Mail fraud - indictment - section 7206 of the Code

Nicholas B. Blase, et al., Crimes: Filing false returns: Indictment: Sufficiency. --, (October 24, 2007)


United States of America v. Nicholas B. Blase, et al. U.S. District Court, No. Dist. Ill., East. Div.; 06 CR 421,

October 24, 2007.[ Code Sec. 7206]Crimes: Filing false returns: Indictment: Sufficiency. --
An indictment charging a mayor with mail fraud and willfully and knowingly filing false income tax returns for the years at issue was sufficient because the allegations contained in the indictment adequately apprised him of the charges against him. The indictment sufficiently alleged that he made material misstatements to conceal his kickback arrangement from the public, signed his tax returns under penalties of perjury, did not believe those returns were correct, and knew that his income was substantially in excess of that reported.
MEMORANDUM OPINION AND ORDER
ANDERSEN, District Judge: This matter is before the court on defendant Nicholas Blase's motion to dismiss the government's superseding indictment pursuant to Federal Rules of Criminal Procedure 7 and 12 or, alternatively, to strike Illinois state law related allegations contained within that indictment. For the following reasons, defendant's motion to dismiss is denied. The court refrains from ruling on defendant's arguments regarding references to Illinois state laws at this time.
BACKGROUND
In December, 2005, the Grand Jury returned an eleven-count superseding indictment (the "indictment") against defendant Nicholas Blase ("Blase") alleging that Blase misused his official government position for private gain in violation of the federal mail fraud statute and that Blase filed false federal income tax returns for the years 2000 through 2005. Specifically, the indictment alleges that from around 1974 to June 2006 Blase used his position as the Mayor of the Village of Niles, Illinois in a variety of ways to assist Ralph Weiner and Associates ("RWA"), an insurance broker once located in Niles and later relocated to Wheeling, Illinois, to obtain and keep Niles businesses as customers. In return, RWA allegedly took a percentage of the monies it received from these Niles businesses and paid that percentage as a kickback to Blase through S.M.P. Insurance Service, Inc. ("SMP"), which the indictment alleges was a sham corporation created and maintained for Blase's benefit. The indictment alleges that throughout this scheme, Blase failed to disclose his receipt of these payments to the public and, in fact, took numerous steps to conceal the true nature of his kickback arrangement with RWA. Counts one through five of the indictment charge Blase with violating the federal mail fraud statute, 18 U.S.C. §§1341, 1346, 2, by depriving the citizens of Niles of Blase's honest services as Mayor. Counts six through eleven charge Blase with willfully and knowingly filing false federal tax returns for the years 2000 to 2005 in violation of 26 U.S.C. §7206(1) by failing to report as "Other Income" the payments that Blase allegedly received from RWA. Blase has moved to dismiss the indictment in its entirety.
DISCUSSION
A. Standard of ReviewFederal Rule of Criminal Procedure 12(b)(2) provides that "[a] party may raise by pretrial motion any defense, objection, or request that the court can determine without a trial of the general issue." Fed. R. Crim. P. 12(b)(2). When considering a motion to dismiss under Rule 12(b)(2), a court assumes all facts in the indictment as true and must "view all facts in the light most favorable to the government." See United States v. Yashar, 166 F.3d 873, 880 (7th Cir. 1999). When viewed in that light, an indictment is sufficient if it satisfies three constitutionallymandated requirements. United States v. Anderson, 280 F.3d 1121, 1124 (7th Cir. 2002). First, the indictment must adequately state all of the elements of the crime charged; second, it must inform the defendant of the nature of the charges so that he may prepare a defense; and finally, the indictment must allow the defendant to plead the judgment as a bar to any future prosecution for the same offense. Id. Thus, indictments "need not exhaustively recount the facts surrounding the crime's commission." United States v. Agostino, 132 F.3d 1183, 1189 (7th Cir. 1997). Rather, "when determining the sufficiency of an indictment, [a court] look[s] at the contents of the subject indictment `on a practical basis and in [its] entirety, rather than in a hypertechnical manner.' " United States v. McLeczynsky, 296 F.3d 634, 636 (7th Cir. 2000) (quoting United States v. Smith, 230 F.3d 300, 305 (7th Cir. 2000)). An indictment, or a portion thereof, may be dismissed "if it is otherwise