Home/Federal/Federal Register/2023-16650

Proposed Rule2023-16650

Identification of Monetized Installment Sale Transactions as Listed Transactions

Primary source

Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.

Published

August 4, 2023

Issuing agencies

Treasury DepartmentInternal Revenue Service

Abstract

This document contains proposed regulations that would identify monetized installment sale transactions and substantially similar transactions as listed transactions, a type of reportable transaction. Material advisors and participants in these listed transactions would be required to file disclosures with the IRS and would be subject to penalties for failure to disclose. The proposed regulations would affect participants in those transactions as well as material advisors. This document also provides a notice of a public hearing on the proposed regulations.

Full Text

<html>
<head>
<title>Federal Register, Volume 88 Issue 149 (Friday, August 4, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 149 (Friday, August 4, 2023)]
[Proposed Rules]
[Pages 51756-51763]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16650]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-109348-22]
RIN 1545-BQ69

Identification of Monetized Installment Sale Transactions as
Listed Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations that would
identify monetized installment sale transactions and substantially
similar transactions as listed transactions, a type of reportable
transaction. Material advisors and participants in these listed
transactions would be required to file disclosures with the IRS and
would be subject to penalties for failure to disclose. The proposed
regulations would affect participants in those transactions as well as
material advisors. This document also provides a notice of a public
hearing on the proposed regulations.

DATES:
Comments: Electronic or written comments must be received by
October 3, 2023.
Public Hearing: The public hearing is scheduled to be held on
October 12, 2023, at 10:00 a.m. ET. Pursuant to Announcement 2023-16,
2023-20 I.R.B. 854 (May 15, 2023), the public hearing is scheduled to
be conducted in person, but the IRS will provide a telephonic option
for individuals who wish to attend or testify at the hearing by
telephone. Requests to speak and outlines of topics to be discussed at
the

[[Page 51757]]

public hearing must be received by October 3, 2023. If no outlines are
received by October 3, 2023, the public hearing will be cancelled.
Requests to attend the public hearing must be received by 5:00 p.m. ET
on October 10, 2023. The hearing will be made accessible to people with
disabilities. Requests for special assistance during the hearing must
be received by 5:00 p.m. ET on October 6, 2023.

ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and
REG-109348-22) by following the online instructions for submitting
comments. Requests for a public hearing must be submitted as prescribed
in the ``Comments and Requests for a Public Hearing'' section. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The Department of the Treasury (Treasury Department) and
the IRS will publish for public availability any comments to the IRS's
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-109348-22),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Jonathan A. Dunlap of the Office of Associate Chief Counsel (Income Tax
and Accounting), (202) 317-4718 (not a toll-free number); concerning
submissions of comments and requests for hearing, Vivian Hayes at (202)
317-5306 (not a toll-free number) or <a href="/cdn-cgi/l/email-protection#c1b1b4a3ada8a2a9a4a0b3a8afa6b281a8b3b2efa6aeb7">[email&#160;protected]</a>
(preferred).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed additions to 26 CFR part 1 (Income
Tax Regulations) under section 6011 of the Internal Revenue Code
(Code). The additions identify certain transactions as ``listed
transactions'' for purposes of section 6011.

