S Corps Pay Highest Effective Tax Rates

Michael Cohn for Accounting Today writes: The National Federation of Independent Business and the S Corporation Association released a new study Wednesday showing that S corporations pay the highest effective rates of any business type.

The study, authored by Quantria Strategies LLC, compares the tax burden that different business entities will shoulder in 2013 and finds that S corporations will pay the highest average effective tax rate (at 31.6 percent of their income), followed by partnerships (29.4 percent), C corporations (17.8 percent) and sole proprietorships (15.1 percent).

The results of this study come at a critical time for tax reform. House Ways and Means Committee chairman Dave Camp, R-Mich., and Senate Finance Committee chairman Max Baucus, D-Mont., are focusing on crafting a comprehensive tax reform plan that they hope to unveil this year. With the release of the study, the lobbying groups hope to provide lawmakers in Congress with their perspective on how much they believe is paid in taxes by various types of business entities.

They also positioned the study in reaction to a speech last week by President Obama highlighting his proposals for business tax reform, which mainly focused on eliminating corporate tax loopholes and increasing investment in jobs to rebuild infrastructure and encourage more manufacturing (see Obama Urges Business Tax Rewrite to Help Finance Jobs Program). However, Obama also included some proposals for small businesses, including simplifying tax filing for small businesses and allowing them to expense up to $1 million in investments.

“While many people think of the statutory tax rate when they consider the effect of federal income taxes, the reality is that the statutory tax rate does not represent the best measure of the effect of taxes on a business,” said the study. “Average effective tax rates are a better measure of whether a particular industry or business form faces greater or lesser federal income taxes relative to other industries or business forms.”

A previous study by Quantria in 2009 examined businesses with under $10 million in receipts and led to similar results. According to the latest study, S corporations making more than $200,000 will pay 35 percent, equal to the marginal tax rate paid by the most successful C corporations.

Moreover, the study indicates that the S corporation tax burden is highly progressive, with the smallest S corporations paying 19 percent in tax, while the largest pay 35 percent.

“The study released today by NFIB and the S Corporation Association makes clear that comprehensive tax reform is the only way to ensure we make the tax code more fair and equitable for all employers,” said Rep. Dave Reichert, R-Wash., a member of the tax-writing Ways and Means Committee, in a statement. “We know Main Street businesses employ most of the workers, and this study shows they pay lots of taxes too. The President’s plan to raise their taxes further in order to cut tax rates for big business is simply a non-starter. Tax reform needs to be comprehensive, and it needs to level out the tax burden paid by businesses of all types.”

The S Corporation Association plans to use the new study, along with a previous study from Ernst & Youngmeasuring employment levels at pass-through entities, to fend off efforts at corporate-only tax reform.

National Federation of Independent Business president and CEO Dan Danner also pointed to the results of the study. “The U.S. tax code is unfair and complex,” he said in a statement. “Today’s study provides valuable data that confirms small businesses currently pay a higher effective tax rate than many large corporations. This study delivers a strong counter argument to the President’s announcement last week that corporate-only tax reform is the best path. Over 75 percent of all small businesses in the United States are taxed at the individual rate—signifying the need for comprehensive reform that addresses both individual and corporate taxes. NFIB will continue to advocate for a level playing field so that small-business owners can create jobs and grow their business.”

Newlyweds face tax decisions

Norm Grill for Fairfield Citizen writes: Albert and Cyndi just got married. At the urging of both sets of parents, they met with their financial advisor to discuss the tax consequences of marriage. Albert is employed, and Cyndi is a recent college graduate looking for work.

Their advisor said they'll have many issues to consider over their lives together, and tax liability could play a critical role in their financial security -- or lack thereof.

Their advisor began by explaining that planning accordingly for the tax impact of being married is important for all newlyweds. Why? Because it changes things.

