Originally published January 2006
In Notice 2006-6 (the "Notice"), the IRS removed transactions with a significant book-tax difference from the categories of reportable transactions required to be disclosed to the government pursuant to IRC Sections 6011, 6111 and 6112. Before the Notice, a transaction involving an amount for tax purposes of any item of income, gain, expense, or loss that differed by more than $10 million on a gross basis from the amount of the item or items for book purposes in any taxable year (the "book-tax filter") was a "reportable transaction". A taxpayer participating in a reportable transaction is subject to reporting requirements under IRC Section 6011, and a material advisor participating in a reportable transaction is also required to report the transaction under IRC Section 6111 and to maintain lists containing certain information regarding the transaction under IRC Section 6112. The Notice states that future regulations will be issued under Treas. Reg. 1.6011-4 that will remove the book-tax filter, and that taxpayers and material advisors may rely on the Notice with respect to transactions that would otherwise have to be disclosed by the taxpayer on Form 8886, or disclosed or listed by the material advisor, on or after January 6, 2006. The Notice does not relieve taxpayers and material advisors from any obligations with respect to any transaction that trips the book-tax filter and that was required to be disclosed, reported by a material advisor or for which a list was required to be prepared and maintained prior to January 6, 2006 or a transaction that also qualifies as a reportable transaction under one of the other categories (listed transactions, confidential transactions, significant loss transactions, transactions involving contingent fees, or brief holding period foreign tax credit transactions.)
The removal of the reportable was spurred by the implementation of Schedule M-3, which requires a detailed disclosure of book-tax differences by large corporations and other large entities. The IRS determined that requiring separate reporting under both the reportable transaction rules and Schedule M-3 would result in duplicative reporting and an unnecessary administrative burden.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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