I. Disclosure of Reportable Transactions by Participants and Penalties
for Failure To Disclose

Section 6011(a) generally provides that, when required by
regulations prescribed by the Secretary of the Treasury or her delegate
(Secretary), ``any person made liable for any tax imposed by this
title, or with respect to the collection thereof, shall make a return
or statement according to the forms and regulations prescribed by the
Secretary. Every person required to make a return or statement shall
include therein the information required by such forms or
regulations.''
Section 1.6011-4(a) provides that every taxpayer that has
participated in a reportable transaction within the meaning of Sec.
1.6011-4(b) and who is required to file a tax return must file a
disclosure statement within the time prescribed in Sec. 1.6011-4(e).
Reportable transactions are identified in Sec. 1.6011-4 and
include listed transactions, confidential transactions, transactions
with contractual protection, loss transactions, and transactions of
interest. See Sec. 1.6011-4(b)(2) through (6). Section 1.6011-4(b)(2)
defines a listed transaction as a transaction that is the same as or
substantially similar to one of the types of transactions that the IRS
has determined to be a tax avoidance transaction and identified by
notice, regulation, or other form of published guidance as a listed
transaction.
Section 1.6011-4(c)(4) provides that a transaction is
``substantially similar'' if it is expected to obtain the same or
similar types of tax consequences and 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 must be broadly construed in favor of disclosure.
For example, a transaction may be substantially similar to a listed
transaction even though it may involve different entities or use
different Code provisions.
Section 1.6011-4(c)(3)(i)(A) provides that 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 Sec. 1.6011-4(b)(2).
Published guidance may identify other types or classes of persons that
will be treated as participants in a listed transaction. Published
guidance may also identify types or classes of persons that will not be
treated as participants in a listed transaction.
Section 1.6011-4(d) and (e) provide that the disclosure statement
Form 8886, Reportable Transaction Disclosure Statement (or successor
form) must be attached to the taxpayer's tax return for each taxable
year for which a taxpayer participates in a reportable transaction. A
copy of the disclosure statement must be sent to the IRS's Office of
Tax Shelter Analysis (OTSA) at the same time that any disclosure
statement is first filed by the taxpayer pertaining to a particular
reportable transaction.
Section 1.6011-4(e)(2)(i) provides that if a transaction becomes a
listed transaction after the filing of a taxpayer's tax return
reflecting the taxpayer's participation in the listed transaction and
before the end of the period of limitations for assessment for any
taxable year in which the taxpayer participated in the listed
transaction, then a disclosure statement must be filed with OTSA within
90 calendar days after the date on which the transaction becomes a
listed transaction. This requirement extends to an amended return and
exists regardless of whether the taxpayer participated in the
transaction in the year the transaction became a listed transaction.
The Commissioner of Internal Revenue (Commissioner) may also determine
the time for disclosure of listed transactions in the published
guidance identifying the transaction.
Participants required to disclose these transactions under Sec.
1.6011-4 who fail to do so are subject to penalties under section
6707A. Section 6707A(b) provides that the amount of the penalty is 75
percent of the decrease in tax shown on the return as a result of the
reportable transaction (or which would have resulted from such
transaction if such transaction were respected for Federal tax
purposes), subject to minimum and maximum penalty amounts. The minimum
penalty amount is $5,000 in the case of a natural person and $10,000 in
any other case. For a listed transaction, the maximum penalty amount is
$100,000 in the case of a natural person and $200,000 in any other
case.
Additional penalties may also apply. In general, section 6662A
imposes a 20 percent accuracy-related penalty on any understatement (as
defined in section 6662A(b)(1)) attributable to an adequately disclosed
reportable transaction. If the taxpayer had a requirement to disclose
participation in the reportable transaction but did not adequately
disclose the transaction in accordance with the regulations under
section 6011, the taxpayer is subject to an increased penalty rate
equal to 30 percent of the understatement. See section 6662A(c).
Section 6662A(b)(2) provides that section 6662A applies to any item
which is attributable to any listed transaction and any reportable
transaction (other than a listed transaction) if a significant purpose
of such transaction is the avoidance or evasion of Federal income tax.
Participants required to disclose listed transactions who fail to
do so are also subject to an extended period of

[[Page 51758]]

limitations under section 6501(c)(10). That section provides that the
time for assessment of any tax with respect to the transaction shall
not expire before the date that is one year after the earlier of the
date the participant discloses the transaction or the date a material
advisor discloses the participation pursuant to a written request under
section 6112(b)(1)(A).

II. Disclosure of Reportable Transactions by Material Advisors and
Penalties for Failure To Disclose

Section 6111(a) provides that each material advisor with respect to
any reportable transaction shall make a return setting forth: (1)
information identifying and describing the transaction, (2) information
describing any potential tax benefits expected to result from the
transaction, and (3) such other information as the Secretary may
prescribe. Such return shall be filed not later than the date specified
by the Secretary.
Section 301.6111-3(a) of the Procedure and Administration
Regulations provides that each material advisor with respect to any
reportable transaction, as defined in Sec. 1.6011-4(b), must file a
return as described in Sec. 301.6111-3(d) by the date described in
Sec. 301.6111-3(e).
Section 301.6111-3(b)(1) provides that a person is a material
advisor with respect to a transaction if the person provides any
material aid, assistance, or advice with respect to organizing,
managing, promoting, selling, implementing, insuring, or carrying out
any reportable transaction, and directly or indirectly derives gross
income in excess of the threshold amount as defined in Sec. 301.6111-
3(b)(3) for the material aid, assistance, or advice. Under Sec.
301.6111-3(b)(2)(i) and (ii), a person provides material aid,
assistance, or advice if the person provides a tax statement, which is
any statement (including another person's statement), oral or written,
that relates to a tax aspect of a transaction that causes the
transaction to be a reportable transaction as defined in Sec. 1.6011-
4(b)(2) through (7).
Material advisors must disclose transactions on Form 8918, Material
Advisor Disclosure Statement (or successor form), as provided in Sec.
301.6111-3(d) and (e). Section 301.6111-3(e) provides that the material
advisor's disclosure statement for a reportable transaction must be
filed with the OTSA by the last day of the month that follows the end
of the calendar quarter in which the advisor becomes a material advisor
with respect to a reportable transaction or in which the circumstances
necessitating an amended disclosure statement occur. The disclosure
statement must be sent to the OTSA at the address provided in the
instructions for Form 8918 (or successor form).
Section 301.6111-3(d)(2) provides that the IRS will issue to a
material advisor a reportable transaction number with respect to the
disclosed reportable transaction. Receipt of a reportable transaction
number does not indicate that the disclosure statement is complete, nor
does it indicate that the transaction has been reviewed, examined, or
approved by the IRS. Material advisors must provide the reportable
transaction number to all taxpayers and material advisors for whom the
material advisor acts as a material advisor as defined in Sec.
301.6111-3(b). The reportable transaction number must be provided at
the time the transaction is entered into, or, if the transaction is
entered into prior to the material advisor receiving the reportable
transaction number, within 60 calendar days from the date the
reportable transaction number is mailed to the material advisor.
Section 6707(a) provides that a material advisor who fails to file
a timely disclosure, or files an incomplete or false disclosure
statement, is subject to a penalty. Pursuant to section 6707(b)(2), for
listed transactions, the penalty is the greater of (1) $200,000, or (2)
50 percent of the gross income derived by such person with respect to
aid, assistance, or advice which is provided with respect to the listed
transaction before the date the return is filed under section 6111.
Additionally, section 6112(a) provides that each material advisor
with respect to any reportable transaction shall (whether or not
required to file a return under section 6111 with respect to such
transaction) maintain a list (1) identifying each person with respect
to whom such advisor acted as a material advisor with respect to such
transaction and (2) containing such other information as the Secretary
may by regulations require. Material advisors must furnish such lists
to the IRS in accordance with Sec. 301.6112-1(e).
A material advisor may be subject to a penalty under section 6708
for failing to maintain a list under section 6112(a) and failing to
make the list available upon written request to the Secretary in
accordance with section 6112(b) within 20 business days after the date
of such request. Section 6708(a) provides that the penalty is $10,000
per day for each day of the failure after the 20th day. However, no
penalty will be imposed with respect to the failure on any day if such
failure is due to reasonable cause.

