W. Va. Code R. § 110-10E-3

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-10E-3 - Definitions

3.1. General rule. - Terms used in this rule have the meaning ascribed to them in W. Va. Code § 11-10-4, unless the context in which the term is used clearly requires a different meaning, or the term is defined in the following subsection 3.2.

3.2. Terms defined. - For purposes of this rule, the term:

3.2.1. "Abusive tax schemes" or "abusive tax shelters" means transactions promoted for the promise of tax benefits with no meaningful change in the taxpayer's control over or benefit from the taxpayer's income or assets. These transactions typically have no economic purpose other than reducing taxes, or may involve the use of multiple layers of domestic and foreign pass-through entities including: partnerships, S corporations, limited liability companies, and trusts.

3.2.2. "Commissioner" or "Tax Commissioner" means the West Virginia State Tax Commissioner or his/her delegate.

3.2.3. "Confidential transactions" means a transaction that is offered to a taxpayer under conditions of confidentiality and for which the taxpayer has paid an advisor a minimum fee.

3.2.4. "Department" means the West Virginia State Tax Department.

3.2.5. "Eligible taxpayer" means an individual, partnership, estate, trust, corporation, limited liability company, joint stock company, or any other company, trustee, receiver, assignee, referee, society, association, business or any other person as described in the tax law of this State, who or which has a tax liability relating to income tax imposed under W. Va. Code § 11-21-1 et seq. or W. Va. Code § 11-24-1 et seq.

3.2.6. "Interest" means interest imposed pursuant to W. Va. Code §§ 11-10-17 and 11-10-17a.

3.2.7. "Investor lists" means any list required to be maintained under I.R.C. § 6112 and Treasury Regulations Section 301.6112-1 with respect to a potentially abusive tax shelter, and to be considered complete shall at a minimum include the following information:

3.2.7.1. The name of each transaction that is a potentially abusive tax shelter and the registration number, if any, obtained under I.R.C. § 6111;

3.2.7.2. The tax identification number, if any, of each transaction;

3.2.7.3. The name, address, and tax identification number of each person required to be on the list;

3.2.7.4. If applicable, the number of units (i.e., percentage of profits, number of shares, etc.) acquired by each person required to be included on the list;

3.2.7.5. The date on which each interest was acquired;

3.2.7.6. The amount invested in each transaction by each person required to be included on the list;

3.2.7.7. A detailed description of each transaction that describes both the structure and its expected tax consequences;

3.2.7.8. A summary or schedule of the tax consequences that each person is intended or expected to derive from participation in each transaction, if known by the material advisor;

3.2.7.9. Copies of any additional written materials, including tax analyses or opinions, relating to each transaction that have been shown or provided to any person who acquired an interest in the transaction, or their representatives, tax advisors, or agents, by the material advisor or any related party or agent of the material advisor; and

3.2.7.10. For each person, if the interest in the transaction was not acquired from the material advisor maintaining the list, the name of the person from whom the interest was acquired.

3.2.8. "Listed transaction" means a transaction that is the same as or substantially similar to one of the types of transactions that the Internal Revenue Service has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction.

3.2.9. "Loss transactions" means any transaction resulting in the taxpayer claiming a loss under I.R.C. § 165 of at least:

3.2.9.1. $10,000,000 in any single taxable year or $20,000,000 in any combination of taxable years for corporations;

3.2.9.2. $10,000,000 in any single taxable year or $20,000,000 in any combination of taxable years for partnerships that have only corporations as partners (looking through any partners that are themselves partnerships), whether or not any losses flow through to one or more partners; or $2,000,000 in any single taxable year or $4,000,000 in any combination of taxable years for all other partnerships, whether or not any losses flow through to one or more partners;

3.2.9.3. $2,000,000 in any single taxable year or $4,000,000 in any combination of taxable years for individuals, S corporations, or trusts, whether or not any losses flow through to one or more shareholders or beneficiaries; or

3.2.9.4. $50,000 in any single taxable year for individuals or trusts, whether or not the loss flows through from an S corporation or partnership, if the loss arises with respect to a section 988 transaction (as defined in I.R.C. §988(c)(1) relating to foreign currency transactions).

3.2.10. "Material advisor" means any person who:

3.2.10.1. Must register the transaction as a tax shelter under federal law.

3.2.10.2. Receives, or expects to receive, at least a minimum fee in connection with a transaction that is a potentially abusive tax shelter; and

3.2.10.3. Makes or provides any oral or written statement to any person about the potential tax consequences of that transaction.

3.2.10.4. The minimum fee is $250,000 if the acquiring entities are corporations, other than S corporations. For all other transactions, the minimum fee is $50,000. When calculating the minimum fee, each transaction is evaluated separately to determine whether the minimum fee threshold is satisfied.

3.2.11. "Organizer" means any person who discovers, creates, investigates, or initiates the tax shelter investment, devises the business or financial plans for the investment or carries out those plans through negotiations or transactions with others. This term also includes any other person who participates in the organization or management of the tax shelter.

