W. Va. Code R. § 110-10E-4

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

Section 110-10E-4 - Participation in a Tax Avoidance Transaction/Reportable Transaction

4.1. A taxpayer is required by W. Va. Code § 11-10E-5 to file each year a disclosure statement with respect to each reportable transaction in which the taxpayer participated.

4.2. The following applies to defining and determining when and whether a taxpayer has participated in a tax avoidance transaction:

4.2.1. Listed transactions. A taxpayer has participated in a listed transaction if the taxpayer's tax return reflects tax consequences or a tax strategy described in the published guidance that lists the transaction under Treasury Regulations Section 1.6011-4(b)(2) and as described in this rule. A taxpayer also has participated in a listed transaction if the taxpayer knows or has reason to know that the taxpayer's tax benefits are derived directly or indirectly from tax consequences or a tax strategy described in published guidance that lists a transaction described in Treasury Regulations Section 1.6011-4(b)(2) and as described in this rule. Published guidance may identify other types of classes of persons that will be treated as participants in a listed transaction.

4.2.2. Confidential transactions. A taxpayer has participated in a confidential transaction if the taxpayer's tax return reflects a tax benefit from the transaction and the taxpayer's disclosure of the tax treatment or tax structure of the transaction is limited in the manner described in Treasury Regulations Section 1.6011-4(b)(2) and this rule. If a partnership's, S corporation's or trust's disclosure is limited, and the partner's, shareholders, or beneficiary's disclosure is not limited, then the partnership, S corporation, or trust, and not the partner, shareholder, or beneficiary, has participated in the confidential transaction.

4.2.2.1. Minimum fee. For purposes of this subsection, the minimum fee is:

4.2.2.1.a. $250,000 for a transaction if the taxpayer is a corporation.

4.2.2.1.b. $50,000 for all other transactions unless the taxpayer is a partnership or trust, all of the owners or beneficiaries of which are corporations (looking through any partners or beneficiaries that are themselves partnerships or trusts), in which case the minimum fee is $250,000.

4.2.2.1.c. Determination of minimum fee. For purposes of this paragraph, a minimum fee includes all fees for a tax strategy or for services for advice (whether or not tax advice) or for the implementation of a transaction. These fees include consideration in whatever form paid, whether in cash or in kind, for services to analyze the transaction (whether or not related to the tax consequences of the transaction), for services to implement the transaction, for services to document the transaction, and for services to prepare tax returns to the extent that the fees exceed the fees customary for return preparation.

4.2.2.1.d. For purposes of this paragraph, a taxpayer also is treated as paying fees to an advisor if the taxpayer knows or should know that the amount it pays will be paid indirectly to the advisor, such as through a referral fee or fee-sharing arrangement. A fee does not include amounts paid to a person, including an advisor, in that person's capacity as a party to the transaction. For example, a fee does not include reasonable charges for the use of capital or the sale or use of property.

4.2.3. Transactions with contractual protection. A taxpayer has participated in a transaction with contractual protection if the taxpayer's tax return reflects a tax benefit from the transaction and, as described in Treasury Regulations Section 1.6011-4(b)(2) and this rule, the taxpayer has the right to the full or partial refund of fees or the fees are contingent. If a partnership, S corporation, or trust has the right to a full or partial refund of fees or has a contingent fee arrangement, and the partner, shareholder, or beneficiary does not individually have the right to the refund of fees or a contingent fee arrangement, then the partnership, S corporation, or trust, and not the partner, shareholder, or beneficiary, has participated in the transaction with contractual protection.

4.2.4. Loss transactions. A taxpayer has participated in a loss transaction if the taxpayer's tax return reflects a section 165 loss, as defined in I.R.C. §165 and this rule, and the amount of the section 165 loss equals or exceeds the threshold amount applicable to the taxpayer as described in Treasury Regulations Section 1.6011-4(b)(5)(i). If a taxpayer is a partner in a partnership, shareholder in an S corporation, or beneficiary of a trust and a section 165 loss as described in Treasury Regulations Section 1.6011-4(b)(5) flows through the entity to the taxpayer (disregarding netting at the entity level), the taxpayer has participated in a loss transaction if the taxpayer's tax return reflects a section 165 loss and the amount of the section 165 loss that flows through to the taxpayer equals or exceeds the threshold amounts applicable to the taxpayer as described in Treasury Regulations Section 1.6011-4(b)(5)(i). For this purpose, a tax return is deemed to reflect the full amount of a section 165 loss described in this rule, allocable to the taxpayer under this subsection, regardless of whether all or part of the loss enters into the computation of a net operating loss under I.R.C. § 172 or net capital loss under I.R.C. § 1212 that the taxpayer may carry back or carry over to another year.

