Part I. Rulings — Internal Revenue Bulletin 2007-34

Section 6033.—Returns by Exempt Organizations

26 CFR 1.6033–5T: Disclosure by tax-exempt enti- ties that are parties to certain reportable transactions (temporary).

T.D. 9335

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301

Disclosure Requirements With Respect to Prohibited Tax Shelter Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains temporary regulations under section 6033(a)(2) of the Internal Revenue Code (Code) that provide rules regarding the form, manner and timing of disclosure obligations with respect to prohibited tax shelter transactions to which tax-exempt entities are parties. These temporary regulations affect a broad array of tax-exempt entities, including charities, state and local government entities, Indian Tribal governments and employee benefit plans, as well as entity managers of these entities. This action is necessary to implement section 516 of the Tax Increase Prevention and Reconciliation Act of 2005. The text of the temporary regulations also serves as the text of the proposed regulations (REG–142039–06; REG–139268–06) published elsewhere in the Bulletin.

DATES: Effective Date: These regulations are effective on July 6, 2007.

Applicability Date: For dates of applicability, see §1.6033–5T(g).

FOR FURTHER INFORMATION CONTACT: Galina Kolomietz, (202) 622–6070, or Michael Blumenfeld, (202) 622–1124 (not toll-free numbers). For questions specifically relating to qualified

pension plans, individual retirement accounts, and similar tax-favored savings arrangements, contact Dana Barry, (202) 622–6060 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The Tax Increase Prevention and Reconciliation Act of 2005, Public Law 109–222 (120 Stat. 345) (TIPRA), enacted on May 17, 2006, defines certain transactions as prohibited tax shelter transactions and imposes excise taxes and disclosure requirements with respect to prohibited tax shelter transactions to which a tax-exempt entity is a party. TIPRA creates new section 4965 and amends sections 6033(a)(2) and 6011(g) of the Code. The amended section 6033(a)(2) requires every tax-exempt entity to which section 4965 applies that is a party to a prohibited tax shelter transaction to disclose to the IRS (in such form and manner and at such time as determined by the Secretary) the following information: (a) that such entity is a party to the prohibited tax shelter transaction; and (b) the identity of any other party to the transaction which is known to the tax-exempt entity. The amended section 6011(g) requires any taxable party to a prohibited tax shelter transaction to disclose by statement to any tax-exempt entity to which section 4965 applies that is a party to such transaction that such transaction is a prohibited tax shelter transaction.

On July 11, 2006, the IRS released Notice 2006–65, 2006–31 I.R.B. 102, which alerted taxpayers to the new provisions. On February 7, 2007, the IRS released Notice 2007–18, 2007–9 I.R.B. 608, which provided interim guidance regarding the circumstances under which a tax-exempt entity will be treated as a party to a prohibited tax shelter transaction for purposes of sections 4965, 6033(a)(2) and 6011(g) and regarding the allocation to various periods of net income and proceeds attributable to a prohibited tax shelter transaction, including amounts received prior to the effective date of the section 4965 tax. See §601.601(d)(2)(ii)( b ) of this chapter.

These temporary regulations are being issued concurrently with proposed regula

tions under sections 4965, 6033(a)(2) and 6011(g) published elsewhere in the Bulletin.

Explanation of Provisions

These temporary regulations contain rules concerning disclosure requirements imposed by section 6033(a)(2) on tax-exempt entities that are parties to prohibited tax shelter transactions. Proposed regulations providing rules concerning disclosure requirements under section 6033(a)(2) are being issued concurrently with these temporary regulations.

Effective Date

These temporary regulations are applicable with respect to transactions entered into by a tax-exempt entity after May 17, 2006.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these temporary regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble to the cross-referencing notice of proposed rulemaking published in this issue of the Bulletin. Pursuant to section 7805(f) of the Code, these temporary regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Drafting Information

The principal authors of these regulations are Galina Kolomietz and Dana Barry, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in their development.

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2007–34 I.R.B. 380 August 20, 2007

(i) In the case of tax-exempt entities described in paragraph (b)(1)(i), on or before November 5, 2007;

(ii) In the case of tax-exempt entities described in paragraph (b)(1)(ii), on or before the later of—

(A) November 5, 2007; or (B) The date on which the first tax return (whether an original or an amended return) is filed which reflects a reduction or elimination of the tax-exempt entity’s liability for applicable Federal employment, excise or unrelated business income taxes that is derived directly or indirectly from tax consequences or tax strategy described in the published guidance that lists the transaction.