defective or subject to a defense that may be decided solely on issues of law." United States v. Black, 469 F. Supp. 2d 513, 518 (N.D. Ill. 2006).B. Counts One through Five Properly Allege Mail Fraud.1. The indictment adequately apprises Mr. Blase of the charges against him.Blase argues that counts one through five of the indictment should be dismissed because those counts contain merely vague and generic allegations that are insufficient for Blase to adequately prepare a defense in this case or establish a double jeopardy defense in the future. An indictment for mail fraud is sufficient if it includes allegations that the defendant (1) participated in a scheme or artifice to defraud; (2) acted with an intent to defraud; and (3) used the mail in furtherance of the fraudulent scheme. United States v. Hausmann, 345 F.3d 952, 956 (7th Cir. 2003); see also 18 U.S.C. §1341. Congress has defined "scheme or artifice to defraud" to include a scheme or artifice to deprive another of the intangible right of honest services. See 18 U.S.C. §1346 ("Section 1346"); United States v. Segal, 495 F.3d 826, 834 (7th Cir. 2007). An honest services charge under Section 1346 requires an allegation that a defendant misused his office or position in furtherance of the scheme or artifice to defraud. United States v. Bloom, 149 F.3d 649, 655 (7th Cir. 1998).Here, counts one through five of the indictment are factually sufficient to survive Blase's motion to dismiss. The indictment alleges that Blase entered into a scheme to defraud by using his official position as Mayor of Niles "to promote RWA and steer businesses to purchase insurance from RWA and, in return, [RWA] paid, and caused to be paid, a portion of RWA's commissions from Niles clients to SMP, a shell corporation controlled by defendant Blase." (Sup. Indict. P. 6). The indictment further identifies the key individuals and entities involved in the scheme, describes the actions and omissions allegedly taken by Blase, tracks the payments of alleged kickbacks received by Blase, including the manner in which the amounts were determined and directed to SMP, and alleges the precise dollar amount of the alleged kickbacks paid from 1997 to 2006. Counts one through five further allege that Blase knowingly used the mail in furtherance of his scheme. When read in the light most favorable to the government, these counts sufficiently allege that Blase misused his position as the Mayor of Niles for private gain in violation of the federal mail fraud statute and more than adequately apprise Blase of the charges against him.2. The indictment need not allege harm to the victims.Blase next argues that the mail fraud counts in the indictment should be dismissed because they fail to allege that Blase misused his office at someone's expense. Specifically, Blase argues that when, as here, the government presents a deprivation of honest services theory under the mail fraud statute the indictment must allege some harm or intended harm to the victims of the scheme to defraud. This argument, however, is legally flawed. Although Blase correctly notes that not every breach of fiduciary duty constitutes a deprivation of honest services in violation of the mail fraud statute, Bloom, 149 F.3d at 655-56, the Seventh Circuit has held that a breach of fiduciary duty can violate the mail fraud statute when that breach is accompanied by a misuse of office or position. Id. at 655. Further, the Seventh Circuit has repeatedly held that "[t]here is no requirement under the law...that a co-conspirator to a wire and mail fraud scheme contemplate actual or foreseeable harm to the victim." Hausmann, 345 F.3d at 959; accord United States v. Leahy, 464 F.3d 773, 786-87 (7th Cir. 2006); United States v. Fernandez, 282 F.3d 500, 507 (7th Cir. 2002). Here, as explained supra, the indictment sufficiently alleges that Blase misused his position as Mayor of Niles for private gain. Thus, under Seventh Circuit precedent, the indictment sufficiently alleges a violation of the mail fraud statute under an honest services theory even without any allegation of harm or contemplated harm to the victims of Blase's alleged scheme.Blase also makes the factual argument that counts one through five should be dismissed because there is no allegation that any of RWA's customers were harmed as a result of Blase's alleged scheme. Aside from being legally flawed because the government need not allege any such harm, this argument is also factually incorrect because it mistakenly assumes that the victims of Blase's alleged scheme are limited to RWA's customers. As the government correctly points out in its response to Blase's motion to dismiss, it is the entire citizenry of the Village of