SECTION 3. DISCUSSION

.01 Transactions Excluded from the Scope of Notice 2002–35

An NPC that requires a counterparty to make a contingent nonperiodic payment, whether or not the nonperiodic payment consists of contingent and noncontingent components, is not a “listed transaction” for purposes of §§ 6111 and 6112, or for purposes of § 1.6011–4(b)(2), by reason of being the same as or substantially similar to the transaction described in Notice 2002–35 if:

a. The taxpayer uses a method of accounting for the NPC that takes the contingent nonperiodic payment into account over the life of the contract under a reasonable amortization method; b. The taxpayer properly accounts for the NPC under § 475 of the Code; c. The taxpayer properly accounts for the NPC under § 1.446–4; d. The taxpayer properly accounts for the NPC as a § 1.988–5(a) hedge in connection with a qualified hedging transaction; or e. The taxpayer properly accounts for the NPC under §1.988–2(e) (including the application of § 1.446–3(g)(4) as appropriate).

.02 Disclosure Requirement Safe Harbor

1. A taxpayer that, solely by reason of that taxpayer’s direct or indirect interest in a pass-through entity, participated (within the meaning of § 1.6011–4(c)(3)(i)(A)) in a transaction that is the same as or substantially similar to the transaction described in Notice 2002–35 (as clarified by section 3.01 this notice) is not required under § 1.6011–4 to file a disclosure statement with respect to that transaction if the taxpayer meets the requirements of section 3.02(2) of this notice.
2. This section 3.02 will apply if a taxpayer receives acknowledgement that the pass-through entity has or will comply with its separate disclosure obligation under § 1.6011–4 with respect to a transaction described

February 27, 2006 538 2006–9 I.R.B.

in Notice 2002–35 (as clarified by section 3.01 of this notice), and if the taxpayer’s only obligation under § 1.6011–4 to file a disclosure statement with respect to that transaction arises from the taxpayer’s direct or indirect interest in that pass-through entity. The acknowledgment can be a copy of the Form 8886 filed (or to be filed) by the pass-through entity, and must be received by the taxpayer prior to the time set forth in § 1.6011–4(e) in which the taxpayer would otherwise be required to provide disclosure. Taxpayers meeting the requirements of section 3.02 of this notice will not be treated as having participated in an undisclosed listed transaction for purposes of § 1.6664–2(c)(3)(ii).

.03 Continuing Disclosure Obligations

Transactions described in sections 3.01 or 3.02 of this notice may be described in § 1.6011–4(b)(3) through (b)(5) or (b)(7) and, notwithstanding this notice, may be subject to disclosure by taxpayers under § 1.6011–4(a), and subject to disclosure and list maintenance requirements by material advisors under §§ 6111 and 6112. For example, an NPC that results in a large loss for a taxpayer under § 165 may be subject to disclosure by the taxpayer under § 1.6011–4(b)(5), notwithstanding that under this notice it is not subject to disclosure under § 1.6011–4(b)(2).