New US Tax Shelter Rules Take Effect

by Mike Godfrey, Tax-News.com, London

03 March 2003

The US Treasury Department and Internal Revenue Service last week released final rules designed to curb the promotion and use of abusive tax shelters.

The rules, which came into effect on Friday, are intended to update earlier tax shelter disclosure laws which were too narrow, and allowed many tax shelter promoters to slip through the net. However, concerns have been expressed that they will almost certainly lead to an additional compliance burden for individual and corporate taxpayers, who will likely be asked to disclose details of perfectly legal arrangements.

According to a Treasury statement released on Thursday, six categories of potential tax avoidance transactions are covered. Taxpayers will be required to disclose and promoters will be require to maintain investor lists for six categories of transactions:

- Listed transactions (i.e., transaction that have been specifically identified by the IRS as tax avoidance transactions);

- Transactions marketed under conditions of confidentiality;

- Transactions with contractual protection;

- Transactions generating a tax loss exceeding specified amounts;

- Transactions resulting in a book-tax difference exceeding $10 million; and

- Transactions generating a tax credit when the underlying asset is held for a brief period of time.

Recommended