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§ 56.6011–4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

*

*
*
*
*
(b) Effective date. This section applies
to listed transactions entered into on or
after January 1, 2003. Upon the
publication of final regulations, this
section will apply to transactions of
interest entered into on or after
November 2, 2006.

Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E6–18319 Filed 11–1–06; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG–103039–05]
RIN 1545–BE26

AJCA Modifications to the Section
6111 Regulations
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary
regulations.

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AGENCY:

SUMMARY: This document contains
proposed regulations under section
6111 of the Internal Revenue Code
which provide the rules relating to the
disclosure of reportable transactions by
material advisors. These regulations
affect material advisors responsible for
disclosing reportable transactions under
section 6111 and material advisors
responsible for keeping lists under
section 6112.
DATES: Written or electronic comments
and requests for a public hearing must
be received by January 31, 2007.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–103039–05), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand
delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–103039–05),
Courier’s Desk, Internal Revenue
Service, Crystal Mall 4 Building, 1901 S.
Bell St., Arlington, VA, or sent
electronically, via the IRS Internet site
at http://www.irs.gov/regs or via the
Federal eRulemaking Portal at http://
www.regulations.gov (indicate IRS and
REG–103039–05).
FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations,

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Tara P. Volungis or Charles Wien, 202–
622–3070; concerning the submissions
of comments and requests for hearing,
Kelly Banks, 202–622–0392 (not tollfree numbers).
SUPPLEMENTARY INFORMATION:
Background
This document proposes to amend 26
CFR part 301 by providing rules relating
to the disclosure of reportable
transactions by material advisors under
section 6111.
The American Jobs Creation Act of
2004, Public Law 108–357, 118 Stat.
1418, (AJCA) was enacted on October
22, 2004. Section 815 of the AJCA
amended section 6111 to require each
material advisor with respect to any
reportable transaction to make a return
(in such form as the Secretary may
prescribe) setting forth: (1) Information
identifying and describing the
transaction; (2) information describing
any potential tax benefits expected to
result from the transaction; and (3) such
other information as the Secretary may
prescribe. Section 6111(a), as amended,
also provides that the return must be
filed not later than the date specified by
the Secretary. Section 6111(b)(1), as
amended, provides a definition for the
term material advisor and includes as
part of that definition a requirement that
the material advisor derive certain
threshold amounts of gross income that
the Secretary may prescribe. The AJCA
amendments to section 6111 also
authorize the Secretary to prescribe
regulations that provide: (1) That only
one person shall be required to meet the
requirements of section 6111(a) in cases
in which two or more persons would
otherwise be required to meet such
requirements; (2) exemptions from the
requirements of section 6111; and (3)
rules as may be necessary or appropriate
to carry out the purposes of section
6111. Section 815 of the AJCA is
effective for transactions with respect to
which material aid, assistance, or advice
is provided after October 22, 2004.
Prior to these amendments, section
6111(a) required an organizer of a tax
shelter to register the tax shelter with
the Secretary not later than the day on
which interests in the tax shelter were
first offered for sale. Under former
section 6111(c), the term tax shelter was
defined as any investment with respect
to which any person could reasonably
infer from the representations made or
to be made, in connection with the
offering for sale of interests in the
investments that the tax shelter ratio for
any investor as of the close of any of the
first five years ending after the date on
which the investment was offered for
sale may have been greater than two to

