Section 3. Eligible Transactions

The following transactions are eligible for settlement under this initiative. Stated by each transaction is the accuracy-related

penalty on the underpayment attributable to the transaction that a person will be required to pay, unless one of the exceptions listed in paragraph E of section 4 applies.

1. Notice 2002–21, 2002–1 C.B. 730 (Tax Avoidance Using Inflated Basis) (20%).

2. Notice 2001–16, 2001–1 C.B. 730 (Intermediary Transactions Tax Shelter) (20%).

3. Notice 2003–55, 2003–2 C.B. 395 (Accounting for Lease Strips and Other Stripping Transactions (10%), and transactions involving losses reported from inflated basis assets from lease strips (20%)).

4. Notice 2003–54, 2003–2 C.B. 363 (Common Trust Fund Straddle Tax Shelters) (10%), but excluding transactions described in Notice 2002–50, 2002–2 C.B. 98, and Notice 2002–65, 2002–2 C.B. 690.

5. Notice 2003–81, 2003–2 C.B. 1223 (Tax Avoidance Using Offsetting Foreign Currency Option Contracts) (10%).

6. Notice 99–59, 1999–2 C.B. 761 (Tax Avoidance Using Distributions of Encumbered Property) (10%).

7. Rev. Rul. 2004–98, 2004–2 C.B. 664 (“Reimbursements” for parking expenses previously paid by an employer or previously paid by an employee through salary reduction) (5%).

8. Rev. Rul. 2004–20, 2004–1 C.B. 546, Situation 1 (Pension plan fails to satisfy § 412(i) where amounts accumulated under life insurance contracts and annuities held by the plan exceed benefits payable under plan terms) and Situation 2 (Employer contributions to pension plan are not currently deductible when used to pay premiums on life insurance contracts that provide for death benefits in excess of the participant’s death benefit under the terms of the plan), and Rev. Rul. 2004–21, 2004–1 C.B. 544 (Pension plan fails to satisfy nondiscrimination requirements due to differences in the value of participants’ rights to

2005–46 I.R.B. 968 November 14, 2005

transaction costs, including promoter fees and fees paid for accounting, appraisal, and legal services, actually paid by the taxpayer. If tax benefits, including benefits attributable to transaction costs, were claimed in a year barred by the period of limitations on assessment, then transaction costs will be allowed as an ordinary loss only to the extent the transaction costs exceed the tax benefits claimed in the barred years.

C. Tax-Exempt Entities . Where a transaction includes a tax-exempt entity as a party, resolution for the taxpayer may require the tax-exempt entity to disburse any funds received as a result of the transaction. As noted in paragraph A of this section 4, excise taxes may also apply. If an eligible taxpayer created a tax-exempt entity specifically for the purpose of accommodating an abusive or tax-avoidance transaction, or if an entity created by an eligible taxpayer has engaged in abusive transactions as a substantial part of its activities, the entity may also be required to agree to revocation of its exemption.

D. Multi-Party Transactions . The Service generally expects that all parties to a transaction ( e.g., an employer and employee) will elect to resolve the transaction under this initiative. The failure of all parties to the transaction to elect to resolve the transaction under this initiative will not automatically preclude settlement for the electing parties. If all parties do not elect to participate in this initiative, however, the Service reserves the right to not settle with the electing parties if it is not in the interest of sound tax administration to do so.

E. Penalties .

1. Except as otherwise provided in this paragraph E, a person that settles a transaction under this initiative will pay an accuracy-related penalty under § 6662 on the underpayment attributable to the transaction in the percentage amount provided for the transaction above in section 3.

2. A person that properly disclosed the transaction under Announcement 2002–2, 2002–1 C.B. 304, will not pay a penalty on the underpayment

3. Treas. Reg. § 1.643(a)–8 (Certain Distributions by Charitable Remainder Trusts) (5%).

4. Certain abusive charitable contributions and conservation easements (Deductions under § 170 improperly claimed as a result of: (a) open space easements where the easement has no, or de minimis, value; (b) historic land or façade easements that have no, or de minimis, value; and (c) so-called conservation buyer transactions where the charitable organization purchases property, places an easement on it and then “sells” the property with the easement to a buyer at a price substantially less than that paid for it and the buyer also makes a charitable contribution that approximates the price differential. See Notice 2004–41, 2004–2 C.B. 31.) (5%). ¹

5. Certain abusive charitable contributions of patents and other intellectual property (Transfers of patents or other intellectual property to charitable organizations where the property transferred has no, or de minimis, value. See Notice 2004–7, 2004–1 C.B. 310.) (5%). ¹

6. Management S Corporation ESOP Transactions (Transactions where the taxpayer has claimed that it is entitled to exclude income of an operating business by asserting, incorrectly, that the taxpayer had established, on or before March 14, 2001, an employee stock ownership plan entitled to an exemption from unrelated business income and an S corporation that is a management corporation, and whatever actions that were taken to attempt to establish an employee stock ownership plan and a management S corporation were taken on or before March 14, 2001) (5%).