Keeping Lists of Investors

Generally, any organizer of an interest in any potentially abusive tax shelter is required to keep a list of all investors, except for investors identified in Investor exceptions on this page. For purposes of keeping a list of investors, potentially abusive tax shelters include:

• Tax shelters under section 6111 that are required to be registered.
• Confidential corporate tax shelters and other tax shelters that meet the requirements of section 6111(d)(1)(A) (that is, tax shelters that meet requirement 1 of the definition of Confidential Corporate Tax Shelter provided on page 1). Keep investor lists for these tax shelters whether or not the transaction is offered to any corporate participant. See Confidential corporate tax shelters on this page for details.
• Any tax shelter that is a projected income investment as defined in Temporary Regulations section 301.6111-1T A-57A.

   The list of investors must include the following information:

1. The name, registration number, if any, and the identifying number of the tax shelter,
2. The name, address, and identifying number of each investor,
3. The number of units acquired and the date on which each interest is acquired by each investor,
4. The amount of money invested by each investor,
5. The name, address, and employer identification number of any indirect corporate participant in a confidential corporate tax shelter or tax shelter under section 6111(d)(1)(A) if known by the organizer,
6. A detailed description of the tax shelter describing both its structure and intended tax benefits,
7. A summary or schedule of the tax benefits that each investor is intended or expected to derive, if known,
8. Copies of any additional written materials, including tax analyses or opinions, relating to the tax shelter that have been given to any potential investors or their representatives, tax advisors, or agents,
9. If the interest was not acquired from the person maintaining the list, the name of the person from whom the interest was acquired, and
10. The name and address of each agent of the person maintaining the list. For purposes of this item, agent includes any agent who negotiates the transfer of any interest in a tax shelter for the tax shelter, an organizer, or an underwriter, broker, or dealer (or other similar person) who transfers any interest in a tax shelter. See Temporary Regulations section 301.6112-1T.

Note:   Except for item 5, the above information is required for investors in all tax shelters subject to the list of investor requirement, including investors in tax shelters under section 6111(c).

Confidential corporate tax shelters.   The requirement to keep a list of investors for confidential corporate tax shelters applies to interests acquired after February 28, 2000. The requirement to keep a list of investors also applies to a tax shelter if a significant purpose of its structure is avoidance or evasion of Federal income tax (requirement 1 of the definition of confidential corporate tax shelters provided on page 1), even if the tax shelter is not offered under conditions of confidentiality or the fees are not expected to exceed $100,000. See the definition of confidential corporate tax shelters on page 1 for details.

Note:   A list of investors is required whether or not the confidential corporate tax shelter or tax shelter under section 6111(d)(1)(A) is ever offered to a corporate investor.

If an IRS ruling is requested to determine if a transaction must be registered as a confidential corporate tax shelter, the requirement to make investor lists available for inspection is temporarily suspended. See Request for Ruling below for details.

Investor exceptions.   An organizer may, but is not required to, list a person if the potentially abusive tax shelter is not subject to registration under section 6111, is not a listed transaction (defined on page 1), and is not a projected income investment described in Temporary Regulations section 301.6111-1T A-57A, if:

1. The total consideration paid to all organizers for the person's tax shelter interest was less than $25,000, or
2. The tax shelter organizer reasonably believes that such person's acquisition of the interest will not result in a reduction of Federal income tax liability of:

• Any corporation(s) that exceeds, in the aggregate, $1 million in any single tax year or a total of $2 million for any combination of tax years and
• Any noncorporate taxpayer(s) that exceeds, in the aggregate, $250,000 in any single tax year or a total of $500,000 for any combination of tax years.

Claims of Privilege

In any case in which an attorney or federally authorized tax practitioner within the meaning of section 7525 is the person required to register a confidential corporate tax shelter or to keep lists of investors, and that person believes that information required to be disclosed on Form 8264 or kept on a list of investors is protected by the attorney-client privilege or by the confidentiality privilege of section 7525(a), any information omitted from the Form 8264, or required as part of the list of investors and withheld from disclosure to the IRS, on the basis of such a claim must be supported by a statement which satisfies the requirements of Temporary Regulations sections 301.6111-2T(e)(3)(ii) and 301.6112-1T Q&A-17(b). If information is omitted from Form 8264 on the basis of such a claim, attach the required statement to the form.

Request for Ruling

Note:   These rules apply only to confidential corporate tax shelters.

