SECTION 2. BACKGROUND

.01 In general, the limitations period on assessment of tax is three years after the later of the due date for filing a tax return or the date on which the taxpayer files its return. I.R.C. § 6501(a). Section 6501(c) provides several exceptions to the general three-year period of limitations.

.02 Section 814 of the American Jobs Creation Act of 2004, Pub. L. No. 108–357, 118 Stat. 1418 (2004) (the Act), amended section 6501(c) by adding a new paragraph (10). Section 6501(c)(10) provides that the limitations period on assessment with respect to a listed transaction that the taxpayer fails to disclose, as required under section 6011 (an “undisclosed listed transaction”), shall not expire before one year after the earlier of (A) the date on which the Secretary is furnished the information required under section 6011, or (B) the date that a material advisor meets the requirements of section 6112 with respect to a request by the Secretary under section 6112 relating to the undisclosed listed transaction. Section 6501(c)(10) is effective for taxable years with respect to which the limitations period on assessment did not expire prior to October 22, 2004, the date of enactment of the Act. Section 6501(c)(10) does not revive an assessment limitations period that expired prior to October 22, 2004.

.03 Section 6707A(c)(2) (added by section 811 of the Act) defines a “listed transaction” as a reportable transaction that is the same as, or substantially similar to, a transaction identified by the

dividends are transferred to that individual. For example, if a qualified plan distributes a contract to an employee along with the rights to dividends held on deposit with respect to that contract, the employee must take into income both the fair market value of the contract and the value of the dividends held on the deposit. This is the case regardless of whether the dividends on deposit are paid directly to the employee at the time the contract is distributed or merely made available for payment at a later time.

.02 Treatment of Loans. If a loan (including a loan secured by the cash value of a life insurance contract) is made to an employee or other service provider in connection with the performance of services, to the extent the debt owed by the employee or other service provider is terminated upon distribution or transfer of the collateral, the terminated loan or debt amount constitutes an additional distribution to the employee or service provider at that time. For this purpose, it is irrelevant whether the loan is described as having been forgiven, canceled, satisfied, extinguished, or otherwise offset, provided that the loan no longer exists after the distribution or transfer. For example, if a life insurance contract with a fair market value of $100,000 (without regard to any debt) is collateral for a policy loan of $30,000 (borrowed by the employer, who then lends the $30,000 to the employee) prior to the distribution or transfer of the contract, and the loan to the employee no longer exists after the distribution or transfer so that the amount distributed is $70,000 ($100,000 - $30,000), the entire $100,000 must be taken into account by the employee. If a participant receives a loan from a life insurance contract held by a qualified plan (or other plan subject to the rules of § 72(p)) and the contract is subsequently distributed to the participant in satisfaction of the participant’s benefit under the plan, the reduction in the value of the distribution in order to repay the participant’s loan from the plan constitutes a plan loan offset amount, which is treated as a distribution from the plan. See § 1.72(p)–1, Q&A–13(b).