Reg103043-05

Federal Register / Vol. 71, No. 212 / Thursday, November 2, 2006 / Proposed Rules
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG–103043–05]
RIN 1545–BE28

AJCA Modifications to the Section
6112 Regulations
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:

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SUMMARY: This document contains
proposed regulations under section
6112 of the Internal Revenue Code
which provide the rules relating to the
obligation of material advisors to
prepare and maintain lists with respect
to reportable transactions. These
regulations affect 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–103043–05), 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–103043–05),
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–103043–05).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
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:

Paperwork Reduction Act
The collection of information
contained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the
collection of information should be sent
to the Office of Management and
Budget, Attn: Desk Officer for the
Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service, Attn: IRS

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Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by
January 2, 2007.
Comments are specifically requested
concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Internal Revenue Service, including
whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information (see below);
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collections of information
may be minimized, including through
the application of automated collection
techniques or other forms of information
technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of service to provide
information.
The collection of information in this
proposed regulation is in § 301.6112–
1(b) and (d). This information is
required in order for a material advisor
to comply with the list maintenance
rules under section 6112. This
information will be used to improve
compliance with the tax laws by giving
the IRS earlier notification of
transactions that may not comport with
the tax laws. The collection of
information is mandatory. The likely
respondents are business or other forprofit institutions or individuals.
Estimated total annual reporting
burden: 50,000 hours.
Estimated average annual burden
hours per respondent: 100 hours.
Estimated number of respondents:
500.
Estimated annual frequency of
responses: On occasion.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
This document proposes to amend 26
CFR part 301 by amending the rules

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relating to the list maintenance
requirements of material advisors with
respect to reportable transactions under
section 6112.
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 6112 to provide that
each material advisor (as defined in
section 6111, as amended by the AJCA)
with respect to any reportable
transaction is required to maintain a list
(in such manner as the Secretary may by
regulations prescribe) identifying each
person with respect to whom the
advisor acted as a material advisor with
respect to the transaction, and
containing other information as the
Secretary may by regulations require.
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
the amendments to section 6111 made
by the AJCA, the definition of material
advisor was in § 301.6112–1 of the
Procedure and Administration
Regulations.
In response to the AJCA, the IRS and
Treasury Department issued interim
guidance affecting section 6112 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 6112 under the
AJCA. Consequently, the IRS and
Treasury Department propose
amendments to the rules relating to the
list maintenance obligation of material
advisors under section 6112.
Explanation of Provisions
A. In General
These proposed regulations are being
issued concurrently with proposed
regulations under § 1.6011–4 and
§ 301.6111–3 published elsewhere in
the Federal Register. The definition of
material advisor is provided in the
proposed regulations under § 301.6111–
3(b). The definition of reportable
transaction is provided in the proposed
regulations under § 1.6011–4(b)(1).
Under these proposed regulations, each
material advisor for any reportable
transaction must maintain a list
identifying each person with respect to
whom the advisor acted as a material
advisor and containing other
information described in the
regulations.

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B. The List
The information that must be
contained in the list under these
proposed regulations is similar to the
information required to be included on
the list under the current § 301.6112–1
regulations, with some additions or
clarifications, such as, the name of each
other material advisor to the transaction,
if known by the material advisor, and
any designation agreement to which the
material advisor is a party. The IRS and
Treasury Department believe that this
information is required to be provided
under the current regulations. However,
due to questions raised by material
advisors under the current regulations,
these proposed amendments clarify that
the name of other material advisors and
designation agreements are required to
be maintained.
To date, the IRS has received lists
under the current regulations that are
not in a form that enables the IRS to
determine without undue delay or
difficulty the information required
under the regulation. Some material
advisors have merely produced boxes of
documents rather than a list as required
under § 301.6112–1. Under section 6708
as amended by the AJCA, any person
who is required to maintain a list under
section 6112(a) who fails to make the
list available to the Secretary upon
written request within 20 business days
after the date of the request, must pay
a penalty of $10,000 for each day of
such failure. Failure to maintain the list
in accordance with these regulations
also subjects a person to the penalty
under section 6708. The proposed
regulations specifically clarify that the
list to be maintained by the material
advisor and furnished to the IRS upon
request consists of three separate
components: (1) An itemized statement
of information, (2) a detailed description
of the transaction, and (3) copies of
documents relating to the transaction.
The itemized statement of information
must contain all of the requested
information in a form that is easy to
understand (for example, in a format
such as a list, spreadsheet, or table). In
order for the material advisor to be in
compliance with its obligations under
section 6112, the material advisor must
maintain and furnish in the time
prescribed the itemized statement of
information, the description of the
transaction, and the copies of
documents. Under the proposed
regulations, the Secretary, in published
guidance, may provide a form or
method for maintaining and/or
furnishing a list.

