United States: The New Section 6501(c)(10) Regulations

The Internal Revenue Service (IRS) and the U.S. Department of the Treasury recently finalized Treas. Reg. § 301.6501(c)-1(g), which interprets § 6501(c)(10)'s extended limitations period (and other associated rules) where a taxpayer fails to disclose a listed transaction. The Regulation takes an expansive view of the statute and underscores the importance of complying with disclosure requirements applicable to "listed transactions."


Under § 6501(a), the IRS generally has three years from the date a tax return is filed to assess additional tax. For example, if an individual who is a calendar-year taxpayer files his or her 2014 income tax return on April 15, 2015, the IRS has until April 15, 2018, to assess any additional tax owed with respect to 2014. Section 6501(c) contains 11 exceptions, including § 6501(c)(10), that either extend the limitations period or keep it open indefinitely. For instance, if a taxpayer files a false return, willfully attempts to evade tax or does not file a return, the IRS may assess additional tax at any time without regard to any limitations period. The limitations period can also be extended by agreement between a taxpayer and the IRS. See §§ 6501(c)(1)-(4); (e).

Section 6501(c)(10) provides that if a taxpayer fails to disclose a listed transaction as required under § 6011, the limitations period for assessment of additional tax with respect to the listed transaction will end no earlier than one year after the earlier of (A) the date on which the taxpayer furnishes the information required under § 6011, or (B) the date that the material advisor furnishes, upon written request by the IRS, the information required under § 6112 with respect to the taxpayer related to the listed transaction.

Congress enacted § 6501(c)(10) in 2004. Congress believed that taxpayers and their advisors had been using dilatory tactics and had been failing to cooperate with the IRS, thereby allowing the three-year limitations period to run and enabling the taxpayer to avoid liability with respect to an unreported listed transaction. By enacting § 6501(c)(10), Congress believed that it would encourage taxpayers to make required disclosures for listed transactions and would provide the IRS additional time to discover unreported listed transactions.

Years Covered

It is important to note the years to which these rules apply. Section 6501(c)(10) is effective for taxable years for which the limitations period had not expired before October 22, 2004. Thus, in general, it may apply to transactions that occurred as early as 2001.

In April 2005, the IRS released Rev. Proc. 2005-26, 2005-1 C.B. 965, to provide interim guidance until final regulations were adopted. Rev. Proc. 2005-26 remains effective for taxable years for which the limitations period expired on or after April 8, 2005, and before March 31, 2015.

Treas. Reg. § 301.6501(c)-1(g) applies to years for which the limitations period did not expire before March 31, 2015. Accordingly, for an individual calendar-year taxpayer, Treas. Reg. § 301.6501(c)-1(g) generally applies to 2011 and subsequent tax years.

Transactions Covered

It is also important to note the kinds of transactions to which Treas. Reg. § 301.6501(c)-1(g) applies. Although under § 6011 a taxpayer is required to disclose all "reportable transactions," § 6501(c)(10) and Treas. Reg. § 301.6501(c)-1(g) specifically apply to listed transactions. Section 6707A(c)(2) defines "listed transaction" to mean "a reportable transaction which is the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of section 6011." Notice 2009-59, 2009-31 I.R.B. 1 and the IRS website provide descriptions of transactions the IRS has designated as listed transactions.

Treas. Reg. § 301.6501(c)-1(g) clarifies that § 6501(c)(10) applies to a transaction even if the IRS had not designated it as a listed transaction when the taxpayer engaged in it. For example, if a taxpayer engaged in a transaction in 2015 and the IRS subsequently designated that transaction (or one substantially similar to it) as a listed transaction in 2017, the taxpayer has an affirmative obligation in 2017 to disclose that transaction under § 6011. Treas. Reg. § 301.6501(c)-1(g)(8), Example (2) and the preamble to the Regulation provide that the § 6501(c)(10) limitations period will remain open for an additional year after the taxpayer (or the taxpayer's material advisor) makes a conforming disclosure. The preamble and the corresponding example suggest that the IRS must designate the transaction as a listed transaction within the three-year limitations period for the continuing reporting obligation to attach.

Treas. Reg. § 301.6501(c)-1(g) also applies § 6501(c)(10) to a transaction that is taken off the list of listed transactions after a taxpayer engages in it. For example, if a taxpayer engages in a listed transaction in 2015 and fails to report the transaction, the § 6501(c)(10) limitations period would continue to apply to 2015, even if the IRS removed the transaction from the listed transaction list in 2016. See Treas. Reg. § 301.6501(c)-1(g)(8), Example (13).

Taxpayers Covered

Section 6501(c)(10) and Treas. Reg. § 301.6501(c)-1(g) apply to all individuals and entities required to file returns under § 6011. However, when the IRS promulgated the Regulation, it was especially concerned about the use of pass-through entities in tax avoidance transactions. Accordingly, the preamble to the final Regulation provides that "when pass-through entities are utilized, the entities are not ultimately liable for the tax; rather, the taxpayers subject to § 6501(c)(10) will be the individuals and corporations owning, directly or indirectly, the interests in the pass-through entities." Thus, even where a partnership, S corporation or trust properly discloses its participation in a listed transaction, each partner, shareholder or beneficiary is separately liable for filing the required disclosure with his, her or its return for the year of participation. Thus, a partner in a partnership who fails to disclose a listed transaction in which the partnership engaged is subject to the § 6501(c)(10) rules even if the partnership disclosed the transaction on its return for the relevant year. Likewise, if the partner discloses the listed transaction, § 6501(c)(10) does not apply, even if the partnership fails to disclose the transaction. See Treas. Reg. § 301.6501(c)-1(g)(4), (g)(8), Example (8).