III. Installment Sales

Section 61(a)(3) provides that a taxpayer's gross income includes
gains from dealings in property. Under section 1001(a), a taxpayer's
gain on a sale of property is equal to the excess of the amount
realized on the sale over the taxpayer's adjusted basis in the property
and, generally, a taxpayer must recognize the gain in the taxable year
of the sale. The taxpayer's amount realized generally includes cash
actually or constructively received, plus the fair market value of any
property received or, in the case of a debt instrument issued in
exchange for property, the issue price of the debt instrument. See
Sec. 1.1001-1 of the Income Tax Regulations.
Section 453 provides an exception to the general rule that gain
from the sale of property must be recognized in the year of sale.
Section 453(a) provides, in general, that income from an installment
sale is accounted for under the installment method. Under section
453(b), an installment sale is one in which a taxpayer disposes of
property and at least one payment is to be received after the close of
the taxable year of the disposition. The installment method, as
described in section 453(c), requires a taxpayer to recognize income
from a disposition as payments are actually or constructively received,
in an amount equal to the proportion of the payment received that the
gross profit (realized or to be realized when payment is completed)
bears to the total contract price.
Under section 453(f)(3) and 26 CFR 15a.453-1(b)(3) (Temporary
Income Tax Regulations Under the Installment Sales Revision Act), a
taxpayer generally does not receive a ``payment,'' as such term is used
in section 453(b), to the extent the taxpayer receives evidence of
indebtedness ``of the person acquiring the property'' (installment
obligation). As a result, notwithstanding that a taxpayer has received
an installment obligation from the buyer evidencing the buyer's
obligation to pay an amount equal to the purchase price, the taxpayer
is not treated as having received full payment in the year in which the
taxpayer received the installment obligation. Instead, the taxpayer is
treated as receiving payments when the taxpayer receives (or
constructively receives) payments under the installment obligation.
However, to the extent that the taxpayer receives a note or other
evidence of indebtedness in the year of sale from a person other than
``the

[[Page 51759]]

person acquiring the property,'' section 453(f)(3) is inapplicable. A
note or other evidence of indebtedness received in the year of sale
issued by a person other than the person acquiring the property is,
under Sec. 15a.453-1(b)(3), the receipt of a payment for purposes of
section 453. Likewise, under Sec. 15a.453-1(b)(3), the taxpayer's
receipt of a note or other evidence of indebtedness that is secured
directly or indirectly by cash or a cash equivalent is treated as the
receipt of payment for purposes of section 453.
Section 453A(d) provides rules relating to certain installment
obligations arising from a disposition of property, the sales price of
which is more than $150,000. Under section 453A(d), if any indebtedness
is secured by an installment obligation to which section 453A applies,
the net proceeds of the secured indebtedness are treated as a payment
received on the installment obligation as of the later of the time the
indebtedness becomes secured by the installment obligation or the time
the taxpayer receives the proceeds of the indebtedness (the pledging
rule). To the extent installment payments are received after the date
payment is treated as received under section 453A(d), the tax on such
payments is treated as having already been paid.