For example, because only Albert is working, the couple may be able to save tax dollars by filing jointly. What's more, because Cyndi does expect to be working next year, their advisor suggested they might benefit from accelerating some of Albert's income into 2013 and deferring deductible expenses to 2014.

However, once both are employed, they'll face a dilemma common to the matrimonial state: Because the middle and top tax brackets for married couples aren't twice as big as those for singles, Albert and Cyndi could wind up in a higher tax bracket than if they were able to file as singles. This is commonly known as the "marriage penalty."

"Didn't the latest tax law take care of that?" Cyndi asked. Their advisor clarified that the American Taxpayer Relief Act of 2012 did extend marriage penalty relief -- but only for the 10-percent and 15-percent brackets.

By the time they hit the 39.6-percent bracket, the couple will face a huge penalty. As singles, neither Albert nor Cyndi would be subject to the 39.6 percent rate until his or her own taxable income exceeded $400,000. But, as a married couple, they'll face that rate as soon as their combined taxable incomes hit $450,000 -- only $50,000 more.

Suppose, their advisor said, that the couple each earn $400,000. The tax that they'd pay as a married couple is more than twice the amount they'd pay if they were two unmarried people earning the same amount each. In this simplified example, Albert and Cyndi would face a tax bill more than $31,000 higher than that of their unmarried friends earning the same amount.

Because tax laws and personal circumstances change over time, it is a good idea to talk with your tax advisor at least once a year to make sure your tax liability is minimized.

Tax rules on renting your vacation home

Kay Bell for Bankrate.com writes: Owning a vacation home can be a wonderful thing, providing you and your family a private getaway with all the comforts of home.

It also could net you some extra money if you rent it when you're not there.

But if you're not careful, it also could cause you some tax troubles.

"If you have a vacation home, it can make a tax difference as to whether it was used as personal residence or not used at all by the owners," says Mark Luscombe, principal federal tax analyst at CCH in Riverwoods, Ill., a provider of tax information and services.

Basically, the amount of time you personally spend at your second home determines how much tax you might owe on rent, as well as deductions you can claim against the property.

There are three basic second-home tax situations.

You rent the property to others most of the year.

You rent the property to others for a very short time.

You use the property yourself and rent it when you're not there.

Here's a closer look at the tax implications of these scenarios.

Second home as full-time rental

You used to enjoy spending all your free time at your beach house, but now that the kids are grown and gone, you and your spouse have found other ways to vacation. So you've decided to lease out the vacation home more than you use it.

Of course, since taxes are involved, you must meet some specific requirements to take tax advantage of your rental vacation property. If you limit your personal use of your second home to 14 or fewer days or 10 percent of the time it's rented, you've essentially turned your second home into an investment.

And for many, it's an investment that can pay off.

"Nearly half of the people who finance their vacation homes are able to cover 75 percent or more of their mortgage by renting it out to travelers," says Jon Gray, senior vice president of HomeAway North America, an online vacation rental marketplace.

Gray says the average owner who finds renters via HomeAway leases the property for 19 weeks a year and brings in around $26,000 in rental income. "That's not an insignificant amount of money," says Gray.

Of course, that rental income is taxable. But you also can deduct many costs associated with your rented second home. Check out the table below to find some common rental expenses.

Common rental expenses

The Internal Revenue Service says the most common rental expenses are:

• Management fees.
• Mortgage interest.
• Points.
• Property management fees.
• Rental payments.
• Repairs.
• Taxes.
• Utilities.

• Advertising.
• Auto and travel expenses.
• Cleaning and maintenance.
• Commissions.
• Depreciation.
• Insurance.
• Interest.
• Legal and other professional fees.
• Local transportation expenses.

When your deductible rental expenses exceed your rental income, you could wipe out any possible taxable income and even record losses that could help additionally at tax time.

Passive activity pitfalls

Your rental losses, however, could be limited. The IRS usually considers rental real estate as a passive activity; that is, you get income mainly for the use of property rather than for services provided.