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one and which was: (1) Required to be
registered under a Federal or State law
regulating securities; (2) sold pursuant
to an exemption from registration
requiring the filing of a notice with a
Federal or State agency regulating the
offering or sale of securities; or (3) a
substantial investment (the aggregate
amount which may have been offered
for sale exceeded $250,000 and the
expected involvement of five or more
investors). Under former section
6111(d), for purposes of section 6111(a),
the term tax shelter included any entity,
plan, arrangement or transaction; (1) A
significant purpose of the structure of
which is the avoidance or evasion of
Federal income tax for a direct or
indirect participant which is a
corporation; (2) which is offered to any
potential participant under conditions
of confidentiality; and (3) for which the
tax shelter promoters may receive fees
in excess of $100,000 in the aggregate.
In response to the AJCA, the IRS and
Treasury Department issued interim
guidance on section 6111 in Notice
2004–80, 2004–2 C.B. 963; Notice 2005–
17, 2005–1 C.B. 606; Notice 2005–22,
2005–1 C.B. 756; and Notice 2006–6,
2006–5 I.R.B. 385 (see § 601.601(d)(2)).
The IRS and Treasury Department have
received various comments and
questions regarding the application of
section 6111. Consequently, the IRS and
Treasury Department propose new rules
relating to the disclosure of reportable
transactions by material advisors under
section 6111.
Explanation of Provisions
A. In General
These proposed regulations are being
issued concurrently with proposed
regulations under § 301.6112–1 and
§ 1.6011–4 published elsewhere in the
Federal Register. Under these proposed
regulations, each material advisor with
respect to any reportable transaction (as
defined in § 1.6011–4(b)(1)) must file a
return by the date prescribed in the
regulations. For this purpose, a person
is a material advisor with respect to a
transaction if the person provides any
material aid, assistance, or advice with
respect to organizing, managing,
promoting, selling, implementing,
insuring, or carrying out any reportable
transaction, and directly or indirectly
derives gross income in excess of the
threshold amount for the material aid,
assistance, or advice. A person provides
material aid, assistance, or advice with
respect to organizing, managing,
promoting, selling, implementing,
insuring, or carrying out any transaction
if the person makes or provides a tax
statement to or for the benefit of certain

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Federal Register / Vol. 71, No. 212 / Thursday, November 2, 2006 / Proposed Rules
persons. The IRS and Treasury
Department also may identify other
types or classes of persons as material
advisors in published guidance.
Further, these proposed regulations
provide that the threshold amount of
gross income that a person may derive,
directly or indirectly, for providing any
material aid, assistance or advice is
$50,000 in the case of a reportable
transaction, substantially all of the tax
benefits from which are provided to
natural persons ($10,000 in the case of
a listed transaction). This threshold
amount of gross income is increased to
$250,000 in any other case ($25,000 in
the case of a listed transaction). For
transactions of interest, the IRS and
Treasury Department also may identify
reduced threshold amounts in
published guidance. A person will be
treated as becoming a material advisor
when all of the following events have
occurred (in no particular order):
(A) The person provides material aid,
assistance or advice; (B) the person
directly or indirectly derives gross
income in excess of the threshold
amount; and (C) the transaction is
entered into by the taxpayer.
The disclosure statement for a
reportable transaction must be filed by
the last day of the month that follows
the end of the calendar quarter in which
the advisor became a material advisor
with respect to the reportable
transaction. Form 8918, ‘‘Material
Advisor Disclosure Statement,’’ will be
published for use by material advisors
to disclose reportable transactions and
will supersede the Form 8264 which is
currently being used for material
advisor disclosures. The IRS will issue
a reportable transaction number to
material advisors who file the Form
8918. Material advisors must provide
the reportable transaction number
issued by the IRS to persons to whom
the material advisor makes or provides
tax statements with respect to the
transaction. Public comment on the
Form 8918 will be solicited in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)).

respect to the transaction, and identify
and describe the transaction in
sufficient detail for the IRS to be able to
understand the tax structure of the
reportable transaction and the identity
of the material advisor(s). An
incomplete form containing a statement
that information will be provided upon
request is not considered a complete
disclosure statement.

B. Incomplete Disclosure Statements
Persons who file incomplete
disclosures under section 6111 are
subject to penalties under section 6707.
The proposed regulations include
clarifying language to the regulation
reminding taxpayers that for a
disclosure to be considered complete,
the information provided on Form 8918
must describe the expected tax
treatment and all potential tax benefits
expected to result from the transaction,
describe any tax result protection with

D. Designation Agreements
The proposed regulations include a
provision allowing designation
agreements for disclosure of reportable
transactions similar to the provision in
the current regulations under
§ 301.6112–1 that allows material
advisors to have a designation
agreement authorizing one material
advisor to maintain a list of investors in
the transaction. However, parties to the
designation agreement may still be
liable for the penalty under section 6707