(4) Disclosure is not required with respect to any prohibited tax shelter transaction entered into by a tax-exempt entity on or before May 17, 2006.

(f) Penalty for failure to provide disclo- sure statement . See section 6652(c)(3) for penalties applicable to failure to disclose a prohibited tax shelter transaction in accordance with this section.

(g) Effective date —(1) Applicability date . This section applies with respect to transactions entered into by a tax-exempt entity after May 17, 2006.

(2) Expiration date . This section will expire on July 6, 2010.

PART 301—PROCEDURE AND ADMINISTRATION

Par. 3. The authority citation for part 301 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * Par. 4. Section 301.6033–5T is added to read as follows:

§301.6033–5T Disclosure by tax-exempt entities that are parties to certain reportable transactions (temporary).

(a) In general . For provisions relating to the requirement of the disclosure by a tax-exempt entity that it is a party to certain reportable transactions, see §1.6033–5 of this chapter (Income Tax Regulations).

(b) Effective date —(1) Applicability date . This section applies with respect to transactions entered into by a tax-exempt entity after May 17, 2006.

(2) Expiration date. This section will expire on July 6, 2010.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.6033–5T is added to read as follows:

§1.6033–5T Disclosure by tax-exempt entities that are parties to certain reportable transactions (temporary).

(a) In general . Every tax-exempt entity (as defined in section 4965(c)) shall file with the IRS on Form 8886–T, “ Disclosure by Tax-Exempt Entity Regarding Prohib- ited Tax Shelter Transaction ” (or a successor form), in accordance with this section and the instructions to the form, a disclosure of—

(1) Such entity’s being a party (as defined in paragraph (b) of this section) to a prohibited tax shelter transaction (as defined in section 4965(e)); and

(2) The identity of any other party (whether taxable or tax-exempt) to such transaction that is known to the tax-exempt entity.

(b) Definition of tax-exempt party to a prohibited tax shelter transaction —(1) In general . For purposes of section 6033(a)(2), a tax-exempt entity is a party to a prohibited tax shelter transaction if the entity—

(i) Facilitates a prohibited tax shelter transaction by reason of its tax-exempt, tax indifferent or tax-favored status;

(ii) Enters into a listed transaction and the tax-exempt entity’s tax return (whether an original or an amended return) reflects a reduction or elimination of its liability for applicable Federal employment, excise or unrelated business income taxes that is derived directly or indirectly from tax consequences or tax strategy described in the published guidance that lists the transaction; or

(iii) Is identified in published guidance, by type, class or role, as a party to a prohibited tax shelter transaction.

(2) Published guidance may identify which tax-exempt entities, by type, class or role, will not be treated as a party to a

prohibited tax shelter transaction for purposes of section 6033(a)(2).

(d) By whom disclosure is made —(1) Tax-exempt entities referred to in section 4965(c)(1), (2) or (3) . In the case of tax-exempt entities referred to in section 4965(c)(1), (2) or (3), the disclosure required by this section must be made by the entity.

(2) Tax-exempt entities referred to in section 4965(c)(4), (5), (6) or (7) . In the case of tax-exempt entities referred to in section 4965(c)(4), (5), (6) or (7), including a fully self-directed qualified plan, IRA, or other savings arrangement, the disclosure required by this section must be made by the entity manager (as defined in section 4965(d)(2)) of the entity.

(e) Time and place for filing —(1) Tax-exempt entities described in para- graph (b)(1)(i) —(i) In general . The disclosure required by this section shall be filed on or before May 15 of the calendar year following the close of the calendar year during which the tax-exempt entity entered into the prohibited tax shelter transaction.

(ii) Subsequently listed transactions . In the case of subsequently listed transactions (as defined in section 4965(e)(2)), the disclosure required by this section shall be filed on or before May 15 of the calendar year following the close of the calendar year during which the transaction was identified by the Secretary as a listed transaction.

(2) Tax-exempt entities described in paragraph (b)(1)(ii) . The disclosure required by this section shall be filed on or before the date on which the first tax return (whether an original or an amended return) is filed which reflects a reduction or elimination of the tax-exempt entity’s liability for applicable Federal employment, excise or unrelated business income taxes that is derived directly or indirectly from tax consequences or tax strategy described in the published guidance that lists the transaction.

