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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IV. Amendment of Q&A-27 and -30 of Section 301.6111-1T of the Investor List Regulations

The term "tax shelter organizer" was previously defined in Treasury regulations section 301.6111-1T, Q&A 26-33. The definition of "tax shelter promoter" set forth in section 301.6111-2T(f) of the registration regulations cross-references those rules. In addition, the investor list rules under Treasury regulations section 301.6112-2T provide that a tax shelter "organizer" must maintain investor lists.

Q&A-26 of Treasury regulations section 301.6111-1T provides that a "tax shelter organizer" means a person principally responsible for organizing a tax shelter. If a person principally responsible for organizing a tax shelter has not registered the tax shelter by the day on which interests in the shelter are first offered for sale, any other person who participated in the organization of the tax shelter will be treated as a "tax shelter organizer." Q&A-27 provides that a person principally responsible for organizing a tax shelter (a "principal organizer") is any person who discovers, creates, investigates, or initiates the investment, devises the business or financial plans for the investment, or carries out those plans through negotiations or transactions with others. This definition presumably would include a tax advisor who creates or develops a tax planning strategy or negotiates the transaction that implements the strategy. In addition, Q&A-28 provides that participation in the organization of a tax shelter includes the performance of any act (directly or through an agent) related to the establishment of the tax shelter, including the following: (1) preparation of any document establishing the tax shelter (for example, articles of incorporation, a trust instrument, or a partnership agreement), (2) preparation of any document in connection with the registration (or exemption from registration) of the tax shelter with any federal, state, or local government body, (3) preparation of a prospectus, offering memorandum, financial statement, or other statement describing the tax shelter, (4) preparation of a tax or other legal opinion relating to the tax shelter, (5) preparation of an appraisal relating to the tax shelter, or (6) negotiation or other participation on behalf of the tax shelter in the purchase of any property relating to the tax shelter. Many of those functions typically would be performed by a tax advisor.

Q&A-30 provides that the performance of an act described in A-27 or A-28 will not constitute participation in the organization or management of a tax shelter unless the person performing the act is related to the tax shelter (or any principal organizer of the tax shelter) or the person participates in the entrepreneurial risks or benefits of the tax shelter. A person will be considered related to a tax shelter if the person is related to the tax shelter or a principal organizer of the tax shelter within the meaning of Code section 168(e)(4) or is employed by the tax shelter or a principal organizer of the tax shelter or has an interest (other than an interest as a creditor) in the tax shelter. A person will be considered a participant in the entrepreneurial risks or benefits of a tax shelter if the person’s compensation for performing an act described in A-27 or A-28 is contingent on any matter relating to the tax shelter (e.g., the compensation is based in whole or in part upon (i) whether interests in the tax shelter are actually sold or (ii) the number or value of the units in the tax shelter that are sold), or if the person will receive an interest in the tax shelter as part or all of the person’s compensation.

It is arguable that actions by a tax advisor that are described in A-27 or A-28 that otherwise would not constitute participation in the organization or management of a tax shelter will constitute such participation if the tax advisor creates or develops the tax planning strategy or negotiates its implementation and, therefore, is treated as a "principal organizer" under A-27. In that case, the tax advisor would be treated as "related" to the principal organizer and the exception in Q&A-30 arguably would not apply. We believe that Q&A-27 and -30 need to be amended to clarify that a tax advisor who is engaged in tax planning for a non-contingent hourly fee and who has no entrepreneurial stake in the transaction will not be treated as participating in the organization or management of a tax shelter and, thus, will not be required either to register the transaction or to maintain an investor list with respect to the transaction.

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