And the tax code's passive activity rules mean that generally you can only use passive losses to offset passive income, not ordinary income such as wages. Any excess passive losses are carried forward to the next tax year.

There is one way to get around passive activity rules. If you are an active participant in your rental vacation home, says Luscombe, up to $25,000 of the home's expenses beyond the rental income could be deductible. There are income restrictions and a phaseout of this amount. If you make more than $100,000 ($50,000 if married filing separately), your deductible allowance is limited.

What constitutes active participation? You're deemed to have materially participated in a rental property if you (or your spouse) were involved in its operations on a regular, continuous and substantial basis during the tax year. This includes such things as personally maintaining the property and lining up renters, says Luscombe.

Short-term rental advantages

When you or your family spend time at your second-home retreat as well as rent it for part of the year, the tax rules change. But exactly how much depends on the precise breakdown of the days you and renters are in the house.

The best tax deal is for short-term rentals. These are situations where your property is rented for 14 or fewer days. Money received for two-week-or-less rentals is tax-free.

"This issue comes up every time there is a special event," says Luscombe. Residents head out of town to avoid the increased congestion caused by special events such as the Super Bowl or music festivals, lease their homes to visitors coming in for the festivities, and pocket the payments without any worry about reporting the income.

It doesn't matter if you got $20,000 for the week those football fans leased your condo near the stadium. The IRS isn't entitled to a cent.

Even better, this short-term rental income tax break isn't limited to second homes. If you rent your primary residence for two weeks or less, that income doesn't have to be reported on your tax return.

Hybrid home tax calculations

Tax rules are a bit trickier when you use your vacation home yourself for more than two weeks and also rent it out for a substantial part of the year. As with everything tax, meticulous record keeping is key.

To reduce taxes on any rent you collect, you'll want to deduct eligible expenses. But because the home has shared personal and rental use, you must allocate the costs.

For example, you spent 60 days last year during ski season at your mountain cabin. The hillside hideaway was rented for 180 days the rest of the year. You can deduct 75 percent of your vacation home's qualifying rental expenses against rent you collect: 180 rental days divided by 240 total days of property use.

But you can't claim rental losses in this situation -- only zero out your rental income.

And you'll report the personal portion of your expenses, including mortgage interest and property taxes on your second home, as usual on your Schedule A itemized deductions.

Don't forget local taxes

Finally, don't overlook any state and local taxes that might be assessed on the rental of your home, whether a primary residence or a second home.

"Generally, any short-term rentals, typically called transient rentals, even just for a weekend, have a state and local tax obligation," says Rob Stephens, co-founder of HotSpot Tax Services, a Greenwood Village, Colo., company that files state and local sales and lodging taxes for owners of vacation rental properties.

In Texas, if you rent your home for fewer than 30 days, you're subject to the state's hotel occupancy tax. It's called the transient occupancy tax in California. Florida counties collect a tourist impact tax on all rentals.

"As a practical matter, it gets very difficult for local jurisdictions to track and monitor this type of rental, so historically, we've seen a pretty high level of noncompliance," says Stephens.

But with state and local governments seeking every possible penny, tax revenue from such rentals is getting more attention. And the same technology that helps folks find short-term vacation home occupants also offers tax collectors a view of who's making potentially taxable residential rental income.

3 Uncommon Tax Credits & Deductions for Big Savings

Catherine Hawley for the Huffington writes: It's summertime, and taxes might not be foremost on your mind. However, there are some uncommon tax credits and deductions that can help families save. Did you know the price of summer camp is a potential tax credit? In this post I'll examine three tax deductions that might prove beneficial come April 2014. I spoke with Meredith Johnson, CPA, CFP at Burr Pilger Mayer, who offers her insight on this subject.