(3) Transition rule . If a tax-exempt entity entered into a prohibited tax shelter transaction after May 17, 2006 and before January 1, 2007, the disclosure required by this section shall be filed—

August 20, 2007 381 2007–34 I.R.B.

tion 6707A(c)(1) and §1.6011–4(b) of this chapter).

The entity-level tax applies to each taxable year during which the non-plan entity is a party to a prohibited tax shelter transaction and has net income or proceeds attributable to the transaction which are properly allocable to that taxable year. The amount of the entity-level tax depends on whether the non-plan entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time the entity became a party to the transaction. If the non-plan entity did not know (and did not have reason to know) that the transaction was a prohibited tax shelter transaction at the time the entity became a party to the transaction, the tax is the highest rate of tax under section 11 (currently 35 percent) multiplied by the greater of: (i) the entity’s net income with respect to the prohibited tax shelter transaction (after taking into account any tax imposed by Subtitle D, other than by this section, with respect to such transaction) for the taxable year or (ii) 75 percent of the proceeds received by the entity for the taxable year that are attributable to such transaction. If the non-plan entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time the entity became a party to the transaction, the tax is the greater of (i) 100 percent of the entity’s net income with respect to the transaction (after taking into account any tax imposed by Subtitle D, other than by this section, with respect to such transaction) for the taxable year or (ii) 75 percent of the proceeds received by the entity for the taxable year that are attributable to such transaction. In the case of a transaction that becomes a prohibited tax shelter transaction by reason of becoming a listed transaction after the non-plan entity has become a party to such transaction (subsequently listed transactions), the amount of tax is based on the net income or proceeds attributable to such transaction that are properly allocable to the period beginning on the date the transaction became listed or the first day of the entity’s taxable year, whichever is later. No entity-level tax applies to any income or proceeds that are properly allocable to a period ending on or before August 15, 2006.

The manager-level tax is imposed on entity managers (as defined in section 4965(d)) of all tax-exempt entities de

Kevin M. Brown, Deputy Commissioner for Services and Enforcement.

Approved June 21, 2007.

Eric Solomon, Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 5, 2007, 8:45 a.m., and published in the issue of the Federal Register for July 6, 2007, 72 F.R. 36869)

Section 6071.—Time for Filing Returns and Other Documents

26 CFR 53.6071–1: Time for filing returns.

T.D. 9334

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 53 and 54

Requirement of Return and Time for Filing

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations providing guidance relating to the requirement of a return to accompany payment of excise taxes under section 4965 of the Internal Revenue Code (Code) and the time for filing that return. These regulations affect a broad array of tax-exempt entities, including charities, state and local government entities, Indian tribal governments and employee benefit plans, as well as entity managers of these entities. This action is necessary to implement section 516 of the Tax Increase Prevention and Reconciliation Act of 2005. The text of the temporary regulations also serves as the text of the proposed regulations (REG–142039–06; REG–139268–06) published elsewhere in the Bulletin.

DATES: Effective date: These regulations are effective on July 6, 2007.

Applicability date: For dates of applicability, see §§53.6071–1T(g) and 54.6011–1T(c) of these regulations.

FOR FURTHER INFORMATION CONTACT: Galina Kolomietz, (202) 622–6070, Michael Blumenfeld, (202) 622–1124, or Dana Barry, (202) 622–6060 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

The Tax Increase Prevention and Reconciliation Act of 2005, Public Law 109–222 (120 Stat. 345) (TIPRA), enacted on May 17, 2006, added section 4965 to the Code. Section 4965 affects a broad array of tax-exempt entities as defined in section 4965(c). Tax-exempt entities described in section 4965(c)(1), (2), or (3) (referred to herein as “non-plan entities”) include entities described in section 501(c), religious or apostolic associations or corporations described in section 501(d), entities described in section 170(c), including states, possessions of the United States, the District of Columbia, political subdivisions of states and political subdivisions of possessions of the United States (but not including the United States), and Indian tribal governments within the meaning of section 7701(a)(40). Tax-exempt entities described in section 4965(c)(4), (c)(5), (c)(6), or (c)(7) (referred to herein as “plan entities”) include tax-favored retirement plans, individual retirement arrangements, and savings arrangements described in section 401(a), 403(a), 403(b), 529, 457(b), 408(a), 220(d), 408(b), 530 or 223(d).