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C. Tax Result Protection
Previous comments to the regulations
under § 1.6011–4 stated that it is
inappropriate to require reporting of
transactions under the contractual
protection filter of § 1.6011–4(b)(4) for
which the taxpayer obtains tax result
protection (sometimes referred to as
‘‘tax result insurance’’) because
numerous legitimate business
transactions with tax indemnities would
be subject to reporting. The IRS and
Treasury Department removed tax result
protection from that category of
reportable transaction but cautioned
that if the IRS and Treasury Department
became aware of abusive transactions
utilizing tax result protection, the issue
would be reconsidered.
The IRS and Treasury Department
have since become aware of taxpayers
who have obtained tax result protection
for the tax benefits of a listed
transaction from a third party provider.
In the AJCA, Congress expressed
concern about tax result protection for
reportable transactions and included
insuring in the list of activities added to
the statutory language under section
6111. The IRS, Treasury Department,
and Congress have an interest in
learning more about the insuring of
reportable transactions. Accordingly,
while a transaction will not be a
reportable transaction simply because
there is tax result protection for the
transaction, tax result protection
provided for a reportable transaction
may subject a person to the material
advisor disclosure rules under section
6111 because a tax statement includes
third party tax result protection that
insures the tax benefits of a reportable
transaction.

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64497

if the designated material advisor fails
to disclose the reportable transaction
under section 6111.
E. Post-Filing Advice
The current regulations under
§ 301.6112–1 provide that a person will
not be considered to be a material
advisor with respect to a transaction if
that person does not make or provide a
tax statement regarding the transaction
until after the first tax return reflecting
tax benefit(s) of the transaction is filed
with the IRS. The IRS and Treasury
Department, however, believe that a
person should be considered a material
advisor for certain post-filing advice.
Consequently, the proposed rule
provides that the exception will not
apply to a person who makes a tax
statement with respect to the transaction
if it is expected that the taxpayer will
file a supplemental or amended return
reflecting additional tax benefits from
the transaction.
F. Protective Disclosures
The IRS receives disclosures filed on
a protective basis from persons claiming
that the transactions are not subject to
disclosure under section 6111. Some of
those disclosures fail to provide the IRS
with the information requested under
sections 6111 and 6112 and the
regulations thereunder that would
enable the IRS to make a determination
as to whether the transaction is subject
to disclosure. Consequently, the IRS and
Treasury Department have added
clarifying language in the proposed
regulation that allows protective
disclosures to be filed in situations
where a person is unsure of whether the
transaction should be disclosed under
section 6111. However, the disclosure is
effective only if the rules of § 301.6111–
3 and § 301.6112–1 are followed.
G. Tolling Provision
In response to comments that asked
whether the tolling provisions of
§ 1.6011–4(f) would apply to requests
from a potential material advisor for a
letter ruling under section 6111, Notice
2005–22 provided that, until further
guidance is issued, if an advisor submits
a request for a letter ruling on or before
the date the return under section 6111
is due and fully discloses all relevant
facts relating to the transaction, the
obligation of the potential material
advisor to disclose the transaction will
be suspended as provided in § 1.6011–
4(f). The IRS and Treasury Department
believe that removing the tolling
provision will promote effective tax
administration. Consequently, these
proposed regulations do not include a
provision to toll the time for providing

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disclosure when a potential material
advisor requests a ruling on a
transaction. Potential material advisors
may request a ruling under section 6111
on a transaction under the regular
procedures for requesting a ruling,
provided the ruling request is not
factual or hypothetical, but the time for
providing disclosure under section 6111
will not be tolled. The temporary
regulations issued concurrently with
these proposed regulations supersede
the tolling provision in Notice 2005–22,
effective for all ruling requests received
on or after November 1, 2006.
H. Effective Date
Generally, when these proposed
regulations become final, they will
apply to transactions with respect to
which a material advisor makes a tax
statement on or after the date the
regulations are published as final
regulations in the Federal Register.
However, upon publication the final
regulations will apply to transactions of
interest entered into on or after
November 2, 2006 with respect to which
a material advisor makes a tax statement
under § 301.6111–3 on or after
November 2, 2006.