Niles, not just those businesses located within Niles, to whom Blase owed a duty of honest services. When viewed in the light most favorable to the government, the indictment alleges that Blase made decisions in his official capacity that affected the welfare of the citizens of Niles based upon Blase's own personal financial interests and not based on the public's welfare. Thus, the citizens of Niles were victimized by Blase's alleged scheme because their interests were not being exercised with their best interests in mind --they were being exercised with Blase's personal financial interests in mind. Accordingly, counts one through five are properly pleaded.3. The superseding indictment alleges a material misstatement.Blase argues that counts one through five should be dismissed because the indictment fails to allege that Blase made any material misstatements in connection with his alleged scheme to defraud. Specifically, Blase asserts that the indictment alludes to only one specific omission: that Blase failed to disclose in his Statements of Economic Interest the payments Blase allegedly received from RWA. The government counters that as a matter of law, failing to disclose kickbacks earned in one's fiduciary capacity meets the material misstatement or omission element of the mail fraud statute. The government further argues that Blase's failure to disclose the alleged kickbacks in Blase's Statements of Economic Interest is but one of several activities that Blase is alleged to have engaged in order to conceal the alleged kickback arrangement.To properly allege a violation of the mail fraud statute an indictment must include an allegation that the defendant made material misstatements or omissions as part of the scheme to defraud. Neder v. United States, 527 U.S. 1, 25 (1999). Although a mere failure to disclose, absent more, cannot constitute mail fraud, an omission coupled with an affirmative misrepresentation or breach of a duty to disclose may be actionable as mail fraud. Anderson v. Lincoln Ins. Agency, Inc., No. 02 C 6377, 2003 U.S. Dist. LEXIS 3811, at *5 (N.D. Ill. Feb. 14, 2003). Indeed, the Seventh Circuit has made clear that failing to disclose secret kickbacks earned in one's fiduciary capacity meets the material misstatement or omission element of the mail fraud statute. See Hausmann, 345 F.3d at 957; United States v. Bush, 522 F.2d 641, 647-48 (7th Cir. 1975). This is because failing to disclose such kickbacks converts "representations to [one's] clients into misrepresentations." Hausmann, 345 F.3d at 957.Here, the indictment sufficiently alleges that Blase made material misstatements or omissions by failing to disclose his kickback arrangement with RWA to the citizens of Niles. The indictment alleges that Blase, in his capacity as Mayor of Niles, owed a duty of honest services to the citizens of Niles, that under Illinois law he was prohibited from soliciting or knowingly accepting a fee or reward which he knew was not authorized by law, and that under Illinois law he was obligated to disclose any income received by any third party that he constructively controlled. The indictment further alleges that Blase constructively controlled SMP; the "sham" corporation to which the kickbacks from RWA were allegedly directed for Blase's benefit. Thus, the indictment sufficiently alleges the material misstatement or omission element of the mail fraud statute because it alleges both that Blase had a duty to disclose to the citizens of Niles any payments Blase received through SMP and that he failed to do so. Accordingly, counts one through five are properly pleaded.C. Constitutionality of Section 1346Blase next challenges counts one through five on constitutional grounds, arguing that those counts should be dismissed because Section 1346 is unconstitutionally vague. "A party may raise a vagueness challenge by arguing that either a statute is vague as applied to the case or that a statute is void on its face." United States v. Rezko, No. 05 CR 691, 2007 U.S. Dist. LEXIS 73515, at *20-21 (N.D. Ill. Oct. 2, 2007). Here, Blase challenges the constitutionality of Section 1346 on both grounds.Blase first challenges the constitutionality of Section 1346 on its face. When a statute does not implicate First Amendment interests, as is the case here, a court generally "must uphold a facial challenge only if the enactment is impermissibly vague in all of its applications." Fuller v. Decatur Pub. Sch. Bd. of Educ. Sch. Dist. 61, 251 F.3d 662, 667 (7th Cir. 2001). As Blase recognizes in his motion to dismiss, numerous courts, including this one, have found Section 1346 constitutional on its face. See United States v. Rybicki, 354 F.3d 124, 143 (2d Cir. 2003); United