Additional Comments Concerning Temporary and Proposed Regulations
Under Sections 6011, 6111, and 6112 of the Internal Revenue Code of 1986
T.D. 8875, 8876, and 8877
February 21, 2001

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II. Amendment of “Filters” in Definition of “Other Reportable Transactions” in the Disclosure Regulations

As we stated in our prior comment letter, we applaud the IRS’s creation of an objective test in section 1.6011-4T(b)(3) of the disclosure regulations to determine which transactions other than listed transactions must be disclosed. However, we recommended that factors (D) and (F) be amended in order to avoid a significant amount of unnecessary reporting. Specifically, we recommended that factor (D) be amended to apply only to permanent book/tax differences because virtually every corporation has significant book/tax timing differences, most of which do not have any relationship to corporate tax shelters of the type that are the target of the disclosure rules. Furthermore, such book/tax timing differences are eliminated over time. We propose the following language for the amendment of factor (D):

(D) The expected treatment of the transaction for Federal income tax purposes in any taxable year differs or is expected to differ by more than $5 million from the treatment of the transaction for purposes of determining book income as taken into account on the schedule M-1 (or comparable schedule) on the taxpayer’s Federal corporate income tax return for the same period and such difference has not been and is not expected to be eliminated over time.

We also recommended that, because many transactions will result in U.S. tax consequences that differ from the foreign tax consequences of the transaction, factor (F) be amended to apply only to transactions with respect to which the foreign party was included in order to achieve a U.S. tax result that otherwise would not have been available. Otherwise, many multinational corporations will be required to disclose a large number of transactions that do not have any relationship to corporate tax shelters of the type that are the target of the disclosure rules. We propose the following language for the amendment of factor (F):

(F) A non-U.S. party was included as a participant in the transaction to achieve a U.S. tax result that otherwise would not have been available and the expected characterization of any significant aspect of the transaction for Federal income tax purposes differs from the expected characterization of such aspect of the transaction for purposes of taxation of any party to the transaction in another country.

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