Tax Savings Tip 1: SUMMER DAY CAMP

This might sound too good to be true. And, yes, there are some limitations. For instance, this credit only applies to day camp (not overnight camp). However, taking advantage of the Child and Dependent Care Credit can save you money. Meredith offers this example: "The maximum credit is up to 35 percent of qualifying expenses (the percentage depends on income), up to $3,000 for one child or $6,000 for two or more. If your family's adjusted gross income is more than $43,000, the credit percentage is 20 percent, for a maximum of $1,200 for families with two or more qualifying children. Qualifying children must be your dependents under age 13, and your family must have earned income." For more information and a flow chart which can help you determine eligibility check out IRS Publication 503.

Tax Savings Tip 2: ENERGY-EFFICIENT HOME RENOVATIONS

Having completed a remodel this year, this is a deduction I'm looking forward to taking advantage of myself. Because I replaced old construction with energy-efficient windows, doors and insulation, I can claim the credit. Meredith explains, "Items can be covered up to $500, based on 10 percent of the project cost. If you spend $3,500, for example, your credit will be $350. The $500 is a lifetime maximum, so be sure to subtract any credits you might have claimed previously. If you add solar or wind power to your home, 30 percent of the cost of the equipment may be claimed as a credit, with no cap." The IRS publication, Get Credit for Making Your Home Energy Efficient has even more information about this credit.

Tax Savings Tip 3: SCHOOL TUITION (for children with learning disabilities or special needs)

This deduction was first brought to my attention in a publication for parents of Chartwell School for dyslexic children, where I'm on the board of trustees. As this is a medical tax deduction, a letter from a doctor is required. Assuming you qualify (you'll want to check with your tax advisor to confirm), these are the expenses you're allowed to deduct: tuition for a school that has educational curriculum specifically designed for children with learning disabilities, tutoring by a qualified LD teacher, books and other learning materials, transportation expenses and diagnostic evaluations.

According to Meredith, here's how it works: "The cost of these programs is deducted as a medical expense, which is an itemized deduction on Schedule A of an individual's tax return, and it is subject to a 10 percent floor. For example, a family with an $100,000 adjusted gross income would be able to deduct all medical costs above $10,000; if tuition were $20,000 and they had no other medical expenses, their deduction would be $10,000."Here is more information from the IRS on this subject.

Everyone's tax situation is different. If you think this information might apply to you, don't hesitate to reach out to a qualified tax professional for help. Also, consider your state's tax laws to see what breaks might be available there too. Be mindful of tax savings year round so that when it comes time to file your return you can SaveUp!

IRS failing in efforts to curb ID theft tax fraud

ELAINE SILVESTRINI, TAMPA TRIBUNE, FLA.  for CPA Practice Advisor writes: The IRS is running into problems as it struggles to get control over the wave of identity theft tax refund fraud that has engulfed the Tampa, Florida, area and spread to other parts of the country over the last three years.

The IRS is running into problems as it struggles to get control over the wave of identity theft tax refund fraud that has engulfed the Tampa, Florida, area and spread to other parts of the country over the last three years.

Two recent watchdog reports concluded authorities are making progress but need to do more to help identity theft victims and stop issuing refunds to thieves. The Government Accountability Office also says the IRS still doesn't know the total extent of the fraud.

And witnesses at a congressional hearing in Washington on Thursday said the fraud is continuing to rise nationwide. As of June 29, the IRS had identified almost 1.9 million incidents of identity theft this year, according to testimony, compared to about a million incidents in 2011.

The IRS reported that in the first half of this year, the agency had stopped the issuance of $4.2 billion in potentially fraudulent tax refunds associated with almost 860,000 tax returns that involved identity theft, Michael R. McKenney, acting deputy inspector general for audit told Congress. But he added that the IRS doesn't know how many identity thieves are filing fictitious tax returns and how much revenue is being lost through fraudulent tax refunds.

The IRS inspector general plans to issue a report in September in which it will find that although the IRS has improved its detection of identity theft refund fraud, thieves are still managing to steal billions, according to McKenney.