States v. Frost, 125 F.3d 346, 371 (6th Cir. 1997); Black, 469 F. Supp. 2d at 531, n.10. Blase has failed to cite any authority holding that Section 1346 is unconstitutionally vague on its face, and the court declines to reverse its prior holding.Blase also argues that Section 1346 is unconstitutionally vague as applied to this case because it provided no notice to Blase that he could be charged with federal mail fraud for allegedly "steering" Niles residents to use RWA for insurance purposes. In Hausmann, however, the Seventh Circuit held that its decision in Bloom placed the defendant on notice that the misuse of one's fiduciary position for personal gain may constitute a violation of the mail fraud statute under an honest services theory. Hausmann, 345 F.3d at 957. Here, the indictment alleges that Blase misused his official position as Mayor of Niles for personal gain by engaging in the alleged kickback scheme with RWA. Given the Seventh Circuit's rulings in Bloom and Hausmann, Blase was on notice at least as early as 1998 that misusing a fiduciary position for personal gain risks criminal liability. Thus, Blase's constitutional challenge as applied also fails.D. Section 1346 Does Not Create a Common Law Crime.Blase also argues that Section 1346 creates an unconstitutional common law crime and that the government alleges nothing more than violations of Illinois state laws. This argument is unavailing. As discussed supra, the indictment properly alleges that Blase violated the federal mail fraud statute. Further, Blase's argument that Section 1346 creates an unconstitutional common law crime has been repeatedly rejected by this court. See, e.g., Black, 468 F. Supp. 2d at 528 n.8 (citing Bloom, 149 F.3d at 655-57; United States v. Warner, No. 02 CR 506, 2004 U.S. Dist. LEXIS 15727, at *70 (N.D. Ill. Aug. 12, 2004)). Blase has failed to cite any authority holding that Section 1346 creates an unconstitutional common law crime, and this court declines to reverse its prior holdings rejecting that argument.E. Counts Six Through Eleven Properly Allege the Crime of Filing False Tax Returns.Blase argues that counts six through eleven should be dismissed because they fail to allege that Blase personally received funds from RWA or SMP and thus fail to allege a violation of 26 U.S.C. §7206(1) ("Section 7206(1)"), which prohibits filing materially false individual tax returns. To sufficiently plead a violation of Section 7206(1), the indictment must allege (1) that the defendant made or caused to be made a verified federal income tax return for the year in question; (2) that the tax return was false as to a material matter; (3) that the defendant signed the return willfully and knowing it was false; and (4) that the return contained a written declaration that it was made under the penalty of perjury. United States v. Peters, 153 F.3d 445, 461 (7th Cir. 1998). Here, counts six through eleven allege that for the years 2000 to 2005 Blase filed signed federal tax returns with the Internal Revenue Service in which Blase failed to report as "Other Income" the kickbacks that Blase allegedly received from RWA. The indictment further alleges that Blase verified those tax returns by written declarations that they were made under penalties of perjury, that Blase did not believe those returns to be true and correct as to every material matter, and that Blase knew that his income was substantially in excess of that reported for those years. Although Blase correctly asserts that the indictment does not allege that RWA paid Blase directly, the indictment does allege that RWA transferred money to SMP, which Blase allegedly constructively controlled, and that Blase then used that money to pay the salaries of his paralegals for their work at Blase's law firm. Those allegations are sufficient to allege that Blase received individual income that he failed to report on his federal tax returns for the years 2000 to 2005. Accordingly, counts six through eleven properly allege violations of Section 7206(1).F. References to Illinois State LawBlase argues that even if the court refuses to dismiss the indictment, references to the Illinois Governmental Ethics Act and the Illinois Insurance Code should be stricken from the indictment because those references are irrelevant and potentially prejudicial. We will discuss these issues with the parties during a pretrial conference.
CONCLUSION
For the foregoing reasons, defendant Nicholas Blase's motion to dismiss the superseding indictment [73] is denied. This court declines to rule on Blase's arguments regarding references to Illinois state law and will instead discuss these issues with the parties during a pretrial conference.It is so ordered.

