IRS Notice 2001-16
Cumulative Bulletin
Notice 2001-16,,
2001-1 CB 730, January 18, 2001.
The
Internal Revenue Service and the Treasury Department
have become aware of certain types of transactions,
described below, that are being marketed to
taxpayers for the avoidance of federal income taxes.
The Service and Treasury are issuing this notice to
alert taxpayers and their representatives of certain
responsibilities that may arise from participation
in these transactions.
These
transactions generally involve four parties: seller
(X) who desires to sell stock of a corporation (T),
an intermediary corporation (M), and buyer (Y) who
desires to purchase the assets (and not the stock)
of T. Pursuant to a plan, the parties undertake the
following steps. X purports to sell the stock of T
to M. T then purports to sell some or all of its
assets to Y. Y claims a basis in the T assets equal
to Y's purchase price. Under one version of this
transaction, T is included as a member of the
affiliated group that includes M, which files a
consolidated return, and the group reports losses
(or credits) to offset the gain (or tax) resulting
from T's sale of assets. In another form of the
transaction, M may be an entity that is not subject
to tax, and M liquidates T (in a transaction that is
not covered by §337(b)(2) of the Internal Revenue
Code or §1.337(d)-4 ) of the Income Tax
Regulations, resulting in no reported gain on M's
sale of T's assets.
Depending
on the facts of the particular case, the Service may
challenge the purported tax results of these
transactions on several grounds, including but not
limited to one of the following: (1) M is an agent
for X, and consequently for tax purposes T has sold
assets while T is still owned by X, (2) M is an
agent for Y, and consequently for tax purposes Y has
purchased the stock of T from X, or (3) the
transaction is otherwise properly recharacterized (e.g.,
to treat X as having sold assets or to treat T as
having sold assets while T is still owned by X).
Alternatively, the Service may examine M's
consolidated group to determine whether it may
properly offset losses (or credits) against the gain
(or tax) from the sale of assets.
The
Service may impose penalties on participants in
these transactions, or, as applicable, on persons
who participate in the promotion or reporting of
these transactions, including the accuracy-related
penalty under §6662 , the return preparer penalty
under §6694 , the promoter penalty under §6700 ,
and the aiding and abetting penalty under §6701 .
Transactions
that are the same as or substantially similar to
those described in the Notice 2001-16 are identified
as "listed transactions" for the purposes
of §1.6011-4T(b)(2) of the Temporary Income Tax
Regulations and §301.6111-2T(b)(2) of the Temporary
Procedure and Administration Regulations. See also
§301.6112-1T , A-4. It should be noted that,
independent of their classification as "listed
transactions" for purposes of §§1.6011-4T(b)(2)
and
301.6111
-2T(b)(2) , such transactions may already be subject
to the tax shelter registration and list maintenance
requirements of §§6111 and 6112 under the
regulations issued in February 2000 (§§301.6111-2T
and
301.6112
-1T , A-4). Persons required to register these tax
shelters who have failed to register the shelters
may be subject to the penalty under §6707(a) and to
the penalty under §6708(a) if the requirements of
§6112 are not satisfied.
For
further information regarding this notice, contact
Theresa Abell, of the Office of Associate Chief
Counsel (Corporate), at (202)622-7700 (not a
toll-free call).
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