examples of these transactions are the “BOSS transaction” and the “Roth IRA shelter.” These transactions have gained a lot of attention because they have been used by people to try to avoid paying taxes. Reportable transactions are specific types of financial transactions that must be reported to the IRS. This includes transactions that are similar to those listed by the IRS, transactions offered under conditions of confidentiality, transactions with certain contractual protections, large loss transactions, transactions with significant differences between book and tax purposes, and transactions with brief asset holding periods. Taxpayers participating in these transactions must disclose their participation by attaching Form 8886 to their tax return. If a transaction becomes a listed transaction after the taxpayer’s original tax return is filed, they must disclose the transaction when it becomes listed. The new rules for disclosing tax shelters are criticized as weak, but the IRS is trying to make them stronger. The rules apply to tax returns filed after February 28, 2000. If someone sets up a potentially abusive tax shelter, they have to keep a list of everyone who invested in it and give that list to the IRS. This rule also applies to anyone who gives advice about the tax aspects of the shelter. There are specific money thresholds that trigger the list-keeping requirement. If someone is considered to be a “material advisor,” they have to keep a list of investors for any sketchy tax deals. A deal is shady if it’s a tax shelter under the law or has the potential to help someone avoid paying their fair share of taxes. If a material advisor knows or thinks a deal will be listed as shady, they have to keep a list of investors for that too. If an advisor is involved in a potentially abusive tax shelter, they have to keep a list of investors and provide it to the IRS if requested. The IRS wants to discourage tax shelters to protect taxpayers. There are penalties for not following these rules. Legislation is pending to enforce penalties for not disclosing involvement in tax shelters. The IRS is also proposing changes for tax advisors who give opinions on tax shelters. This article was written by a lawyer who is an expert in tax law. It was submitted on behalf of the Tax Section of The Florida Bar. The purpose of The Florida Bar is to teach its members about duty and serving the public, improve how justice is carried out, and make advancements in the study of law.
Source: https://www.floridabar.org/the-florida-bar-journal/the-final-tax-shelter-disclosure-rules-reportingregistration-and-list-maintenance-requirements/
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