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Special Analyses
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and because these
regulations do not impose a collection
of information on small entities, the
provisions of the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply.
The return referenced in these
regulations will be made available for
public comment in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. chapter 35). Pursuant to section
7805(f) of the Internal Revenue Code,
this notice of proposed rulemaking will
be submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
written comments (a signed original and
eight (8) copies) or electronic comments
that are submitted timely to the IRS. The
IRS and Treasury Department request
comments on the clarity of the proposed
rules, how they can be made easier to

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understand, and the administrability of
the rules in the proposed regulations.
All comments will be available for
public inspection and copying. A public
hearing will be scheduled if requested
in writing by any person that submits
timely written or electronic comments.
If a public hearing is scheduled, notice
of the date, time, and place for the
public hearing will be published in the
Federal Register.
Drafting Information
The principal authors of these
regulations are Tara P. Volungis and
Charles Wien, Office of the Associate
Chief Counsel (Passthroughs and
Special Industries). However, other
personnel from the IRS and Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
proposed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation
for part 301 continues to read, in part,
as follows:
Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6111–3 is added to
read as follows:
§ 301.6111–3 Disclosure of reportable
transactions.

(a) In general. Each material advisor,
as defined in paragraph (b) of this
section, with respect to any reportable
transaction, as defined in § 1.6011–4(b)
of this chapter, must file a return as
described in paragraph (d) of this
section by the date described in
paragraph (e) of this section.
(b) Material advisor—(1) In general. A
person is a material advisor with respect
to a transaction if the person provides
any material aid, assistance, or advice
with respect to organizing, managing,
promoting, selling, implementing,
insuring, or carrying out any reportable
transaction, and directly or indirectly
derives gross income in excess of the
threshold amount as defined in
paragraph (b)(3) of this section for the
material aid, assistance, or advice. The
term transaction includes all of the
factual elements relevant to the
expected tax treatment of any
investment, entity, plan or arrangement,

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and includes any series of steps carried
out as part of a plan.
(2) Material aid, assistance, or
advice—(i) In general. Except as
provided in paragraph (b)(5) of this
section, a person provides material aid,
assistance, or advice with respect to
organizing, managing, promoting,
selling, implementing, insuring, or
carrying out any transaction if the
person makes or provides a tax
statement to or for the benefit of—
(A) A taxpayer who either is required
to disclose the transaction under
§§ 1.6011–4, 20.6011–4, 25.6011–4,
31.6011–4, 53.6011–4, 54.6011–4, or
56.6011–4 of this chapter because the
transaction is a listed transaction or a
transaction of interest, or would have
been required to disclose the transaction
under §§ 1.6011–4, 20.6011–4, 25.6011–
4, 31.6011–4, 53.6011–4, 54.6011–4, or
56.6011–4 of this chapter if the
transaction had become a listed
transaction or a transaction of interest
within the period of limitations in
§ 1.6011–4(e) of this chapter;
(B) A taxpayer who the potential
material advisor knows is or reasonably
expects to be required to disclose the
transaction under § 1.6011–4 of this
chapter because the transaction is or is
reasonably expected to become a
transaction described in § 1.6011–4(b)(3)
through (5) or (7) of this chapter;
(C) A material advisor who is required
to disclose the transaction under this
section because it is a listed transaction
or a transaction of interest; or
(D) A material advisor who the
potential material advisor knows is or
reasonably expects to be required to
disclose the transaction under this
section because the transaction is or is
reasonably expected to become a
transaction described in § 1.6011–4(b)(3)
through (5) or (7) of this chapter.
(ii) Tax statement—(A) In general. A
tax statement is any statement
(including another person’s statement),
oral or written, that relates to a tax
aspect of a transaction that causes the
transaction to be a reportable
transaction as defined in § 1.6011–
4(b)(2) through (7) of this chapter. A tax
statement under this section includes
tax result protection that insures some
or all of the tax benefits of a reportable
transaction.
(B) Confidential transactions. A
statement relates to a tax aspect of a
transaction that causes it to be a
confidential transaction if the statement
concerns a tax benefit related to the
transaction and either the taxpayer’s
disclosure of the tax treatment or tax
structure of the transaction is limited in
the manner described in § 1.6011–
4(b)(3) of this chapter by or for the