IV. Tax Avoidance Using Monetized Installment Sales

The Treasury Department and the IRS are aware that promoters are
marketing transactions that purport to convert a cash sale of
appreciated property by a taxpayer (seller) to an identified buyer
(buyer) into an installment sale to an intermediary (who may be the
promoter) followed by a sale from the intermediary to the buyer. In a
typical transaction, the intermediary issues a note or other evidence
of indebtedness to the seller requiring annual interest payments and a
balloon payment of principal at the maturity of the note, and then
immediately or shortly thereafter, the intermediary transfers the
seller's property to the buyer in a purported sale of the property for
cash, completing the prearranged sale of the property by seller to
buyer. In connection with the transaction, the promoter refers the
seller to a third party that enters into a purported loan agreement
with the seller. The intermediary generally transfers the amount it has
received from the buyer, less certain fees, to an account held by or
for the benefit of this third party (the account). The third party
provides a purported non-recourse loan to the seller in an amount equal
to the amount the seller would have received from the buyer for the
sale of the property, less certain fees. The ``loan'' is either funded
or collateralized by the amount deposited into the account. The
seller's obligation to make payments on the purported loan is typically
limited to the amount to be received by the seller from the
intermediary pursuant to the purported installment obligation. Upon
maturity of the purported installment obligation, the purported loan,
and the funding note, the offsetting instruments each terminate, giving
rise to a deemed payment on the purported installment obligation and
triggering taxable gain to the seller purportedly deferred until that
time.
The promotional materials for these transactions assert that
engaging in the transaction will allow the seller to defer the gain on
the sale of the property under section 453 until the taxpayer receives
the balloon principal payment in the year the note matures, even though
the seller receives cash from the purported lender in an amount that
approximates the amount paid by the buyer to the intermediary. The IRS
intends to use multiple arguments to challenge the reported treatment
of these transactions as installment sales to which section 453
purportedly applies, including the arguments described below.
First, the intermediary is not a bona fide purchaser of the gain
property that is the subject of the purported installment sale. In
these transactions, the intermediary is interposed between the seller
and the buyer for no purpose other than Federal income tax avoidance,
and the intermediary neither enjoys the benefits nor bears the burdens
of ownership of the gain property. The interposition of the
intermediary typically takes place after the seller has decided to sell
the gain property to a specific buyer at a specific negotiated purchase
price, and the purported resale by the intermediary to such buyer
generally takes place almost simultaneously with the purported sale to
the intermediary for approximately the same negotiated purchase price,
less certain fees. The seller's only purpose for entering into an
agreement with the intermediary is to defer recognition of the gain on
the sale of the gain property to the buyer. Other than the Federal
income tax deferral benefits provided by the installment method
provisions of section 453, the sole economic effect of entering the
monetized installment sale transaction from the perspective of the
seller is to pay direct and indirect fees to the intermediary and the
purported lender in an amount that is substantially less than the
Federal tax savings purportedly achieved from using section 453 to
defer the realized gain on the sale.
When an intermediate transaction with a third party is interposed
and lacks independent substantive (non-tax) purpose, such transaction
is not respected for Federal income tax purposes and the transaction is
appropriately treated as a sale of the property by the seller directly
to the buyer in the taxable year in which the gain property is
transferred by the seller. See Commissioner v. Court Holding Co., 324
U.S. 331, 334 (1945) (``A sale by one person cannot be transformed for
tax purposes into a sale by another by using the latter as a conduit
through which to pass title. To permit the true nature of a transaction
to be disguised by mere formalisms, which exist solely to alter tax
liabilities, would seriously impair the effective administration of the
tax policies of Congress'' (footnote omitted)); Wrenn v. Commissioner,
67 T.C. 576 (1976), (holding that a taxpayer did not engage in a bona
fide installment sale when the taxpayer transferred stock to his spouse
under a purported installment sale contract, followed by the spouse
immediately selling the stock to a third party for a negligible gain);
Blueberry Land Co. v. Commissioner, 361 F.2d 93, 100 (5th Cir. 1966),
(holding that a corporation's transaction with an unrelated
intermediary entered into solely to avoid Federal income taxes on the
sale should be disregarded for Federal income tax purposes and the
corporation should be taxed as if it sold the property directly to the
ultimate buyer); Enbridge Energy Co. Inc. v. United States, 354 F.
App'x 15 (5th Cir. 2009) (holding that an intermediate sale was a sham,
the intermediary lacked a ``bona fide role in the transaction,'' as its
only purpose for being a party in the transaction, and indeed for
existing, was to mitigate the Federal tax bill arising from the
transaction, and that the transaction should be treated, for Federal
tax purposes, as a sale directly from the seller to the taxpayer).
In addition, it is inappropriate to treat the intermediary in the
monetized installment sale transaction described in this NPRM as the
acquirer of the gain property that is the subject of the purported
installment sale because the intermediary neither enjoys the benefits
nor bears the burdens of ownership of the gain property that a person
must possess to be considered the owner of property for Federal income
tax purposes. See Grodt & McKay Realty Inc. v. Commissioner, 77 T.C.
1221 (1981). See also Derr v. Commissioner, 77 T.C. 708 (1981) and
Baird v. Commissioner, 68 T.C. 115 (1977).

