A Crash Course On Reportable Transaction Penalties For Material Advisors

B EDITED BY MEGAN L. BRACKNEY
FRAUD & NEGLIGENCE
A Crash Course on Reportable Transaction Penalties for Material Advisors
MEGAN L. BRACKNEY
160 BJOuRnAl Of TAxATiOn G OCTObeR 2017
After a long period of inactivity, the IRS has recently released four notices identifying new reportable transactions.
Practitioners who are “material advi- sors” with respect to “reportable trans- actions,” are required to report to the IRS, and to maintain information about, those transactions, and are sub- ject to onerous penalties if they fail to comply. In the past two years, after a long period of inactivity,1 the IRS has issued four new notices identifying transactions as new reportable trans- actions,2 making this a good time to review the rules for material advisors.
The definition of a “material advi- sor” is complex, and it is helpful to break it down into its components. However, if there is any question as to whether one is a material advisor, rather than parsing these definitions, and potentially ending up on the los- ing side of the argument with the IRS years down the road, consider being proactive and filing the required re- ports and maintaining lists.
ARE YOU A
MATERIAL ADVISOR?
Section 6111 defines “material advisor” as any person:
(i) who provides any material aid, as-
sistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable trans- action, and
(ii) who directly or indirectly derives gross income in excess of the threshold amount (or such other amount as may be prescribed by the Secretary) for such aid, assis- tance, or advice.3
Below is a discussion of the main elements of this definition.
Is The Transaction “Reportable”?
The threshold question is whether the transaction at issue is a “reportable transaction” in the first place. If not,