Section 4965 imposes two new excise taxes, one on the tax-exempt entity (the entity-level tax) and the other on certain of the tax-exempt entity’s managers (the manager-level tax). The entity-level tax is imposed on non-plan entities that are parties to prohibited tax shelter transactions. The entity-level tax does not apply to plan entities. Prohibited tax shelter transactions are transactions that are identified by the IRS as “listed transactions” (within the meaning of section 6707A(c)(2)) and reportable transactions that are confidential transactions or transactions with contractual protection (as defined in sec

2007–34 I.R.B. 382 August 20, 2007

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 53 and 54 are amended as follows:

PART 53—FOUNDATION AND SIMILAR EXCISE TAXES

Paragraph 1. The authority citation for part 53 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *

§53.6011–1 [Amended]

Par. 2. In §53.6011–1, paragraph (b) is amended by:

Removing from the first sentence, the language “or 4958(a),” and adding “4958(a), or 4965(a),” in its place.
Removing from the last sentence, the language “or 4958(a),” and adding “4958(a), or 4965(a),” in its place.

Par. 3. Section 53.6071–1 is amended by adding and reserving paragraph (g) and adding paragraph (h) to read as follows:

§53.6071–1 Time for filing returns.

- - - (g) [Reserved]. For further guidance, see §53.6071–1T(g).

(h) Effective/applicability date . For the applicability date of paragraph (g) of this section, see §53.6071–1T(h).

Par. 4. Section 53.6071–1T is added to read as follows:

§53.6071–1T Time for filing returns (temporary).

(a) through (f) [Reserved]. For further guidance, see §53.6071–1(a) through (f).

(g) Taxes imposed with respect to pro- hibited tax shelter transactions to which tax-exempt entities are parties —(1) Re- turns by certain tax-exempt entities . A Form 4720, “ Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code,” required by §53.6011–1(b) for a tax-exempt entity described in section 4965(c)(1), (c)(2) or (c)(3) that is a party to a prohibited tax shelter transaction and is liable for tax imposed by section 4965(a)(1) shall be filed on or before the due date (not including extensions) for filing the tax-exempt entity’s annual information return under section 6033(a)(1). If the tax-exempt entity is

scribed in section 4965(c) who approve the entity as a party (or otherwise cause the entity to be a party) to a prohibited tax shelter transaction and know or have reason to know that the transaction is a prohibited tax shelter transaction. In the case of non-plan entities, the term entity manager means the person with authority or responsibility similar to that exercised by an officer, director or trustee, and, with respect to any act, the person having authority or responsibility with respect to such act. In the case of plan entities, the term entity manager means the person who approves or otherwise causes the entity to be a party to the prohibited tax shelter transaction. An individual beneficiary (including a plan participant) or owner of the tax-favored retirement plans, individual retirement arrangements, and savings arrangements described in section 401(a), 403(a), 403(b), 529, 457(b), 408(a), 220(d), 408(b), 530 or 223(d), may be liable as an entity manager if the individual beneficiary or owner has broad investment authority under the arrangement. The amount of the manager-level tax is $20,000 for each approval or other act causing the entity to be a party to a prohibited tax shelter transaction. The manager-level tax applies separately to each entity manager.

These final and temporary regulations are being issued concurrently with proposed regulations under sections 4965, 6033(a)(2) and 6011(g) published elsewhere in the Bulletin.

Explanation of Provisions

The regulations provide that non-plan entities (including exempt organizations and governments) that are liable for section 4965 excise taxes and entity managers of non-plan entities who are liable for section 4965 excise taxes as entity managers are required to file a return on Form 4720, “ Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Rev- enue Code .” The entity return is due on or before the date the non-plan entity’s annual return under section 6033(a)(1) (for example, Form 990, “ Return of Or- ganization Exempt From Income Tax ”) is due, if the non-plan entity is required to file such a return. In all other cases, the entity return is due on or before the 15 ^th

day of the fifth month after the end of the

non-plan entity’s accounting period for which the liability under section 4965 was incurred. In the case of a non-plan entity manager, the entity manager return is due on or before the 15 ^th day of the fifth month following the close of the manager’s taxable year during which the entity entered into a prohibited tax shelter transaction.