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benefit of the person making the
statement, or the person making the
statement knows the taxpayer’s
disclosure of the tax structure or tax
aspects of the transaction is limited in
the manner described in § 1.6011–
4(b)(3) of this chapter.
(C) Transactions with contractual
protection. A statement relates to a tax
aspect of a transaction that causes it to
be a transaction with contractual
protection if the statement concerns a
tax benefit related to the transaction and
either—
(1) The taxpayer has the right to a full
or partial refund of fees paid to the
person making the statement or the fees
are contingent in the manner described
in § 1.6011–4(b)(4) of this chapter; or
(2) The person making the statement
knows or has reason to know that the
taxpayer has the right to a full or partial
refund of fees (described in § 1.6011–
4(b)(4)(ii) of this chapter) paid to
another if all or part of the intended tax
consequences from the transaction are
not sustained or that fees (as described
in § 1.6011–4(b)(4)(ii) of this chapter)
paid by the taxpayer to another are
contingent on the taxpayer’s realization
of tax benefits from the transaction in
the manner described in § 1.6011–
4(b)(4) of this chapter.
(D) Loss transactions. A statement
relates to a tax aspect of a transaction
that causes it to be a loss transaction if
the statement concerns an item that
gives rise to a loss described in
§ 1.6011–4(b)(5) of this chapter.
(E) Transactions involving a brief
asset holding period. A statement relates
to a tax aspect of a transaction involving
a brief asset holding period if the
statement concerns an item that gives
rise to a tax credit described in
§ 1.6011–4(b)(7) of this chapter.
(iii) Special rules—(A) Capacity as an
employee. A material advisor generally
does not include a person who makes a
tax statement solely in the person’s
capacity as an employee, shareholder,
partner or agent of another person. Any
tax statement made by that person will
be attributed to that person’s employer,
corporation, partnership or principal.
However, a person shall be treated as a
material advisor if that person forms or
avails of an entity with the purpose of
avoiding the rules of section 6111 or
6112 or the penalties under section 6707
or 6708.
(B) Post-filing advice. A person will
not be considered to be a material
advisor with respect to a transaction if
that person does not make or provide a
tax statement regarding the transaction
until after the first tax return reflecting
tax benefit(s) of the transaction is filed
with the IRS. However, this exception

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does not apply to a person who makes
a tax statement with respect to the
transaction if it is expected that the
taxpayer will file a supplemental or
amended return reflecting additional tax
benefits from the transaction.
(C) Publicly filed statements. A tax
statement with respect to a transaction
that includes only information about the
transaction contained in publicly
available documents filed with the
Securities and Exchange Commission no
later than the close of the transaction
will not be considered a tax statement
to or for the benefit of a person
described in paragraph (b)(2) of this
section.
(3) Gross income derived for material
aid, assistance, or advice—(i) Threshold
amount—(A) In general. The threshold
amount of gross income is $50,000 in
the case of a reportable transaction
substantially all of the tax benefits from
which are provided to natural persons
(looking through any partnerships, S
corporations, or trusts). For all other
transactions, the threshold amount is
$250,000.
(B) Listed transactions and
transactions of interest. For listed
transactions described in §§ 1.6011–4,
20.6011–4, 25.6011–4, 31.6011–4,
53.6011–4, 54.6011–4, or 56.6011–4 of
this chapter, the threshold amounts in
paragraph (b)(3)(i)(A) of this section are
reduced from $50,000 to $10,000 and
from $250,000 to $25,000. For
transactions of interest described in
§§ 1.6011–4, 20.6011–4, 25.6011–4,
31.6011–4, 53.6011–4, 54.6011–4, or
56.6011–4 of this chapter, the threshold
amounts in paragraph (b)(3)(i)(A) of this
section may be reduced as identified in
the published guidance describing the
transaction.
(ii) Gross income derived directly or
indirectly for the material aid,
assistance, or advice. In determining the
amount of gross income a person
derives directly or indirectly for
material aid, assistance, or advice, all
fees for a tax strategy or for services for
advice (whether or not tax advice) or for
the implementation of a reportable
transaction are taken into account. Fees
include consideration in whatever form
paid, whether in cash or in kind, for
services to analyze the transaction
(whether or not related to the tax
consequences of the transaction), for
services to implement the transaction,
for services to document the transaction,
and for services to prepare tax returns
to the extent return preparation fees are
unreasonable in light of all of the facts
and circumstances. A fee does not
include amounts paid to a person,
including an advisor, in that person’s
capacity as a party to the transaction.