The National Taxpayer Advocate wrote in a report to Congress that the IRS is "still harming victims by extensively delaying case resolution." Moreover, filters the IRS has created to weed out fraudulent tax returns "ensnare far too many legitimate filers."

The Inspector General for Tax Administration concluded that the IRS's Taxpayer Protection Program is improving identity theft detection but needs to make adjustments to reduce the burden on taxpayers.

Locally, officials say work remains to be done as thieves continue to use stolen identities to steal from federal taxpayers, even as law enforcement solidifies its improved relationship with IRS criminal investigators and federal prosecutors.

"The new relationship with the IRS has streamlined the process and it's made investigating the crimes much easier," said Tampa police spokeswoman Andrea Davis. "We do believe (the fraud is) still going on, and we're still seeing activity. We're not seeing as much of the flaunting of the money and the cars in the traffic stops and the search warrants we're doing. Yes, we're still inundated with cases and we're still working cases."

After early issues that made prosecutions difficult, more suspects are now facing justice. The U.S. Attorney's Office in Tampa has brought charges against about 45 people so far this year, compared to about 30 people in all of last year.

Davis said recent prosecutions and sentences of high profile defendants -- including a 21-year-sentence for Rashia Wilson, who had called herself the "queen" of tax refund fraud -- has sent a strong message of deterrence. "I think the word is out," she said, "so whether it's 'Let's lay low and do it more quietly,' or it's really stopping, that's something that I guess we'll see in time."

Hillsborough Sheriff's Cpl. Bruce Crumpler agreed that the Wilson sentence had an impact. "We've got their attention," he said.

Crumpler said his sense is the number of people involved in the fraud has gone down but that those who are still committing it are stealing more money.

The Taxpayer Advocate, which helps filers having problems with the IRS, says the number of identity theft complaints it receives continues to rise. The Taxpayer Advocate saw a 61 percent increase in identity theft cases from fiscal year 2011 to fiscal year 2012, and a 66 percent increase from 2012 to 2013. Current trends appear to be heading in the same direction.

But in Tampa, postal workers say they are intercepting "significantly less" suspicious refunds in the mail. From January through the end of July, postal inspectors pulled more than 28,500 suspicious refunds, according to Postal Inspector Doug Smith. In the same period last year, inspectors pulled 105,000 suspicious refunds from the mail.

It's possible, however, that local thieves know law enforcement has cracked down in Tampa and are having refunds sent to other places, Smith said. Law enforcement officials have documented numerous cases that cross state lines. Just last week, for example, a Wesley Chapel woman was sentenced in Missouri federal court to 22 months in federal prison for her involvement in a tax refund fraud scheme. Tania Henderson was also ordered to pay $835,000 in restitution.

According to testimony given to Congress last week, the IRS estimates it would cost about $22 million to screen 1.2 million tax returns the inspector general says need to be verified. "Without the necessary resources, it is unlikely that the IRS will be able to work the entire inventory of potentially fraudulent tax returns it identifies," McKenney said.

Meanwhile, the IRS says it erected 13 new filters this past filing season designed to prevent fraudulent refunds from being issued to thieves and expects to create even more filters next year. Part of that effort involves the Taxpayer Protection Program, which reviews tax returns that are identified by the IRS as involving possible identity theft and then has workers try to verify whether they are valid.

If the identity of the filer can't be identified, the IRS doesn't process the return.

The program had 10 employees assigned to answer a toll-free telephone line in the 2012 filing but were able to answer only 24 percent of the calls, according to the Inspector General's report. The IRS transferred the responsibility for answering the calls to another unit this year, and more than 200 employees answered the line this time.

The Taxpayer Advocate report says it has significantly reduced the amount of time it takes to resolve identity theft cases for taxpayers, taking an average of 99 days to close cases compared to 125 days two years ago. But the IRS processing time for identity theft cases is actually increasing. Although service-wide statistics were not available, the Taxpayer Advocate said that for many categories of identity theft work, the IRS takes between six months and a year to resolve cases.