[[Page 51760]]

Second, in these transactions the seller is appropriately treated
as having already received the full payment at the time of the sale to
the buyer because (1) the purported installment obligation received by
the seller is treated as the receipt of a payment by the seller under
Sec. 15a.453-1(b)(3) since it is indirectly secured by the sales
proceeds, or (2) the proceeds of the purported loan are appropriately
treated as a payment to the seller because the purported loan is not a
bona fide loan for Federal income tax purposes, or (3) the pledging
rule of section 453A(d) deems the seller to receive full payment on the
purported installment obligation in the year the seller receives the
loan proceeds.
Third, the transaction may be disregarded or recharacterized under
the economic substance rules codified under section 7701(o) or the
substance over form doctrine. The step transaction doctrine and conduit
theory may also apply to recharacterize monetized installment sale
transactions described in this NPRM.

V. Purpose of Proposed Regulations

On March 3, 2022, the Sixth Circuit issued an order in Mann
Construction v. United States, 27 F.4th 1138, 1147 (6th Cir. 2022),
holding that Notice 2007-83, 2007-2 C.B. 960, which identified certain
trust arrangements claiming to be welfare benefit funds and involving
cash value life insurance policies as listed transactions, violated the
Administrative Procedure Act (APA), 5 U.S.C. 551-559, because the
notice was issued without following the notice-and-comment procedures
required by section 553 of the APA. The Sixth Circuit reversed the
decision of the district court, which held that Congress had authorized
the IRS to identify listed transactions without notice and comment. See
Mann Construction, Inc. v. United States, 539 F.Supp.3d 745, 763 (E.D.
Mich. 2021).
Relying on the Sixth Circuit's analysis in Mann Construction, three
district courts and the Tax Court have concluded that IRS notices
identifying listed transactions were improperly issued because they
were issued without following the APA's notice and comment procedures.
See Green Rock, LLC v. IRS, 2023 WL 1478444 (N.D. AL., February 2,
2023) (Notice 2017-10); GBX Associates, LLC, v. United States,
1:22cv401 (N.D. Ohio, Nov. 14, 2022) (same); Green Valley Investors,
LLC, et al. v. Commissioner, 159 T.C. No. 5 (Nov. 9, 2022) (same); see
also CIC Services, LLC v. IRS, 2022 WL 985619 (E.D. Tenn. March 21,
2022), as modified by 2022 WL 2078036 (E.D. Tenn. June 2, 2022) (Notice
2016-66, identifying a transaction of interest).
The Treasury Department and the IRS disagree with the Sixth
Circuit's decision in Mann Construction and the subsequent decisions
that have applied that reasoning to find other IRS notices invalid and
are continuing to defend the validity of notices identifying
transactions as listed transactions in circuits other than the Sixth
Circuit. At the same time, however, to avoid any confusion and ensure
consistent enforcement of the tax laws throughout the nation, the
Treasury Department and the IRS are issuing these proposed regulations
to identify monetized installment sale transactions as listed
transactions for purposes of all relevant provisions of the Code and
Treasury Regulations.

Explanation of Provisions

These proposed regulations would require taxpayers that participate
in monetized installment sale transactions and substantially similar
transactions, and persons who act as material advisors with respect to
these transactions, to disclose the transactions in accordance with the
regulations issued under sections 6011 and 6111. Material advisors
would also be required to maintain lists as required by section 6112.