This rather specialized rule for disclosures by partnerships and their partners raises some very complicated questions regarding the interplay between the limitations period for the partners under § 6501 and that for the partnership under § 6229.

Taxes Affected

By their terms, § 6501(c)(10) and Treas. Reg. § 301.6501(c)-1(g) extend the limitations period for any U.S. federal income tax "imposed with respect to" an unreported listed transaction. Importantly, though, Treas. Reg. § 301.6501(c)-1(g)(7) provides that § 6501(c)(10)'s extension of the limitations period applies to "interest, additions to tax, additional amounts, and penalties that are related to the listed transaction or adjustments made to the tax consequences," including "any item to the extent the item is affected by the listed transaction even if it is unrelated to the listed transaction" (emphasis added). The Regulation gives as an example of an item affected by, but unrelated to, a listed transaction the medical expense deduction under § 213 that varies if there is a change in an individual's adjusted gross income. Other, unrelated taxes that may also be affected by an increase in adjusted gross income include the child tax credit, exemption deductions reduced or disallowed because of increased adjusted gross income, and the alternative minimum tax. Accordingly, while the three-year limitations period would ordinarily be closed with respect to these items, these items would remain open for as long as § 6501(c)(10) applies.

Compliance Procedures

Finally, Treas. Reg. § 301.6501(c)-1(g) provides detailed compliance procedures, including narrow rules for when disclosure by a material advisor satisfies the reporting requirements and starts the running of the § 6501(c)(10) clock.

Generally, a taxpayer must report a listed transaction on Form 8886 and attach it to his or her income tax return for the year in which he or she undertook the transaction. The bulk of these compliance procedures are found in Treas. Reg. §§ 1.6011-4 and 301.6112-1, and the instructions to Form 8886. If the taxpayer participates in a single listed transaction that spans multiple tax years, a separate Form 8886 must be filed for each year. Further, if the taxpayer engages in more than one listed transaction in a year, a separate Form 8886 must be filed for each listed transaction.

Where the taxpayer fails to disclose the listed transaction on the relevant return, Treas. Reg. § 301.6501(c)-1(g) imposes specific reporting obligations for disclosure in a later taxable year. In such a case, in addition to filing Form 8886, the taxpayer must include a cover letter that contains a reference to the relevant tax return(s), the taxable year(s) at issue and a statement signed under penalty of perjury. The letter and the Form 8886 must both be sent to the IRS Office of Tax Shelter Analysis (OTSA). Treas. Reg. § 301.6501(c)-1(g) and the preamble make it clear that if a submission does not include the required cover letter, the transaction will remain unreported and the § 6501(c)(10) limitation period will not begin to run.

The most notable compliance provisions of Treas. Reg. § 301.6501(c)-1(g), however, relate to how narrowly the Regulation constrains the satisfaction of the disclosure rules by a material advisor (as defined by Treas. Reg. § 301.6111-3(b)).

First, Treas. Reg. § 301.6501(c)-1(g)(6)(ii)(A) clarifies that only receipt of information provided by a material advisor—as opposed to some other person or entity—will meet the disclosure requirements under Treas. Reg. § 301.6501(c)-1(g)(6), except in limited circumstances related to dissolution or liquidation of an entity that is a material advisor, or in the event of a designation agreement.

Second, Treas. Reg. § 301.6501(c)-1(g)(6)(ii)(B) provides that information not furnished in response to a written request from the IRS pursuant to § 6112 will not satisfy the requirements under Treas. Reg. § 301.6501(c)-1(g)(6) even if provided by the material advisor, unless provided to the OTSA in accordance with Treas. Reg. § 301.6112-1(d) (when material advisors liquidate or dissolve). Accordingly, information provided to the IRS by a material advisor in response to an Information Document Request in a § 6700 investigation or as a result of a summons enforcement proceeding will not commence the § 6501(c)(10) limitations period.

Finally, Treas. Reg. § 301.6501(c)-1(g)(6)(ii)(C) provides that the material advisor disclosure requirements will not be satisfied unless the material advisor identifies the taxpayer as a person who undertook the listed transaction.


The final Regulation's detailed rules make it clear that, ultimately, disclosure of a listed transaction is the participating taxpayer's obligation. Under those rules, a taxpayer should not depend on disclosure by a material advisor or a pass-through entity to avoid the application of § 6501(c)(10) to keep the limitations period for the year of the listed transaction open. These rules underscore the importance of a taxpayer's disclosure of a listed transaction on his, her or its original return for the year in which the listed transaction occurred, or, where a transaction is subsequently listed, as soon thereafter as possible.

The New Section 6501(c)(10) Regulations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions