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contractual protection is one for which
the taxpayer or a related party (as de- Listed transactions arguably are the most
scribed in Sec. 267(b) or 707(b)) has
the right to a full or partial refund of potentially abusive transactions. Many of
fees if all or part of the intended tax them relate to the tax shelter days of
consequences from the transaction are
not sustained (Regs. Sec. 1.6011-4(b)(4)). the early 2000s.
Transactions with contractual protection
continue to be a topic of discussion (and as a transaction of interest in a notice, violated the APA. (See Newkirk and
litigation) among tax practitioners and regulation, or other form of published Webber, “Microcaptive Insurance Ar-
regulators. When can tax practitioners guidance (Regs. Sec. 1.6011-4(b)(6)). rangements After CIC Services,” 53 The
charge their clients contingent fees? The IRS has identified six transactions Tax Adviser 18 (September 2022).)
Should these transactions be included of interest, only two of them since 2009. In Green Valley, a November 2022 de-
as reportable transactions? Practitioners Practitioners recognize that the IRS cision, the Tax Court invalidated Notice
must be careful when considering what closely monitors transactions of interest. 2017-10, which identified certain syndi-
transactions must be reported under cated conservation easement transactions
this provision. Recent compliance update as listed transactions and imposed penal-
Loss transactions: In a loss trans- While activity related to the disclosure ties under Secs. 6662A, 6707, and 6707A
action, the taxpayer reports a loss under of confidential transactions, transac- on taxpayers that failed to disclose them.
Sec. 165 that exceeds certain thresholds tions with contractual protection, and The court concluded in a reported deci-
(Regs. Sec. 1.6011-4(b)(5)): loss transactions has been limited, a sion that was reviewed by the full court
■ C corporations and partnerships with recent bustle of activity has been related that the IRS had failed to comply with
only C corporation partners: $10 million to listed transactions and transactions APA notice-and-comment procedures.
in any one year or $20 million in any of interest. What Green Valley means for
combination of years (initial year of In the last two years, the IRS has lost clients: While the IRS can no longer
the loss and the next five succeeding three cases on the issue of the validity of assess listed-transaction-related penalties
tax years); its notices. In particular, the courts invali- (i.e., penalties under Sec. 6707A (non-
■ All other partnerships: $2 million in dated certain notices designating specific disclosure); Sec. 6662A(a) (reportable-
any one year or $4 million in any transactions as reportable, ruling that transaction understatement); or Sec.
combination of years (initial year of the IRS had failed to comply with the 6662A(c) (nondisclosed reportable-
the loss and the next five succeeding APA’s notice-and-comment rulemak- transaction understatement)) with re-
tax years); ing procedures. spect to certain syndicated conservation
■ Individuals, S corporations, and trusts: In Mann Construction, the Sixth easements, the IRS can still assess other
$2 million in any one year or $4 Circuit invalidated Notice 2007-83 penalties against taxpayers that invest in
million in any combination of years (requiring reporting about abusive trust syndicated conservation easements, in-
(initial year of the loss and the next arrangements utilizing cash-value life cluding accuracy-related penalties equal
five succeeding tax years); and insurance policies purportedly to provide to 20% of the tax underpayment (or 40%
■ Sec. 988 losses for individuals and trusts: welfare benefits), holding that the IRS of the tax underpayment if there is a
$50,000 in any single year. failed to provide the necessary notice gross valuation misstatement).
Practitioners are very familiar with and opportunity for comment under Also, the IRS may decide to appeal
the loss transaction regulation. Anec- the APA. the Green Valley decision. A government
dotal evidence suggests that much of the In CIC Services, a taxpayer chal- win on appeal would reinstate the IRS’s
reporting under this regulation is made lenged the validity of Notice 2016-66 ability to assess these penalties, and
on a protective basis, particularly of Sec. (requiring reporting about Sec. 831(b) clients with open statutes of limitation at
988 losses, which frequently are more microcaptive insurance). After the U.S. the time would be at risk.
cost-effective to disclose on Form 8886 Supreme Court ruled that the Anti- Editor’s note: While this col-
than to determine whether a loss actually Injunction Act did not bar the lawsuit, umn was in press, a district court in
exceeds $50,000. the case was remanded to the U.S. Alabama agreed with the Tax Court
Transactions of interest: A transac- District Court for the Eastern District in Green Valley that Notice 2017-10
tion of interest is the same as or substan- of Tennessee, which held that the is invalid; see Green Rock LLC, No.
tially similar to one the IRS has identified IRS’s promulgation of Notice 2016-66 2:21-cv-1320 (N.D. Ala. 2/2/23). In

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