Client Alert

IRSs New Rules Regarding Tax Shelter Disclosure May Be Implicated in Common M&A Transactions

July 01, 2003

M&A and Tax Practice Groups

On February 28, 2003, the IRS adopted Treasury Regulation Section 1.6011-4 requiring taxpayers to disclose to the IRS a broad range of transactions entered into on or after February 28, 2003. While the New Rules are designed to enhance the IRS’s ability to regulate “abusive tax shelter” transactions, they go well beyond what are commonly viewed as tax shelters and cover a wide range of nonabusive transactions, including certain merger and acquisition transactions. Failure to make the required disclosures and other filings may result in substantial penalties to the taxpayer. In addition, tax advisors (e.g., outside tax counsel or other tax advisors) involved in the transaction may be required to maintain lists of participants in the transaction and to supply such lists to the IRS upon request. By taking advantage of the New Rules’ exceptions, a taxpayer may eliminate the reporting and document retention requirements in the context of an M&A transaction and any penalties arising out of the failure to disclose a reportable transaction.

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