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64499

For example, a fee does not include
reasonable charges for the use of capital
or the sale or use of property. The IRS
will scrutinize carefully all of the facts
and circumstances in determining
whether consideration received in
connection with a reportable transaction
constitutes gross income derived
directly or indirectly for aid, assistance,
or advice. For purposes of this section,
the threshold amount must be met
independently for each transaction that
is a reportable transaction and
aggregation of fees among transactions is
not required.
(4) Date a person becomes a material
advisor—(i) In general. A person will be
treated as becoming a material advisor
when all of the following events have
occurred (in no particular order)—
(A) The person provides material aid,
assistance or advice as described in
paragraph (b)(2) of this section;
(B) The person directly or indirectly
derives gross income in excess of the
threshold amount as described in
paragraph (b)(3) of this section; and
(C) The transaction is entered into by
the taxpayer to whom or for whose
benefit the person provided the tax
statement, or in the case of a tax
statement provided to another material
advisor, when the transaction is entered
into by a taxpayer to whom or for whose
benefit that material advisor provided a
tax statement.
(ii) Determining if the taxpayer
entered into the transaction. Material
advisors, including those who cease
providing services before the time the
transaction is entered into, must make
reasonable and good faith efforts to
determine whether the event described
in paragraph (b)(4)(i)(C) of this section
has occurred.
(iii) Listed transactions and
transactions of interest. If a transaction
that was not a reportable transaction is
identified as a listed transaction or a
transaction of interest in published
guidance after the occurrence of the
events described in paragraph (b)(4)(i) of
this section, the person will be treated
as becoming a material advisor on the
date the transaction is identified as a
listed transaction or a transaction of
interest.
(5) Other persons designated as
material advisors. Published guidance
may identify other types or classes of
persons as material advisors.
(c) Definitions. For purposes of this
section, the following definitions apply:
(1) Reportable transaction. The term
reportable transaction is defined in
§ 1.6011–4(b)(1) of this chapter.
(2) Listed transaction. The term listed
transaction is defined in § 1.6011–
4(b)(2) of this chapter. See also

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§§ 20.6011–4(a), 25.6011–4(a), 31.6011–
4(a), 53.6011–4(a), 54.6011–4(a), or
56.6011–4(a) of this chapter.
(3) Derive. The term derive means
receive or expect to receive.
(4) Person. The term person means
any person described in section
7701(a)(1), including an affiliated group
of corporations that join in the filing of
a consolidated return under section
1501.
(5) Substantially similar. The term
substantially similar is defined in
§ 1.6011–4(c)(4) of this chapter.
(6) Tax. The term tax means Federal
tax.
(7) Tax benefit. A tax benefit includes
deductions, exclusions from gross
income, nonrecognition of gain, tax
credits, adjustments (or the absence of
adjustments) to the basis of property,
status as an entity exempt from Federal
income taxation, and any other tax
consequences that may reduce a
taxpayer’s Federal tax liability by
affecting the amount, timing, character,
or source of any item of income, gain,
expense, loss, or credit.
(8) Tax return. The term tax return
means a Federal tax return and a
Federal information return.
(9) Tax structure. The tax structure of
a transaction is any fact that may be
relevant to understanding the purported
or claimed Federal tax treatment of the
transaction.
(10) Tax treatment. The tax treatment
of a transaction is the purported or
claimed Federal tax treatment of the
transaction.
(11) Taxpayer. The term taxpayer is
defined in § 1.6011–4(c)(1) of this
chapter.
(12) Tax result protection. The term
tax result protection includes insurance
company and other third party products
commonly described as tax result
insurance.
(13) Transaction of interest. The term
transaction of interest is defined in
§ 1.6011–4(b)(6) of this chapter. See also
§§ 20.6011–4(a), 25.6011–4(a), 31.6011–
4(a), 53.6011–4(a), 54.6011–4(a), or
56.6011–4(a) of this chapter.
(d) Form and content of material
advisor’s disclosure statement—(1) In
general. A material advisor required to
file a disclosure statement under this
section must file a completed Form
8918, ‘‘Material Advisor Disclosure
Statement’’ (or successor form) in
accordance with this paragraph (d) and
the instructions to the form. To be
considered complete, the information
provided on the form must describe the
expected tax treatment and all potential
tax benefits expected to result from the
transaction, describe any tax result
protection with respect to the