3.2.12. "Penalty" means any civil money penalties imposed by W. Va. Code § 11-10-19 and any other civil money penalty imposed by any article of Chapter 11 of the West Virginia Code administered under W. Va. § 11-10-1 et seq.

3.2.13. "Potentially abusive tax shelter" means any tax shelter required to be registered with the Internal Revenue Service as a potentially abusive tax shelter under I.R.C. §6111, is a transaction that has the potential for tax avoidance or evasion, or is a reportable transaction under present federal law or West Virginia law.

3.2.14. "Reportable transaction" means any transaction the Internal Revenue Service or this State determines as having a potential for tax avoidance or evasion, and includes, but is not limited to, the following transactions:

3.2.14.1. Listed transactions;

3.2.14.2. Confidential transactions;

3.2.14.3. Transactions with contractual protection;

3.2.14.4. Loss transactions;

3.2.14.5. Transactions with a significant book-tax difference: Provided, That transactions with a significant book-tax difference entered into on or after January 6, 2006 that do not describe any other reportable transaction in Treasury Regulation Section 1.6011-4, will no longer be classified as reportable transactions: Provided, however, That the removal of such significant book-tax difference transactions from the categories of reportable transactions does not relieve taxpayers, tax shelter organizers, advisors, or any other person from any disclosure, registration or list maintenance obligations for transactions that should have been disclosed or registered, or for transactions for which lists should have been prepared and maintained, prior to January 6, 2006; and

3.2.14.6. Transactions involving a brief asset holding period.

3.2.15. "Reportable transaction understatement" means the product of:

3.2.15.1. The amount of the increase (if any) in taxable income, as determined by reference to the amount of post-apportioned income that results from a difference between the proper tax treatment of an item to which this subsection applies and the taxpayer's treatment of that item as shown on the taxpayer's return, including an amended return filed prior to the date the taxpayer is first contacted by the Tax Commissioner regarding the examination of the return; and

3.2.15.2. The applicable tax rates.

3.2.16. "Section 165 loss" means a loss, as defined in I.R.C. §165, sustained during the taxable year, not compensated for by insurance or otherwise, and computed and restricted as defined and provided for in that section.

3.2.17. "Substantially similar" means and includes any transaction that is expected to obtain the same or similar types of tax consequences and that is either factually similar or based on the same or similar tax strategy. Receipt of an opinion regarding the tax consequences of the transaction is not relevant to the determination of whether the transaction is the same as or substantially similar to another transaction. Further, the term substantially similar shall be broadly construed in favor of disclosure.

3.2.18. "Tax avoidance transaction" means a plan or arrangement devised for the principal purpose of avoiding federal or state income tax, or both. Tax avoidance transactions include, but are not limited to, "listed transactions" as defined in Treasury Regulations §1.6011-4(b)(2), as well as reportable transactions as defined in this section.

3.2.19. "Tax shelter" means a tax avoidance transaction.

3.2.20. "Tax structure" means any fact that may be relevant to understanding the purported or claimed West Virginia Personal Income Tax treatment or West Virginia Corporation Net Income Tax treatment of the transaction.

3.2.21. "Tax treatment" means the tax treatment of a transaction that is the purported or claimed West Virginia Personal Income Tax treatment or West Virginia Corporation Net Income Tax treatment of the transaction.

3.2.22. "Transaction" means and includes all of the factual elements relevant to the expected tax treatment of any investment, entity, plan, or arrangement, and includes any series of steps carried out as a part of a plan.

3.2.23. "Transactions involving a brief asset holding period" means any transaction resulting in the taxpayer claiming a tax credit exceeding $250,000 (including a foreign tax credit) if the underlying asset giving rise to the credit is held by the taxpayer for 45 days or less. For purposes of determining the holding period, the principles of I.R.C. §246(c)(3) and (c)(4) apply. Transactions resulting in a foreign tax credit for withholding taxes or other taxes imposed in respect of a dividend that are not disallowed under I.R.C. §901(k)(4) are excluded from this term.

3.2.24. "Transaction with a significant book tax difference" means a transaction where the amount for tax purposes of any item or items of income, gain, expense, or loss from the transaction differs by more than $10,000,000 on a gross basis from the amount of the item or items for book purposes in any taxable year.

3.2.25. "Transactions with contractual protection" means a transaction for which the taxpayer or a related party (as described in I.R.C. §267(b) or I.R.C. §707(b)) has the right to a full or partial refund of fees if all or part of the intended tax consequences from the transaction are not sustained. A transaction with contractual protection also is a transaction for which fees are contingent on the taxpayer's realization of tax benefits from the transaction.

3.2.25.a. Termination of transaction. A transaction is not considered to have contractual protection solely because a party to the transaction has the right to terminate the transaction upon the happening of an event affecting the taxation of one or more parties to the transaction.

3.2.26. "Voluntary Compliance Program" means the tax shelter compliance program authorized by the West Virginia Tax Shelter Voluntary Compliance Act of 2006, as set forth in W. Va. Code § 11-10E-1 et seq., and this rule.

W. Va. Code R. § 110-10E-3