I. Definition of Monetized Installment Sale Transaction

Proposed Sec. 1.6011-13(a) would provide that a transaction that
is the same as, or substantially similar to, a monetized installment
sale transaction described in proposed Sec. 1.6011-13(b) is a listed
transaction for purposes of Sec. 1.6011-4(b)(2) and sections 6111 and
6112. ``Substantially similar'' is defined in Sec. 1.6011-4(c)(4) to
include 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 a similar tax strategy.
The transaction described in proposed Sec. 1.6011-13(b) includes
the following elements:
(1) A taxpayer (seller), or a person acting on the seller's behalf,
identifies a potential buyer for appreciated property (gain property),
who is willing to purchase the gain property for cash or other property
(buyer cash).
(2) The seller enters into an agreement to sell the gain property
to a person other than the buyer (intermediary) in exchange for an
installment obligation.
(3) The seller purportedly transfers the gain property to the
intermediary, although the intermediary either never takes title to the
gain property or takes title only briefly before transferring it to the
buyer.
(4) The intermediary purportedly transfers the gain property to the
buyer in a sale of the gain property in exchange for the buyer cash.
(5) The seller obtains a loan, the terms of which are such that the
amount of the intermediary's purported interest payments on the
installment obligation correspond to the amount of the seller's
purported interest payments on the loan during the period. On each of
the installment obligation and loan, only interest is due over
identical periods, with balloon payments of all or a substantial
portion of principal due at or near the end of the instruments' terms.
(6) The sales proceeds from the buyer received by the intermediary,
reduced by certain fees (including an amount set aside to fund
purported interest payments on the purported installment obligation),
are provided to the purported lender to fund the purported loan to the
seller or transferred to an escrow or investment account of which the
purported lender is a beneficiary. The lender agrees to repay these
amounts to the intermediary over the course of the term of the
installment obligation.
(7) On the seller's Federal income tax return for the taxable year
of the purported installment sale, the seller treats the purported
installment sale as an installment sale under section 453.
A transaction may be ``substantially similar'' to the transaction
described above even if such transaction does not include all of the
elements described above. For example, a transaction would be
substantially similar to a monetized installment sale if a seller
transfers property to an intermediary for an installment obligation,
the intermediary simultaneously or after a brief period transfers the
property to a previously identified buyer for cash or other property,
and in connection with the transaction, the seller receives a loan for
which the cash or property from the buyer serves indirectly as
collateral.

II. Participation

Whether a taxpayer has participated in the listed transaction
described in proposed Sec. 1.6011-13(b) would be determined under
Sec. 1.6011-4(c)(3)(i)(A). Participants would include the seller, the
intermediary, the purported lender, and any other person whose Federal
income tax return reflects tax consequences or the tax strategy
described in proposed Sec. 1.6011-13(b), or a substantially similar
transaction.
Under the proposed regulations, the buyer of the gain property that
provides the buyer cash or other consideration

[[Page 51761]]

would not be treated as a participant in the listed transaction
described in proposed Sec. 1.6011-13(b) under Sec. 1.6011-
4(c)(3)(i)(A). The Treasury Department and the IRS request comments on
whether the buyer of the gain property should be treated as a
participant given the buyer's key role in the transaction. If the final
regulations include the buyer as a participant, that change would apply
only with respect to transactions entered into after the date on which
the final regulations are published in the Federal Register.

III. Material Advisors

Material advisors who make a tax statement with respect to
monetized installment sale transactions described in proposed Sec.
1.6011-13(b) would have disclosure and list maintenance obligations
under sections 6111 and 6112. See Sec. Sec. 301.6111-3 and 301.6112-1.

IV. Effect of Transaction Becoming a Listed Transaction

Participants required to disclose listed transactions under Sec.
1.6011-4 who fail to do so are subject to penalties under section
6707A. Participants required to disclose listed transactions under
Sec. 1.6011-4 who fail to do so are also subject to an extended period
of limitations under section 6501(c)(10). Material advisors required to
disclose listed transactions under section 6111 who fail to do so are
subject to penalties under section 6707. Material advisors required to
maintain lists of investors under section 6112 who fail to do so (or
who fail to provide such lists when requested by the IRS) are subject
to penalties under section 6708. In addition, the IRS may impose other
penalties on persons involved in listed transactions, including
accuracy-related penalties under section 6662 or section 6662A, the
section 6694 penalty for understatements of a taxpayer's liability by a
tax return preparer, the section 6700 penalty for promoting abusive tax
shelters, and the section 6701 penalty for aiding and abetting
understatement of tax liability.
The Treasury Department and IRS recognize that some taxpayers may
have filed Federal income tax returns taking the position that they
were entitled to the purported tax benefits of the type of transactions
described in these proposed regulations. Because the IRS will take the
position in litigation that taxpayers are not entitled to the purported
tax benefits of transactions described in these proposed regulations,
taxpayers who have participated in those transactions should consider
the best way to make corrections, whether by filing an amended return,
an administrative adjustment request under section 6227, or a Form
3115, Application for Change in Accounting Method (whichever is
applicable), or if the taxpayer has been contacted by the IRS for
examination for a taxable year in which the taxpayer participated in
the transaction, by working with an IRS employee to reverse the
purported tax benefits.
In addition, the proposed regulations would subject material
advisors to disclosure requirements with regard to transactions
occurring in prior years. However, notwithstanding Sec. 301.6111-
3(b)(4)(i) and (iii), material advisors would be required to disclose
only if they have made a tax statement on or after [the date that is 6
years before the date that Final Regulations are published in the
Federal Register].

V. Applicability Date

Proposed Sec. 1.6011-13(a) would identify monetized installment
sale transactions, and transactions that are the same as, or
substantially similar to, the monetized installment sale transactions
described in proposed Sec. 1.6011-13(b) as listed transactions
effective as of the date of publication in the Federal Register of a
Treasury decision adopting these regulations as final regulations.

