Part III. — Internal Revenue Bulletin 2006-5

Notification of Removal of the Transaction With a Significant Book-Tax Difference Category of Reportable Transaction Under § 1.6011–4

Notice 2006–6

The purpose of this notice is to notify taxpayers and material advisors of a future change to the categories of reportable transactions under § 1.6011–4 of the Income Tax Regulations. Until regulations reflecting this change are issued, taxpayers and material advisors may rely on this notice.

BACKGROUND

Section 1.6011–4 requires a taxpayer that participates in a reportable transaction to disclose the transaction in accordance with procedures provided in § 1.6011–4. Similarly, § 6111 of the Internal Revenue Code, as amended by the American Jobs Creation Act of 2004, Pub. L. No. 108–357, 118 Stat. 1418 (the Act), requires that each material advisor with respect to any reportable transaction make a return setting forth information identifying and describing the transaction and any potential tax benefits expected to result from the transaction by the date specified by the Secretary. Section 6112, as amended by the Act, requires material advisors to maintain lists identifying each person with respect to whom the advisor acted as a material advisor and containing such other information as the Secretary may by regulations require.

Under § 1.6011–4(b), there are currently six categories of reportable transactions. One category of reportable transactions is a transaction with a significant book-tax difference. A transaction with a significant book-tax difference is defined in § 1.6011–4(b)(6) as a transaction where the amount for tax purposes of any item or items of income, gain, expense, or loss from the transaction differs by more than $10 million on a gross basis from the amount of the item or items for book purposes in any taxable year. The amount of an item for book purposes is normally determined by applying U.S. generally

accepted accounting principles for worldwide income.

In 2004, the Internal Revenue Service released Schedule M–3, Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, for corporations that file Form 1120, U.S. Corporation Income Tax Return, effective for taxable years ending on or after December 31, 2004. On August 2, 2004, the Service and Treasury Department released Rev. Proc. 2004–45, 2004–2 C.B. 140, which provided procedures for filing the Schedule M–3 that are deemed to satisfy a taxpayer’s disclosure obligations for reporting transactions with a significant book-tax difference under § 1.6011–4. Rev. Proc. 2004–45 also announced that the Service and Treasury Department will continue to evaluate whether the disclosure requirements described in the revenue procedure and Schedule M–3 provide the Service and Treasury Department adequate information regarding significant book-tax differences. In December 2005, the Service released draft Schedules M–3 and instructions for corporations and partnerships that, in general, have total assets of $10 million or more and that file Forms 1120–PC, U.S. Property and Casualty Insurance Company Income Tax Return, 1120–L, U.S. Life Insurance Company Income Tax Return, 1120–S, U.S. Income Tax Return for an S Corporation, or 1065, U.S. Return of Partnership Income . When finalized, these Schedules M–3 will be effective for tax years ending on or after December 31, 2006.

Based on a review of the Forms 8886, Reportable Transaction Disclosure State- ment, and Schedules M–3 received during the most recent filing season, the Service and Treasury Department have concluded that the book-tax difference category of reportable transactions under § 1.6011–4 is no longer necessary. As a result, the Service and Treasury Department will be issuing temporary and proposed regulations under § 1.6011–4 that will remove from the categories of reportable transactions under § 1.6011–4(b)(1) the category of transactions with a significant book-tax difference currently set forth in § 1.6011–4(b)(6).

REMOVAL OF BOOK-TAX DIFFERENCE CATEGORY UNDER § 1.6011–4

The removal of the book-tax difference category of reportable transactions will apply to transactions with a significant book-tax difference that otherwise would have to be disclosed by taxpayers under § 1.6011–4 on Form 8886 (or on Schedule M–3 as prescribed in Rev. Proc. 2004–45) on or after January 6, 2006, the date this notice is released to the public. Consequently, for those affected transactions, taxpayers are not required to file a disclosure statement solely because the transaction has a significant book-tax difference under § 1.6011–4(b)(6).

The removal of this category of reportable transaction also will apply to transactions with a significant book-tax difference that otherwise would have to be disclosed by material advisors under § 6111 on Form 8264, Application for Reg- istration of a Tax Shelter, on or after January 6, 2006. For those affected transactions, material advisors are not required to file a disclosure statement solely because the transaction has a significant book-tax difference under § 1.6011–4(b)(6).

Similarly, the removal of this category of reportable transaction will apply to transactions with a significant book-tax difference for which lists under § 6112 otherwise should have been prepared and maintained beginning on or after January 6, 2006. For those affected transactions, material advisors are not required to prepare and maintain lists solely because the transaction has a significant book-tax difference under § 1.6011–4(b)(6).

This notice does not relieve taxpayers or material advisors of any disclosure, registration or list maintenance obligations for transactions that should have been disclosed or registered, or for transactions for which lists should have been prepared and maintained, prior to January 6, 2006. Further, this notice does not relieve taxpayers of any obligation to file a Schedule M–3.

If a transaction with a significant book-tax difference also is described in § 1.6011–4(b)(2) through (5) or (7), the transaction is a reportable transaction under § 1.6011–4 for which disclosure may be required by taxpayers under

2006–5 I.R.B. 385 January 30, 2006

securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applicable interest rate for a month is the annual interest rate on 30-year Treasury securities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

The rate of interest on 30-year Treasury securities for December 2005 is 4.65 percent. Pursuant to Notice 2002–26, 2002–1 C.B. 743, the Service has determined this rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in February 2031.

The following 30-year Treasury rates were determined for the plan years beginning in the month shown below.

§ 1.6011–4, and for which disclosure and list maintenance may be required by material advisors under §§ 6111 and 6112, respectively.

DRAFTING INFORMATION

The principal author of this notice is Tara P. Volungis of the Office of the Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, contact Ms. Volungis at (202) 622–3080 (not a toll-free call).

Weighted Average Interest Rate Update

Notice 2006–8

Sections 412(b)(5)(B) and 412(l)(7) (C)(i) of the Internal Revenue Code gen

erally provide that the interest rates used to calculate current liability for purposes of determining the full funding limitation under § 412(c)(7) and the required contribution under § 412(l) must be within a permissible range around the weighted average of the rates of interest on 30-year Treasury securities during the four-year period ending on the last day before the beginning of the plan year.

Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of the Code.

Section 417(e)(3)(A)(ii)(II) defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury

30-Year

For Plan Years Treasury 90% to 105% 90% to 110%

Beginning in: Weighted Permissible Permissible Month Year Average Range Range

January 2006 4.85 4.37 to 5.10 4.37 to 5.34

Drafting Information

The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 1–202–283–9703. Mr. Montanaro may be reached at 1–202–283–9714. The telephone numbers in the preceding sentences are not toll-free.

Treatment of Certain Travel, Lodging, and Other Allowances Paid by Federal Executive Agencies to Employees Evacuated From Hurricane Katrina Core Disaster Area

Notice 2006–10