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transaction, and identify and describe
the transaction in sufficient detail for
the IRS to be able to understand the tax
structure of the reportable transaction
and the identity of the material
advisor(s). An incomplete form
containing a statement that information
will be provided upon request is not
considered a complete disclosure
statement. A material advisor may file a
single form for substantially similar
transactions. An amended form must be
filed if information previously provided
is no longer accurate, if additional
information that was not disclosed
becomes available, or if there are
material changes to the transaction. A
material advisor is not required to file
an additional form for each additional
taxpayer that enters into the same or
substantially similar transaction. If the
form is not completed in accordance
with the provisions in this paragraph (d)
and the instructions to the form, the
material advisor will not be considered
to have complied with the disclosure
requirements of this section.
(2) Reportable transaction number.
The IRS will issue to a material advisor
a reportable transaction number with
respect to the disclosed reportable
transaction. Receipt of a reportable
transaction number does not indicate
that the disclosure statement is
complete, nor does it indicate that the
transaction has been reviewed,
examined, or approved by the IRS.
Material advisors must provide the
reportable transaction number to all
taxpayers and material advisors to
whom the material advisor makes or
provides tax statements. The reportable
transaction number must be provided at
the time the transaction is entered into,
or, if the transaction is entered into
prior to the material advisor receiving
the reportable transaction number,
within 60 calendar days from the date
the reportable transaction number is
mailed to the material advisor.
(e) Time of providing disclosure. The
material advisor’s disclosure statement
for a reportable transaction must be filed
with the Office of Tax Shelter Analysis
(OTSA) by the last day of the month that
follows the end of the calendar quarter
in which the advisor became a material
advisor with respect to the reportable
transaction or in which the
circumstances necessitating an amended
disclosure statement occur. The
disclosure statement must be sent to
OTSA at the address provided in the
instructions for Form 8918 (or a
successor form).
(f) Designation agreements. If more
than one material advisor is required to
disclose a reportable transaction under
this section, the material advisors may

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designate by written agreement a single
material advisor to disclose the
transaction. The transaction must be
disclosed by the last day of the month
following the end of the calendar
quarter that includes the earliest date on
which a material advisor who is a party
to the agreement became a material
advisor with respect to the transaction
as described in paragraph (b)(4) of this
section. The designation of one material
advisor to disclose the transaction does
not relieve the other material advisors of
their obligation to disclose the
transaction to the IRS in accordance
with this section, if the designated
material advisor fails to disclose the
transaction to the IRS in a timely
manner.
(g) Protective disclosures. If a
potential material advisor is uncertain
whether a transaction must be disclosed
under this section, the advisor may
disclose the transaction in accordance
with the requirements of this section
and comply with all the provisions of
this section, and indicate on the
disclosure statement that the disclosure
statement is being filed on a protective
basis. The IRS will not treat disclosure
statements filed on a protective basis
any differently than other disclosure
statements filed under this section. For
a protective disclosure to be effective,
the advisor must comply with the
regulations under this section and
§ 301.6112–1 by providing to the IRS all
information requested by the IRS under
these sections.
(h) [The text of the proposed
§ 301.6111–3(h) is the same as the text
for § 301.6111–3T(h) published
elsewhere in this issue of the Federal
Register].
(i) Effective date—(1) In general. In
general, this section applies to
transactions with respect to which a
material advisor makes a tax statement
on or after the date these regulations are
published as final regulations in the
Federal Register. However, upon the
publication of final regulations, this
section will apply to transactions of
interest entered into on or after
November 2, 2006 with respect to which
a material advisor makes a tax statement
under § 301.6111–3 on or after
November 2, 2006.
(2) [The text of the proposed
§ 301.6111–3(i)(2) is the same as the text
for § 301.6111–3T(i)(2) published
elsewhere in this issue of the Federal
Register].
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E6–18321 Filed 11–1–06; 8:45 am]
BILLING CODE 4830–01–P

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