Special Analyses

I. Paperwork Reduction Act

The collection of information contained in these proposed
regulations is reflected in the collection of information for Forms
8886 and 8918 that have been reviewed and approved by the Office of
Management and Budget (OMB) in accordance with the Paperwork Reduction
Act (44 U.S.C. 3507(c)) under control numbers 1545-1800 and 1545-0865.
To the extent there is a change in burden as a result of these
regulations, the change in burden will be reflected in the updated
burden estimates for the Forms 8886 and 8918. The requirement to
maintain records to substantiate information on Forms 8886 and 8918 is
already contained in the burden associated with the control number for
the forms and remains unchanged.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid OMB control number.

II. Regulatory Flexibility Act

The Secretary of the Treasury hereby certifies that the proposed
regulations will not have a significant economic impact on a
substantial number of small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6). This certification is based on
the fact that these proposed regulations implement sections 6111 and
6112 and Sec. 1.6011-4 by specifying the manner in which and time at
which an identified Monetized Installment Sale Transaction must be
reported.
Further, the Treasury Department and the IRS expect that the
reporting burden is low; the information sought is necessary for
regular annual return preparation and ordinary recordkeeping. The
estimated burden for any taxpayer required to file Form 8886 is
approximately 10 hours, 16 minutes for recordkeeping, 4 hours, 50
minutes for learning about the law or the form, and 6 hours, 25 minutes
for preparing, copying, assembling, and sending the form to the IRS.
According to the American Institute of CPAs 2016 National MAP Survey,
the median billing cost for a CPA is approximately $100 per hour. See
2016 AICPA PCPS/<a href="http://CPA.com">CPA.com</a> National MAP Survey 8-9 (2016), <a href="https://www.riscpa.org/writable/news-items/documents/2016_pcps_national_map_survey_commentary.pdf">https://www.riscpa.org/writable/news-items/documents/2016_pcps_national_map_survey_commentary.pdf</a> (last accessed July 3,
2023). For 2018, the median billing cost for a CPA is approximately
$210.50 per hour. See National MAP Survey 2018 Executive Summary, 13
(2018), <a href="https://us.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/financialadminoperations/nationalmapsurvey/downloadabledocuments/2018-national-map-survey-executive-summary.pdf">https://us.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/financialadminoperations/nationalmapsurvey/downloadabledocuments/2018-national-map-survey-executive-summary.pdf</a> (last accessed July 3, 2023). Thus, for the
initial reporting period, it is estimated that taxpayers may incur
costs ranging from $2,150 to $4,700 per respondent, although this
amount is anticipated to be significantly less for all subsequent
reporting periods.
For the reasons stated, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required. The Treasury Department and
the IRS invite comments on the impact of the proposed regulations on
small entities. Pursuant to section 7805(f) of the Code, this notice of
proposed rulemaking has been submitted to the Chief Counsel for the
Office of Advocacy of the Small Business Administration for comment on
its impact on small business.

III. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that

[[Page 51762]]

includes any Federal mandate that may result in expenditures in any one
year by a State, local, or Tribal government, in the aggregate, or by
the private sector, of $100 million (updated annually for inflation).
This proposed rule does not include any Federal mandate that may result
in expenditures by State, local, or Tribal governments, or by the
private sector in excess of that threshold.

IV. Executive Order 13132: Federalism

Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.

V. Regulatory Planning and Review

Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6(b) of Executive Order 12866, as amended. Therefore, a
regulatory impact assessment is not required.

Comments and Public Hearing

Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to any comments that are
submitted timely to the IRS as prescribed in the preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. Any comments submitted will
be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn.
A public hearing is being held on October 12, 2023, beginning at
10:00 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. Participants may alternatively attend the public
hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit an outline of
the topics to be discussed as well as the time to be devoted to each
topic by October 3, 2023. A period of ten minutes will be allocated to
each person for making comments. After the deadline for receiving
outlines has passed, the IRS will prepare an agenda containing the
schedule of speakers. Copies of the agenda will be made available free
of charge at the hearing. If no outlines of the topics to be discussed
at the hearing are received by October 3, 2023, the public hearing will
be cancelled. If the public hearing is cancelled, a notice of
cancellation of the public hearing will be published in the Federal
Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#0f7f7a6d63666c676a6e7d6661687c4f667d7c21686079">[email&#160;protected]</a> to have your name added to
the building access list The subject line of the email must contain the
regulation number REG-109348-22 and the language TESTIFY In Person. For
example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-109348-22.
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#78080d1a14111b101d190a11161f0b38110a0b561f170e">[email&#160;protected]</a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-109348-22 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-109348-22.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#2b5b5e49474248434e4a5942454c586b425958054c445d">[email&#160;protected]</a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number (REG-109348-22) and the
language ATTEND In Person. For example, the subject line may say:
Request to ATTEND Hearing In Person for REG-109348-22. Requests to
attend the public hearing must be received by 5:00 p.m. ET on October
10, 2023.
Individuals who want to attend the public hearing telephonically
without testifying must also send an email to <a href="/cdn-cgi/l/email-protection#f78782959b9e949f9296859e999084b79e8584d9909881">[email&#160;protected]</a> to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number (REG-
109348-22) and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-109348-22. Requests to attend the public hearing must be received
by 5:00 p.m. ET on October 10, 2023.
Hearings will be made accessible to people with disabilities. To
request special assistance during the hearing, contact the Publications
and Regulations Branch of the Office of Associate Chief Counsel
(Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#403035222c292328252132292e2733002932336e272f36">[email&#160;protected]</a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) at least October 6, 2023.

