Corporate Tax Shelter

Corporate Tax Shelter

March 01, 2006

Corporate tax shelter reporting triggers have changed.

IRS regulations contain a list of six factors that the agency believes are possible signs that a transaction is a corporate tax shelter. If one of these six factors is present in a deal, then the transaction must be reported to the IRS.

The list keeps being revised. The latest revision occurred in January, when the IRS announced that it is dropping one of the six triggers for reporting from the list. A deal no longer has to be reported as a possible tax shelter just because there is a difference in how it is reported for book and tax purposes. The IRS made the announcement in Notice 2006-6.

The remaining triggers for reporting are the transaction is on a list of known tax shelters, the advisers offering the transaction require that it be kept confidential, the fees paid to advisers are tied to the tax results, the transaction produces loss deductions under section 165 of the US tax code of at least $10 million in a single year or $20 million in a combination of years, or the transaction generates more than $250,000 in tax credits for a taxpayer holding an asset for 45 days or less.

Keith Martin