A tax shelter organizer, or other person responsible for registration or maintaining a list of investors, may request a ruling from the IRS to determine whether a transaction must be registered as a confidential corporate tax shelter or is subject to the investor list requirement. The request for ruling must be submitted to the IRS on or before the date registration is otherwise required. Send the request to Internal Revenue Service, Attn: CC:PA:T, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. However, if a private delivery service is used, send the request to Internal Revenue Service, Attn: CC:PA:T, Room 6561, 1111 Constitution Avenue, NW, Washington, DC 20224. See Rev. Proc. 2001-1, 2001-1 I.R.B. 1 or subsequent IRS guidance for more details. If the request fully discloses all relevant facts relating to the transaction, the requirement to make investor lists available for inspection is suspended during the period the ruling is pending. If the IRS determines that the transaction is a confidential corporate tax shelter subject to registration, the due date for registration is extended for sixty days from the date of the ruling or the date of the withdrawal of the ruling request. The requirement to make investor lists available for inspection is suspended for sixty days from the date of the ruling or the date of the withdrawal of the ruling request. See Temporary Regulations sections 301.6111-2T(b)(5) and 301.6112-1T Q&A-4(b) for details.

Penalties

If a tax shelter organizer is required to register a tax shelter under section 6111(c) and fails to do so when required, or files false or incomplete information, a penalty may be charged equal to the greater of $500 or 1% of the aggregate amount invested in the shelter. No penalty will be charged if the organizer has reasonable cause for failing to comply with the registration requirements.

If a confidential corporate tax shelter organizer required to register fails to do so when required, or files false or incomplete information, a penalty may be charged equal to the greater of $10,000 or 50% of the fees paid to all organizers before the date the shelter is registered. In the case of an intentional disregard of the requirement to register a confidential corporate tax shelter, the penalty is increased to 75% of the fees.

Any person who is required to furnish a tax shelter registration number to investors in the tax shelter and who fails to do so will be charged a penalty of $100 for each failure.

A person required to keep a list of investors may be charged a penalty for each investor who is required to be on the list but is omitted. The penalty is $50 for each omission, limited to a maximum of $100,000 per year. No penalty will be charged if the omission was due to reasonable cause and not due to willful neglect.

An additional civil penalty is imposed against any person who directly or indirectly organizes or promotes an abusive tax shelter. The penalty also applies to persons who cause other parties to make or furnish false or fraudulent statements or gross valuation overstatements that promote the abusive tax shelter. The penalty is equal to the lesser of $1,000 or 100% of the gross income derived (or to be derived) by that person from that activity.

Penalties are also imposed against persons who knowingly aid and abet in the understatement of the tax liability of another person. The penalty is $1,000 ($10,000 for corporate tax returns and documents).

Criminal penalties for failure to file on time and for filing a false or fraudulent return are provided by sections 7203, 7206, and 7207.

Preparing the Form

A registration number may not be issued if an incomplete application is filed. You must make an entry on Form 8264 whenever an item is applicable. If you need more space, attach a statement or use the Explanation of Items in Part V of the form. You may incorporate information contained in other documents. If you do, attach copies of the documents and specify the page number of the incorporated material. When dollar amounts are called for, use whole dollar amounts.

Note:   If an item does not apply or you do not know the requested information, leave the item blank and explain in Part V of the form why it does not apply or why you do not know the requested information.

Amended Forms 8264

Amendments may be made to Form 8264 in certain cases. If there is any material change in facts occurring after the initial registration, you may, but are not required to, file an amended form. The following are examples of a material change in facts.

1. A change in the identifying information relating to the tax shelter or tax shelter organizer.
2. The acquisition or construction of a principal asset not reported on the initial application for registration.
3. A change in the method of financing a minimum investment unit.
4. A change in the principal business activity.
5. A change in any tax shelter ratio reported on the initial application for registration that increases or decreases the reciprocal of the tax shelter ratio by 50% or more. The reciprocal of the ratio is the fraction in which the amount of the applicable investment base is the numerator and the amount of the applicable deductions and credits is the denominator. For example, if the tax shelter ratio changes from 2 to 1 to 4 to 1, the reciprocal of the tax shelter ratio decreases from ½ to ¼, a 50% decrease. Similarly, if the tax shelter ratio changes from 6 to 1 to 4 to 1, the reciprocal of the tax shelter ratio increases from 1/4 to ¼, a 50% increase. Both examples would be a material change in facts.
6. A tax shelter transaction is the same or substantially similar to a listed transaction that was identified by the IRS after the initial application was filed (see Listed transactions on page 1).