This, the advocate wrote, "is simply not acceptable for the hundreds of thousands of victims, and almost guarantees that these victims will be caught up in the IRS processes for a second filing season."

Another problem involves personal identification numbers the IRS issues to taxpayers who have had their identities compromised. The idea is for the taxpayers to use the numbers when filing later tax returns, preventing thieves from using their identities to file again. When taxpayers lose their PINs, the IRS has a procedure to issue replacement numbers. But the taxpayer advocate's report says all taxpayers using replacement PINS are having their returns marked "unpostable," meaning they have been identified by computer filters as possible fraud. This delays the processing of the returns for about six weeks.

"Preliminary analysis suggests an astonishing 81 percent of tax returns flagged as unpostable are eventually deemed legitimate," the advocate's congressional report states. "It is not acceptable for so many legitimate taxpayers to be harmed by having their returns unnecessarily rejected and delayed."

Estate Tax Portability - What Is A Timely Filed Estate Tax Return?

Lewis Saret for Forbes writes: To make a valid portability election, the Internal Revenue Code (“Code”) requires an executor to make the election on an estate tax return filed within the “time prescribed by law” (including extensions) for filing that return.

The Code further requires estate tax returns be filed within nine months of the date of the decedent’s death.   However, the Code also only, as a general rule, requires an estate tax return to be filed when the decedent’s gross estate exceeds his/her unused applicable exclusion amount (i.e., $5.25 million for 2013).

Issue.            One issue raised by the portability election is that no Code provision provides a “time prescribed by law” for filing an estate tax return on behalf of a decedent’s estate when the basic exclusion amount exceeds the value of the decedent’s gross estate, as would be the case for estates making the portability election.   As a result, there is an issue regarding what the phrase “time prescribed by law” means in the context of making the portability election.

Rule.   The temporary portability regulations require every estate electing portability to file an estate tax return within nine (9) months of the decedent’s date of death, unless an extension of time for filing has been granted.  This timing requirement for filing a return applies to all estates electing portability regardless of the size of the gross estate.  The temporary regulations also provide that an estate choosing to elect portability will be deemed to be required to file an estate tax return under the Code.

Rationale.            The preamble to the Temporary Regulations states that this rule (i.e., the rule that deems an estate electing portability to be treated as being required to file an estate tax return under the Code, and therefore required to file such return within the “time prescribed by law”) will benefit the Service as well as taxpayers choosing the benefit of portability because the records required to compute and verify the DSUE amount for portability purposes are more likely to be available at the time of the death of the first deceased spouse than at the time of a subsequent transfer by the surviving spouse by gift or at death, which could occur many years later.

The preamble to the Temporary Regulations states that this rule also is consistent with the legislative history of the Tax Relief Act of 2010, which suggests that estates deciding to elect portability that are not otherwise required to file an estate tax return under Code Sec. 6018(a) are intended to be subject to the same timely-filing requirements applicable to estates required to file an estate tax return under Code Sec. 6018(a).

This post discusses one of several issues that the portability election raises.  Future posts will discuss other key issues.

To Disclose Or Not To Disclose: Tax Shelters, Penalties, And Circular 230 In 2013

Linda Z. Swartz and Jean Marie Bertrand for Cadwalader, Wickersham & Taft LLP write: 

I. TAX SHELTER REGULATIONS  (To Read this entire 126 Page Document Click Here)

A. Overview

• Disclosure requirements for participants in "reportable transactions."
• List-maintenance requirements for "material advisors" with respect to reportable transactions.
• Disclosure requirements for "material advisors" with respect to reportable transactions.¹

