SOL for Unreported Listed Transactions

Sec. 6501 requires taxes to be assessed within three years after the date a return is filed. However, that period is extended to six years for substantial omissions of items of gross income, defined as omissions totaling more than 25% of the gross income shown on the return. Tax cannot be assessed or collected if it is not made within the required time periods. If a taxpayer files a false or fraudulent return with the intent to evade tax or does not file a return, tax may be assessed at any time.

New Law

AJCA Section 814 amends Sec. 6501 to extend the statute of limitations (SOL) for a listed transaction if a taxpayer fails to include information on that transaction with a return or statement for a tax year. The SOL for a listed transaction does not expire before the date that is one year after the earlier of the date (1) on which the IRS is provided the required information or (2) a material advisor satisfies the list maintenance requirement in connection with a request from the Service. If the IRS lists a transaction after the SOL closed on the return filed for the year the transaction was entered into, the provision does not re-open the SOL for that transaction. However, if the transactions purported tax benefits are recognized over multiple years, the provisions extension of the SOL applies to tax benefits in any subsequent tax year when the SOL had not closed prior to the date the transaction became a listed transaction.

Effective Date

The provision is effective for tax years in which the period for assessing a deficiency did not expire before Oct. 22, 2004.

From Paul Manning, Washington, DC