4.2.5. Transactions with a significant book-tax difference. A taxpayer has participated in a transaction with a significant book-tax difference if the taxpayer's tax treatment of an item from the transaction differs from the book treatment of that item as described in Treasury Regulations Section 1.6011-4(b)(6) and this rule. In determining whether a transaction results in a significant book-tax difference for a taxpayer, differences that arise solely because a subsidiary of the taxpayer is consolidated with the taxpayer, in whole or in part, for book purposes, but not for tax purposes, are not taken into account: Provided, That transactions with a significant book-tax difference entered into or on 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.

For purposes of this subsection, the amount of an item for book purposes is determined by applying U.S. generally accepted accounting principles (U.S. GAAP) for worldwide income. However, if a taxpayer, in the ordinary course of its business, keeps books for reporting financial results to shareholders, creditors, or regulators on a basis other than U.S. GAAP, and does not maintain U.S. GAAP books for any purpose, then the taxpayer may determine the amount of a book item for purposes of this subsection by using the books maintained by the taxpayer, provided the books are kept on the same basis consistently from year to year. Adjustments to any reserve for taxes are disregarded for purposes of determining the book-tax difference.

4.2.5.1. In general, this category of reportable transactions applies only to:

4.2.5.1.a. Taxpayers that are reporting companies under the Security Exchange Act of 1934 and are related businesses; or

4.2.5.1.b. Business entities that have $250,000,000 or more in gross assets for book purposes at the end of any financial accounting period that ends with or within the entity's taxable year in which the transaction occurs (for purposes of this determination, the assets of all related business entities) must be aggregated.

4.2.6. Transactions involving a brief asset holding period. A taxpayer has participated in a transaction involving a brief asset holding period if the taxpayer's tax return reflects items giving rise to a tax credit described in Treasury Regulations Section 1.6011-4(b)(7) and section 3 of this rule. If a taxpayer is a partner in a partnership, shareholder in an S corporation, or beneficiary of a trust and the items giving rise to a tax credit described in Treasury Regulations Section 1.6011-4(b)(7) flow through the entity to the taxpayer (disregarding netting at the entity level), the taxpayer has participated in a transaction involving a brief asset holding period if the taxpayer's tax return reflects the tax credit and the amount of the tax credit claimed by the taxpayer exceeds $250,000.

4.2.7. Shareholders of foreign corporations. A reporting shareholder of a foreign corporation participates in a transaction described in Treasury Regulations Section 1.6011-4(b)(2) through (5) and (b)(7) and section 4 of this rule if the foreign corporation would be considered to participate in the transaction under the rules of Treasury Regulations Section 1.6011-4(c)(3) if it were a domestic corporation filing a tax return that reflects the items from the transaction. A reporting shareholder participates in a transaction described in Treasury Regulations Section 1.6011-4(b)(6) only if the foreign corporation would be considered to participate in the transaction under the rules of Treasury Regulations Section 1.6011-4(c)(3) if it were a domestic corporation and the transaction reduces or eliminates an income inclusion that otherwise would be required under I.R.C. § 551, 951, or 1293. A reporting shareholder (and any successor in interest) is considered to participate in a transaction under Treasury Regulations Section 1.6011-4(c)(3)(i)(G) only for its first taxable year with or within which ends the first taxable year of the foreign corporation in which the foreign corporation participates in the transaction, and for the reporting shareholder's five succeeding taxable years.

4.2.8. Reporting shareholder. The term reporting shareholder means a United States shareholder (as defined in I.R.C. §551(a)) in a foreign personal holding company (as defined in I.R.C. § 552), a United States shareholder (as defined in I.R.C. § 951(b)) in a controlled foreign corporation (as defined inI.R.C. § 957) or a 10 percent shareholder (by vote or value) of a qualified electing fund (as defined in I.R.C. § 1295).

4.2.9. Exceptions -- A transaction will not be considered a reportable transaction, or will be excluded from any individual category of reportable transaction if the Commissioner of Internal Revenue makes a determination by published guidance that the transaction is not subject to the reporting requirements of this section. The Commissioner may make a determination by individual letter ruling that an individual letter ruling request on a specific transaction or type of transaction satisfies the reporting requirements of this section with regard to that transaction or type of transaction for the taxpayer who requests the individual letter ruling.

4.2.9.1. Special rule for regulated investment companies. For purposes of this subsection, a regulated investment company (RIC) as defined in I.R.C. § 851 or an investment vehicle that is owned 95 percent or more by one or more RICs at all times during the course of the transaction are not required to disclose a tax avoidance transaction unless the transaction is also a listed transaction.

4.2.9.2. Special rule for lease transactions. For purposes of this subdivision, leasing transactions of the type excepted from the registration requirements under I.R.C. § 6111(d) and the list maintenance requirements under I.R.C. § 6112 as described in Notice 2001-18 (2001-1 C.B. 731) are not classified as tax avoidance transactions.

W. Va. Code R. § 110-10E-4