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Special Analyses

C. Other Clarifications and
Modifications
The proposed regulations remove the
provision detailing how a privilege is
claimed with regard to certain
information on the list. The regulations
continue to require that if a claim of
privilege is made, the material advisor
must continue to maintain the list in
accordance with these regulations.
Similar to provisions in the current
§ 301.6112–1 regulations, material
advisors under the proposed regulations
may have a designation agreement
authorizing one material advisor to
maintain and furnish the list. However,
the designation agreement does not
relieve the other material advisors of
their obligation to furnish the list if the
designated material advisor fails to
furnish the list in a timely manner.
Thus, parties to a designation agreement
may still be liable for the penalty under
section 6708.
Contrary to the provisions in the
current regulations under § 301.6112–1,
these proposed regulations contain no
provision to toll the requirement for
maintaining the list when a potential
material advisor requests a private letter
ruling on a specific transaction. The IRS
and Treasury Department believe that
removing the tolling provision will
promote effective tax administration.
Consequently, potential material
advisors may request a ruling on a
transaction, as provided in the
temporary regulations under
§ 301.6111–3T(h), under the regular
procedures for requesting a ruling,
provided the ruling request is not
factual or hypothetical, but the
requirement for disclosing the
transaction under section 6111 and
maintaining the list under section 6112
will not be tolled. Final regulations
removing the tolling provision are being
issued concurrently with these
proposed regulations. The removal of
the tolling provision is effective for all
ruling requests received on or after
November 1, 2006.
D. 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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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. It is hereby
certified that the collection of
information in these regulations will not
have a significant economic impact on
a substantial number of small entities.
This certification is based upon the fact
that most of the information is already
required to be reported under the
current regulations; the clarifications
and new information required by the
proposed regulations add little or no
new burden to the existing
requirements. Therefore, a Regulatory
Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. 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
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,

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Federal Register / Vol. 71, No. 212 / Thursday, November 2, 2006 / Proposed Rules
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 301.6112–1 is revised
to read as follows:

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§ 301.6112–1 Material advisors of
reportable transactions must keep lists of
advisees, etc.

(a) In general. Each material advisor,
as defined in § 301.6111–3(b), with
respect to any reportable transaction, as
defined in § 1.6011–4(b) of this chapter,
shall prepare and maintain a list in
accordance with paragraph (b) of this
section and shall furnish such list to the
Internal Revenue Service (IRS) in
accordance with paragraph (e) of this
section.
(b) Preparation and maintenance of
lists—(1) In general. A separate list must
be prepared and maintained for each
reportable transaction. However, one list
must be maintained for substantially
similar transactions. A list must be
maintained in a form that enables the
IRS to determine without undue delay
or difficulty the information required in
paragraph (b)(3) of this section. The
Secretary may, by publication in the
Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii)(b) of this chapter),
provide a form or method for
maintaining and/or furnishing a list.
(2) Persons required to be included on
lists. A material advisor is required to
maintain a list identifying each person
with respect to whom the advisor acted
as a material advisor with respect to the
reportable transaction. However, a
material advisor is not required to
identify a person on the list if the
person entered into a listed transaction
or a transaction of interest more than 6
years before the transaction was
identified in published guidance as a
listed transaction or a transaction of
interest.
(3) Contents. Each list must include
the three components described in
paragraph (b)(3)(i), (ii), and (iii) of this
section.
(i) Statement. An itemized statement
containing the following information—
(A) The name of each reportable
transaction, the citation to the published
guidance number identifying the

