Page 79 - JoFA_2022

as microcaptive insurance arrangements described fail to maintain required lists as required by Sec.
in Notice 2016-66. If the listed transaction or 6112 are subject to penalties under Sec. 6708(a).
transaction of interest involves a tax on generation- The OTSA was created to serve as the focal point
skipping transfers, the disclosure must follow for efforts to gather and analyze information
the published guidance (Regs. Sec. 26.6011-4). relating to tax shelter activities and to coordinate
Treasury and the IRS believe that transactions appropriate responses.
of interest have the potential for abuse but lack A material adviser is any person who:
sufficient information to determine whether they ■ Provides any material aid, assistance, or advice
should be identified as tax-avoidance transactions. with respect to organizing, managing, promot-
ing, selling, implementing, insuring, or carrying
REPORTING THE TRANSACTION out any reportable transaction; and
Under Regs. Sec. 1.6011-4(d), a taxpayer discloses ■ Directly or indirectly derives gross income for
a reportable transaction by attaching Form 8886, the advice or assistance in excess of a threshold
Reportable Transaction Disclosure Statement, to the amount.
tax return. To be considered complete, the informa- The threshold amount is $50,000 for report-
tion provided on Form 8886 must: able transactions where substantially all of the
■ Describe the expected tax treatment and all tax benefits are provided to natural persons and
potential tax benefits expected to result from the $250,000 in any other case (Sec. 6111(b)(1); Regs.
transaction; Secs. 301.6111-3(b)(1) and (b)(3)).
■ Describe any tax result protection (as defined in For reportable transactions (including listed
Regs. Sec. 301.6111-3(c)(12)) for the transac- transactions) in which the material adviser provides
tion; and material aid, assistance, or advice, the adviser must
■ Identify and describe the transaction in sufficient file an information return that includes the same
detail for the IRS to be able to understand the information required on Form 8886, except that
tax structure of the reportable transaction and instead of providing the identity of all parties to the
the identity of all parties involved in it. transaction, the material adviser must provide the
A copy of the disclosure statement must be sent identity of any material adviser(s) who the mate-
to the IRS Office of Tax Shelter Analysis (OTSA) rial adviser knows or has reason to know acted as
at the same time that the taxpayer first files any a material adviser with respect to the transaction.
disclosure statement pertaining to a particular This disclosure is made on Form 8918, Material
reportable transaction (Regs. Sec. 1.6011-4(e)). Advisor Disclosure Statement, on or before the last
Incomplete or incorrect information on Form 8886 day of the month following the end of the calendar
can lead to penalties, described below. quarter in which the person first became a material
The IRS may request tax accrual workpapers for adviser with respect to the transaction (Regs. Secs.
any return that claims a tax benefit from a listed 301.6111-3(d) and (e)).
transaction. If the transaction was properly disclosed, The list of reportable transactions the material
the IRS routinely requests only the workpapers adviser maintains and provides to the IRS must
pertaining to the listed transaction. If the transaction include an itemized statement of information
was not properly disclosed, the IRS routinely will relating to each reportable transaction, a detailed
request all tax accrual workpapers, even those that description of the transaction that includes both
do not pertain to the listed transaction. The IRS the transaction’s tax structure and its purported tax
generally limits its tax accrual workpaper requests treatment, a copy of any designation agreement (a
to the workpapers for the years under examination written agreement among multiple material advisers
but may also request the workpapers for other years for the transaction designating that one of the
if directly relevant to the years under examination advisers will maintain all or a portion of the list) to
(Chief Counsel Notice 2003-012). which the material adviser is a party, and copies of
certain documents that relate to an understanding
MATERIAL ADVISER RESPONSIBILITIES of the purported tax treatment or tax structure of
Persons who are material advisers must meet the the transaction (Regs. Sec. 301.6112-1(b)(3)).
disclosure and list maintenance obligations under Material advisers who fail to maintain the
Secs. 6111 and 6112. Material advisers who fail to required list of advisees and who fail to properly
meet the disclosure requirements in Sec. 6111 are maintain the list, maintain an incomplete list, or
subject to penalties under Sec. 6707, and those who refuse to make the list available to the IRS when

journalofaccountancy.com February 2022 | 27