The US Treasury Department and the Internal Revenue Service last week issued guidance on certain kinds of abusive tax avoidance transaction in which corporations use partnerships to obtain inappropriate deductions for interest payments to related entities.
According to the Treasury, such transactions are now 'listed transactions', which means that participants in these transactions must disclose them to the IRS. In addition, promoters of listed transactions must keep lists of investors and, in certain cases, register those transactions with the IRS.
“This is another step in our ongoing efforts to prevent taxpayers, both individual and corporate, from engaging in abusive tax avoidance transactions,” acting assistant secretary for tax policy, Gregory F. Jenner explained, continuing:
“In the transaction described in the Notice, related corporations provide financing through a partnership in an attempt to achieve a more favorable tax result than if they had done the financing directly. Congress did not intend that partnerships be used to implement tax reduction strategies instead of for legitimate business purposes.”
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