II. TAX SHELTER DISCLOSURE REQUIREMENTS FOR PARTICIPANTS

A. Overview

• Categories of Reportable Transactions²
• Listed Transactions
  • Confidential Transactions
  • Loss Transactions
  • Contractual Protection Transactions
  • Transactions of Interest entered into on or after November 2, 2006
  • Patented Transactions would constitute a new category of reportable transaction under proposed regulations.³
• Participant Reporting Obligations
  • Every taxpayer "participating" in a reportable transaction that is required to file a U.S. tax return must:⁴
    • Mail IRS Form 8886 to the IRS Office of Tax Shelter Analysis for the first year the taxpayer participates in the transaction,
    • Attach IRS Form 8886 to its tax return (and any amended return) for each year in which the taxpayer participates in the transaction,⁵ and
    • Retain a copy of all documents and other records related to the reportable transaction that are material to an understanding of the tax treatment and tax structure of the transaction until the statute of limitations runs.⁶ However, taxpayers are not required to retain non-substantive emails and other documents that are not material to the tax treatment or tax structure of the transaction. Taxpayers are also not required to retain earlier drafts of a document if they retain a copy of the final document (or, absent a final document, the most recent draft of the document), and such final document (or most recent draft) contains all the information found in earlier drafts that is material to an understanding of the purported tax treatment or tax structure of the transaction.⁷
  • A taxpayer's failure to properly disclose a reportable transaction is a strong indication that the taxpayer did not act in good faith with respect to the transaction for purposes of the general reasonable cause and good faith exception to the accuracy related penalty.⁸ Moreover, a taxpayer that has not adequately disclosed a reportable transaction in accordance with the tax shelter regulations may not rely on the adequate disclosure exception to the accuracy related penalty for disregard of rules and regulations.⁹ Finally, the regulations deny the "realistic possibility" defense for a taxpayer that disregards a revenue ruling or notice with respect to a reportable transaction.¹⁰
  • If a taxpayer requests a ruling on the merits of a specific transaction on or before the date disclosure would otherwise be required, and receives a favorable ruling as to the transaction, the disclosure rules will be satisfied if the ruling request fully discloses all relevant facts relating to the transaction which would otherwise be required to be disclosed.¹¹
  • If a taxpayer requests a ruling as to whether a specific transaction is a reportable transaction on or before the date that disclosure would otherwise be required, the IRS commissioner in his discretion may determine that the request satisfies the disclosure rules if the ruling request fully discloses all relevant facts relating to the transaction which would otherwise be required to be disclosed.¹²
    • However, the taxpayer's potential disclosure obligation is not suspended while the ruling request is pending.¹³
  • A protective disclosure filed with respect to a potentially reportable transaction that complies with all disclosure requirements would satisfy a taxpayer's potential obligation to disclose the transaction.¹⁴
• In the case of a taxpayer who is a partner in a partnership, a shareholder in an S corporation, or a beneficiary of a trust, the disclosure statement must be attached to the entity's return for each taxable year in which the entity participates in a reportable transaction.¹⁵
  • If a taxpayer receives a timely Schedule K-1 less than 10 calendar days before the due date of the taxpayer's return (including extensions), the taxpayer must file the disclosure statement with the OTSA within 60 calendar days after the due date of the taxpayer's return (including extensions).¹⁶
• If a transaction becomes a listed transaction (discussed in Section II.B., below) or a transaction of interest (discussed in Section II.F., below) after the filing of a taxpayer's return (including an amended return), but before the end of the period of limitations for the taxpayer's final return reflecting the listed transaction, the taxpayer must file a disclosure statement with the OTSA within 90 calendar days after the date on which the transaction became a listed transaction or transaction of interest, whether or not the taxpayer participated in the transaction in that subsequent year.¹⁷
• If a transaction becomes a loss transaction (discussed in Section II.D., below) because the losses equal or exceed the threshold amounts, a disclosure statement must be filed as an attachment to the taxpayer's tax return for the first taxable year in which the threshold amount is reached and to any subsequent tax returns that reflect any amount of loss from the transaction.¹⁸

•  (To Read this entire 126 Page Document Click Here)