Statement of Availability of IRS Documents

Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.

Drafting Information

The principal author of these proposed regulations is Jonathan A.
Dunlap, Office of Associate Chief Counsel (Income Tax & Accounting).
However, other personnel from the Treasury Department and the IRS
participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1.The authority citation for part 1 is amended by adding an
entry for Sec. 1.6011-13 in numerical order to read in part as
follows:

Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.6011-13 also issued under 26 U.S.C. 6001 and 26 U.S.C.
6011.
* * * * *
0
Par. 2. Section 1.6011-13 is added to read as follows:

Sec. 1.6011-13 Monetized installment sale listed transaction.

(a) Identification as a listed transaction. Transactions that are
the same as, or substantially similar to, a transaction described in
paragraph (b) of this section are identified as listed transactions for
purposes of Sec. 1.6011-4(b)(2).
(b) Monetized installment sale transaction. A transaction is a

[[Page 51763]]

monetized installment sale transaction if, in connection with the
transaction, and regardless of the order of the steps, or the presence
of additional steps or parties--
(1) A taxpayer (seller), or a person acting on the seller's behalf,
identifies a potential buyer for appreciated property (gain property),
who is willing to purchase the gain property for cash or other property
(buyer cash);
(2) The seller enters into an agreement to sell the gain property
to a person other than the buyer (intermediary), in exchange for an
installment obligation;
(3) The seller purportedly transfers the gain property to the
intermediary, although the intermediary either never takes title to the
gain property or takes title only briefly before transferring it to the
buyer;
(4) The intermediary purportedly transfers the gain property to the
buyer in a sale of the gain property in exchange for the buyer cash;
(5) The seller obtains a loan, the terms of which are such that the
amount of the intermediary's purported interest payments on the
installment obligation correspond to the amount of the seller's
purported interest payments on the loan during the period. On each of
the installment obligation and loan, only interest is due over
identical periods, with balloon payments of all or a substantial
portion of principal due at or near the end of the instruments' terms;
(6) The sales proceeds from the buyer received by the intermediary,
reduced by certain fees (including an amount set aside to fund
purported interest payments on the purported installment obligation),
are provided to the purported lender to fund the purported loan to the
seller or transferred to an escrow or investment account of which the
purported lender is a beneficiary. The lender agrees to repay these
amounts to the intermediary over the course of the term of the
installment obligation; and
(7) On the seller's Federal income tax return for the taxable year
of the purported installment sale, the seller treats the purported
installment sale as an installment sale under section 453.
(c) Substantially similar transactions. A transaction may be
substantially similar to a transaction described in paragraph (b) of
this section if the transaction does not include all of the elements
described in that paragraph. For example, a transaction would be
substantially similar to a monetized installment sale described in
paragraph (b) of this section if a seller transfers property to an
intermediary for an installment obligation, the intermediary
simultaneously or after a brief period transfers the property to a
previously identified buyer for cash or other property, and in
connection with the transaction, the seller receives a loan for which
the cash or property from the buyer serves indirectly as collateral.
(d) Participation in a monetized installment sale transaction.
Participants in a monetized installment sale transaction described in
paragraph (b) of this section include sellers, intermediaries and
purported lenders described in paragraph (b) of this section and any
other taxpayer whose Federal income tax return reflects tax
consequences or the tax strategy described in paragraph (b) of this
section or a substantially similar transaction. Buyers of gain property
described in paragraph (b) of this section are not treated as
participants.
(e) Applicability date. This section's identification of
transactions that are the same as, or substantially similar to, the
transaction described in paragraph (b) of this section as listed
transactions for purposes of Sec. 1.6011-4(b)(2) and sections 6111 and
6112 of the Code is effective the date that these regulations are
published as final regulations in the Federal Register. Notwithstanding
section 301.6111-3(b)(4)(i) and (iii) of this chapter, material
advisors are required to disclose only if they have made a tax
statement on or after the date that is 6 years before the date that
these regulations are published as final regulations in the Federal
Register.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-16650 Filed 8-3-23; 8:45 am]
BILLING CODE 4830-01-P

</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>

View on FederalRegister.gov →Plain-text source

Indexed from Federal Register on August 4, 2023.

This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.