The regulations also provide that entity managers of plan entities who are liable for section 4965 taxes as entity managers are required to file a return on Form 5330, “ Return of Excise Taxes Related to Employee Benefit Plans .” For section 4965 taxes, the Form 5330 is due on or before the 15 ^th day of the fifth month following the close of the manager’s taxable year during which the entity entered into a prohibited tax shelter transaction.

The regulations provide a transition rule that returns of section 4965 taxes that are or were due on or before October 4, 2007 will be deemed timely if the return is filed and the tax is paid before that date.

Special Analyses

It has been determined that this Treasury decision 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. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble to the cross-referencing notice of proposed rulemaking published in this issue of the Bulletin. Pursuant to section 7805(f) of the Code, these final and temporary regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on business.

Drafting Information

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August 20, 2007 383 2007–34 I.R.B.

not required to file an annual information return under section 6033(a)(1), the Form 4720 shall be filed on or before the 15 ^th

day of the fifth month after the end of the tax-exempt entity’s taxable year or, if the entity has not established a taxable year for Federal income tax purposes, the entity’s annual accounting period.

(2) Returns by entity managers of tax-exempt entities described in section 4965(c)(1), (c)(2) or (c)(3) . A Form 4720, required by §53.6011–1(b) for an entity manager of a tax-exempt entity described in section 4965(c)(1), (c)(2) or (c)(3) who is liable for tax imposed by section 4965(a)(2) shall be filed on or before the 15 ^th day of the fifth month following the close of the entity manager’s taxable year during which the entity entered into the prohibited tax shelter transaction.

(3) Transition rule . A Form 4720, for a section 4965 tax that is or was due on or before October 4, 2007 will be deemed to have been filed on the due date if it is filed by October 4, 2007 and if all section 4965 taxes required to be reported on that Form 4720 are paid by October 4, 2007. (h) Effective/applicability date —(1) In general . Paragraph (g) of this section is applicable on July 6, 2007.

(2) Expiration date . Paragraph (g) of this section will expire on July 6, 2010.

PART 54—PENSION EXCISE TAXES

Par. 5. The authority citation for part 54 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * * Par. 6. Section 54.6011–1 is amended by adding and reserving paragraph (c) and adding paragraph (d) to read as follows:

§54.6011–1 General requirement of return, statement, or list.

- - - (c) [Reserved]. For further guidance, see §54.6011–1T(c).

(d) Effective/applicability date . For the applicability date of paragraph (c) of this section, see §54.6011–1T(d).

Par. 7. Section 54.6011–1T is amended as follows:

The undesignated text is designated as paragraph (a) and a paragraph heading is added.
Paragraph (b) is added and reserved.
Paragraphs (c) and (d) are added.

§54.6011–1T General requirement of return, statement or list (temporary).

(a) Tax on reversions of qualified plan assets to employer . - * *

(b) [Reserved]. (c) Entity manager tax on prohibited tax shelter transactions —(1) In general . Any entity manager of a tax-exempt entity described in section 4965(c)(4), (c)(5), (c)(6), or (c)(7) who is liable for tax under section 4965(a)(2) shall file a return on Form 5330, “ Return of Excise Taxes Re- lated to Employee Benefit Plans,” on or before the 15 ^th day of the fifth month follow

ing the close of such entity manager’s taxable year during which the entity entered into the prohibited tax shelter transaction, and shall include therein the information required by such form and the instructions issued with respect thereto.

(2) Transition rule . A Form 5330, “ Re- turn of Excise Taxes Related to Employee Benefit Plans,” for an excise tax under section 4965 that is or was due on or before October 4, 2007 will be deemed to have been filed on the due date if it is filed by October 4, 2007 and if the section 4965 tax that was required to be reported on that Form 5330 is paid by October 4, 2007.

(d) Effective/applicability date —(1) In general . Paragraph (c) of this section is applicable on July 6, 2007.

(2) Expiration date . Paragraph (c) of this section will expire on July 6, 2010.

Kevin M. Brown, Deputy Commissioner for Services and Enforcement.

Approved June 21, 2007.

Eric Solomon, Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 5, 2007, 8:45 a.m., and published in the issue of the Federal Register for July 6, 2007, 72 F.R. 36871)

2007–34 I.R.B. 384 August 20, 2007