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transaction if the transaction is a listed
transaction or a transaction of interest,
and the reportable transaction number
obtained under section 6111;
(B) The name, address, and TIN of
each person required to be included on
the list;
(C) The date on which each person
required to be included on the list
entered into each reportable transaction,
if known by the material advisor;
(D) The amount invested in each
reportable transaction by each person
required to be included on the list, if
known by the material advisor;
(E) A summary or schedule of the tax
treatment that each person is intended
or expected to derive from participation
in each reportable transaction; and
(F) The name of each other material
advisor to the transaction, if known by
the material advisor.
(ii) Description of the transaction. A
detailed description of each reportable
transaction that describes both the tax
structure of the transaction and the
purported tax treatment of the
transaction.
(iii) Documents. The following
documents—
(A) A copy of any designation
agreement (as described in paragraph (f)
of this section) to which the material
advisor is a party; and
(B) Copies of any additional written
materials, including tax analyses or
opinions, relating to each reportable
transaction that are material to an
understanding of the purported tax
treatment or tax structure of the
transaction that have been shown or
provided to any person who acquired or
may acquire an interest in the
transactions, or to their representatives,
tax advisors, or agents, by the material
advisor or any related party or agent of
the material advisor. However, a
material advisor is not required to retain
earlier drafts of a document provided
the material advisor retains a copy of
the final document (or, if there is no
final document, the most recent draft of
the document) and the final document
(or most recent draft) contains all the
information in the earlier drafts of such
document that is material to an
understanding of the purported tax
treatment or the tax structure of the
transaction.
(c) Definitions. For purposes of this
section, the following terms are defined
as:
(1) Material advisor. The term
material advisor is defined in
§ 301.6111–3(b).
(2) Reportable transaction. The term
reportable transaction is defined in
§ 1.6011–4(b)(1) of this chapter.

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(3) Listed transaction. The term listed
transaction is defined in § 1.6011–
4(b)(2) 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.
(4) Substantially similar. The term
substantially similar is defined in
§ 1.6011–4(c)(4) of this chapter.
(5) Person. The term person is defined
in § 301.6111–3(c)(4).
(6) Related party. A person is a related
party with respect to another person if
such person bears a relationship to such
other person described in section 267(b)
or 707(b).
(7) Tax. The term tax is defined in
§ 301.6111–3(c)(6).
(8) Tax benefit. The term tax benefit
is defined in § 301.6111–3(c)(7).
(9) Tax return. The term tax return is
defined in § 301.6111–3(c)(8).
(10) Tax structure. The term tax
structure is defined in § 301.6111–
3(c)(9).
(11) Tax treatment. The term tax
treatment is defined in § 301.6111–
3(c)(10).
(12) 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) Retention of lists. Each material
advisor must maintain each component
of the list described in paragraph (b)(3)
of this section in a readily accessible
form for seven years following the
earlier of the date on which the material
advisor last made a tax statement
relating to the transaction, or the date
the transaction was last entered into, if
known. If the material advisor required
to prepare, maintain, and furnish the list
is a corporation, partnership, or other
entity (entity) that has dissolved or
liquidated before completion of the
seven-year period, the person
responsible under State law for winding
up the affairs of the entity must prepare,
maintain and furnish each component
of the list on behalf of the entity, unless
the entity submits the list to the Office
of Tax Shelter Analysis (OTSA) within
60 days after the dissolution or
liquidation. If State law does not specify
any person as responsible for winding
up the affairs, then each of the directors
of the corporation, the general partners
of the partnership, or the trustees,
owners, or members of the entity are
responsible for preparing, maintaining
and furnishing each component of the
list on behalf of the entity, unless the
entity submits the list to the OTSA
within 60 days after the dissolution or
liquidation. The responsible person
must also provide notice to OTSA of

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such dissolution or liquidation within
60 days after the dissolution or
liquidation. The list and the notice
provided to OTSA must be sent to:
Internal Revenue Service, OTSA Mail
Stop 4915, 1973 North Rulon White
Blvd., Ogden, Utah 84404, or to such
other address as provided by the
Commissioner.
(e) Furnishing of lists—(1) In general.
Each material advisor responsible for
maintaining a list must, upon written
request by the IRS, make each
component of the list described in
paragraph (b)(3) of this section available
to the IRS by furnishing each
component of the list to the IRS within
20 business days from the day on which
the request is provided. The 20
business-day period shall begin on the
first business day following the earlier
of the date that the IRS mails a request
for the list by certified or registered mail
to the last known address of the material
advisor required to maintain the list, or
hand-delivers the written request in
person. Business days include every
calendar day other than Saturdays,
Sundays, or legal holidays. For purposes
of this paragraph (e), legal holiday shall
have the same meaning provided in
section 7503. The request is not
required to be in the form of an
administrative summons. Each
component of the list must be furnished
to the IRS in a form that enables the IRS
to determine without undue delay or
difficulty the information required in
paragraph (b)(3) of this section. If any
component of the list is not in a form
that enables the IRS to determine
without undue delay or difficulty the
information required in paragraph (b)(3)
of this section, the material advisor will
not be considered to have complied
with the list maintenance provisions in
section 6112 and this section.
(2) Claims of privilege. Each material
advisor who is required to maintain a
list with respect to a reportable
transaction, must still maintain the list
pursuant to the requirements of this
section even if a person asserts a claim
of privilege with respect to the
information specified in paragraph
(b)(3)(iii)(B) of this section.
(f) Designation agreements. If more
than one material advisor is required to
maintain a list of persons for a
reportable transaction, in accordance
with paragraph (b) of this section, the
material advisors may designate by
written agreement a single material
advisor to maintain the list or a portion
of the list. The designation of one
material advisor to maintain the list
does not relieve the other material
advisors from their obligation to furnish
the list to the IRS in accordance with