To amend Form 8264, enter in the space provided above Part I the tax shelter registration number previously issued to the tax shelter. If the tax shelter has not yet received the registration number, enter Applied for in the space. Complete the top portion of Part I above Item 1a, but only show in the remainder of Parts I through Part IV the information that has changed since the tax shelter was registered. In addition, you should include any other information that you did not know at the time the tax shelter was registered but have since learned. Complete the signature area on page 2. For further information, see A-45A of Temporary Regulations section 301.6111-1T.

Note:   The filing of an amended application will not affect the determination whether the initial application would be subject to any applicable penalty. In addition, if the initial application was timely filed and contained complete and accurate information, the penalty under section 6707 will not be imposed as a result of the information in an amended application.

Definitions

Principal organizer.   A person principally responsible for organizing a tax shelter 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.

Participation in the organization of a tax shelter.   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.

Participation in the management of a tax shelter.   Participation in the management of a tax shelter includes managing the assets of the tax shelter or directing or having supervisory authority for its business activities.

Participation in the sale of a tax shelter.   Participation in the sale of a tax shelter includes any marketing activities (directly or through an agent) with respect to an investment.

For more detailed information concerning the terms defined above, see A-25 through A-33 of Temporary Regulations section 301.6111-1T.

Substantial investment.   A substantial investment is one in which the total amount that may be offered for sale to all investors exceeds $250,000 and at least five investors are expected. The total amount offered for sale is the total amount to be received from the sale of interests in the investment. It includes all cash, fair market value of property contributed, and indebtedness received in exchange for interests. For the purpose of determining whether five or more investors are expected in an investment involving real property (and related personal property) used as a farm for farming purposes, interests in the investment expected to be held by a husband and wife, their children and parents, and the spouses of their children will be treated as held by one investor.

Aggregation of similar plans or arrangements.   Generally, for purposes of determining whether investments are parts of a substantial investment, investments offered by the same person or related persons that involve similar business assets and similar plans or arrangements are aggregated. However, investments exempt from registration (see paragraphs 3 and 4 under Exemptions for tax shelters under section 6111(c) on page 2) because they are sold or leased to or involve rendition of services to persons who are reasonably expected to use the property or services for either personal use or in their principal active trade or business are not aggregated with similar investments by persons who are expected to use the property or services for other purposes. See A-22 and A-24A of Temporary Regulations section 301.6111-1T.

Tax shelter ratio.   The tax shelter ratio with respect to any year for any investor is the ratio that the aggregate amount of deductions and 350% of the credits that are represented or that will be represented as potentially allowable to an investor under subtitle A of the Internal Revenue Code, for all periods up to (and including) the close of the year, bears to the investment base for the investor as of the close of the year. Use the Tax Shelter Ratio Computation on page 2 of Form 8264 to compute tax shelter ratios.

For purposes of computing the tax shelter ratio for a year, general partners in a limited partnership will not be treated as investors in the partnership if the general partners' aggregate interest in each item of partnership income, gain, loss, deduction, and credit for the year is not expected to exceed 2%. For purposes other than the computation of the tax shelter ratio, however, general partners will be treated as investors.

The term year means the tax year of a tax shelter, or if the tax shelter has no tax year, the calendar year.

Potentially allowable deduction or credit.   A deduction or credit is considered to be represented as being potentially allowable to an investor if any oral or written statement is made in connection with the offering for sale of an interest in an investment indicating that a tax deduction or credit is available or may be used to reduce Federal taxable income or Federal income tax. Representations may be made, for example, as advertisements, written offering materials, prospectuses, or tax opinions, and include general representations that tax benefits are available. For example, an advertisement stating that purchase of a restaurant includes trade fixtures (5-year write-off) is considered an explicit representation of tax benefits. In addition, if any explicit representation is made regarding any tax benefit, all deductions or credits typically associated with the investment will be treated as having been represented as potentially allowable. See A-8 through A-12 of Temporary Regulations section 301.6111-1T and the instructions for Part III for additional information about potentially allowable deductions or credits.

Investment base.   The investment base for any year is the cumulative amount of money and the adjusted basis of other property (reduced by any liability to which the other property is subject) that is unconditionally required to be contributed or paid directly to the tax shelter by the investor before the close of the year. Amounts which reduce the investment base are listed in the instructions on page 7 for line 24 of Part III.

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