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paragraph (e)(1) of this section, if the
designated material advisor fails to
furnish the list to the IRS in a timely
manner. A material advisor is not
relieved from the requirement of this
section because a material advisor is
unable to obtain the list from any
designated material advisor, any
designated material advisor did not
maintain a list, or the list maintained by
any designated material advisor is not
complete.
(g) Effective date. In general, this
section applies to transactions with
respect to which a material advisor
makes a tax statement under
§ 301.6111–3 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.
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E6–18323 Filed 11–1–06; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF JUSTICE
Bureau of Prisons
28 CFR Part 524
[BOP–1141–P]
RIN 1120–AB39

Intensive Confinement Center Program
Federal Bureau of Prisons,
Justice.
ACTION: Proposed rule.
AGENCY:

SUMMARY: The Bureau of Prisons
(Bureau) proposes to remove current
rules on the intensive confinement
center program (ICC). The ICC is a
specialized program for non-violent
offenders combining features of a
military boot camp with traditional
Bureau correctional values. The Bureau
will no longer be offering the ICC
program (also known as Shock
Incarceration or Boot Camp) to inmates
as a program option. This decision was
made as part of an overall strategy to
eliminate programs that do not reduce
recidivism.
DATES: Comments due by January 2,
2007.
ADDRESSES: Our e-mail address is
BOPRULES@BOP.GOV. Comments
should be submitted to the Rules Unit,

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Office of General Counsel, Bureau of
Prisons, 320 First Street, NW.,
Washington, DC 20534. You may view
an electronic version of this rule at
http://www.regulations.gov. You may
also comment via the Internet to BOP at
BOPRULES@BOP.GOV or by using the
www.regulations.gov comment form for
this regulation. When submitting
comments electronically you must
include the BOP Docket No. in the
subject box.
FOR FURTHER INFORMATION CONTACT:
Sarah Qureshi, Office of General
Counsel, Bureau of Prisons, phone (202)
307–2105.
SUPPLEMENTARY INFORMATION: We
initially published these regulations
describing ICC eligibility requirements
and successful program completion
requirements as an interim rule in the
Federal Register on April 26, 1996 (61
FR 18658). We received no comments
on the interim rule. We later amended
these regulations through another
interim rule on October 15, 1997 (62 FR
53691). Again, we received no
comments on that interim rule. Through
this rulemaking, the Bureau seeks to be
clear to inmates and the public
regarding the termination of the ICC
program.
The current ICC regulations state that
‘‘[p]lacement in the intensive
confinement center program is to be
made by Bureau staff in accordance
with sound correctional judgment and
the availability of Bureau resources.’’ 28
CFR 524.32(b). The Bureau could,
without rulemaking, discontinue the
ICC program because it is no longer
supported by ‘‘sound correctional
judgment,’’ and/or because it diverts
Bureau resources from more successful
programs.
Also, 18 U.S.C. 4046 does not require
the establishment of a ‘‘shock
incarceration’’ program. Rather, it
authorizes the Bureau to grant sentence
reductions to those inmates who
successfully complete such a program,
i.e. ‘‘The Bureau of Prisons may place in
a shock incarceration program * * *’’
(emphasis added).
However, because the Bureau seeks to
minimize public confusion and
accurately reflect its practice by
eliminating unnecessary regulations, the
Bureau now formally proposes the
removal of the ICC regulations.
The ICC program operated at Bureau
institutions located in Bryan, Texas;
Lewisburg, Pennsylvania; and Lompoc,
California. Under this rule, no new ICC
classes or associated extended
community confinement and early
release benefits will be offered.
However, other pre-release

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