Fraud and False Statements: IndictmentAn indictment for making false statement under penalty of perjury was not defective even though it included words of intent in addition to those of the statute, since proof of specific intent was a necessary element of the alleged crime. Furthermore, the requirement of proof in addition to the wording of the statute would be in the defendant's favor, forcing the government to establish something not necessitated by the language of the statute.E. Jaben, CA-8, 65-2 USTC ¶9624, 349 F2d 913.Indictment charging taxpayers with conspiring to deprive the government of essential tax information concerning their race track winnings by paying others to cash their winning tickets so that their names would not appear on Form 1099 was not invalid on procedural or constitutional grounds.J. Honer, DC, 66-2 USTC ¶9504.The taxpayers were not prejudiced by the fact that surplus language in the indictment was deleted without the convening of a new grand jury or by the fact that the prosecutor referred to this language during the trial.S. Cirami, CA-2, 75-1 USTC ¶9261, 510 F2d 69.The indictment was sufficient even though no deficiency was computed. Since the government is not required to produce evidence of a deficiency in order for a conviction of submission of false statements to be sustained, the complaint of such a charge does not have to include the computations.I.E. Miller, CA-5, 74-1 USTC ¶9307, 491 F2d 638.An indictment charging concealment of a taxpayer's assets with intent to defeat collection of tax was insufficient where alleged concealment occurred prior to any assessment, notice, demand or levy for taxes. Consequently, conviction of taxpayer's attorney was improper.R.L. Swarthout, CA-6, 70-1 USTC ¶9186, 420 F2d 831.The court granted the taxpayers' motion to dismiss an indictment against them in which they were charged with conspiracy to violate Federal income tax and labor laws, filing false and fraudulent corporate income tax returns, and failure to file certain reports required by Federal labor laws. The court held that the indictment did not sufficiently inform the taxpayers of the nature of the charges against them so that they could prepare defenses.W. Heinze, DC, 73-2 USTC ¶9756, 361 FSupp 46.The indictment was ruled to be sufficient.J. Escobar, CA-5, 68-1 USTC ¶9125, 388 F2d 661.S.A. Grayson, CA-5, 69-2 USTC ¶9639, 416 F2d 1073. Cert. denied, 396 US 1059.J.J. Marra, CA-6, 73-2 USTC ¶9578, 481 F2d 1196.N.C. Edwards, Jr., CA-11, 86-1 USTC ¶9110, 777 F2d 644.G.M. Bishop III, CA-5, 2001-2 USTC ¶50,762, 264 F3d 535. Cert. denied, 4/22/2002.J.J. Boone, DC Pa., 89-2 USTC ¶9412.P. Bouzanis, DC Ill., 2003-1 USTC ¶50,315.No substantial rights were affected by a variance between the indictment (on the counts for subscribing false returns) and the proof as to the reported professional receipts by the defendants, there being no question of double jeopardy.R.A. Buble, CA-9, 71-1 USTC ¶9469, 440 F2d 405. Cert. denied, 404 US 828.J.A. D'Anna, CA-2, 71-2 USTC ¶9705, 450 F2d 1201.The indictment did not fatally vary from the proof merely because the amounts set forth in the indictment as deductions differed in some cases from the actual deductions taken. In a prosecution charging the filing of false returns, the government is not obliged to prove the exact amount alleged in the indictment.D.W. Warden, CA-7, 76-2 USTC ¶9790, 545 F2d 32.Although an indictment may have been duplicitous, any objection was waived by not having been raised before the verdict.W.B. Droms, CA-2, 77-1 USTC ¶9260, 566 F2d 361.An individual was properly convicted of corruptly endeavoring to obstruct the administration of the tax laws and of filing false employment tax returns. His indictment on the two charges was not multiplicitous and presented no double jeopardy problems because each offense required proof of facts that the other did not.J. Swanson, III, CA-4 (unpublished opinion), 97-1 USTC ¶50,398, aff'g, per curiam, an unreported District Court decision.Taxpayer's exoneration as to one of two alleged falsely claimed charitable deductions, but conviction on the other, did not constitute a material variance from the indictment. No substantial rights of the accused were prejudiced since he was informed of the charges against him and thus was able to present his defense, and he was also protected against another prosecution for the same offense.C. Considine, CA-9, 74-2 USTC ¶9846.The taxpayers' motion to dismiss the indictment in a prosecution for making false statements on tax returns was denied. The source of one's income is a material matter which, if falsified, can support such an indictment. If the source of income could be falsely stated, it would be difficult for the government to compute the amount of tax due and to check on the accuracy of the return.J. Di Varco, DC, 72-1 USTC ¶9470, 342 FSupp 101.The taxpayer's motion to dismiss an indictment against him for filing false income tax returns was denied. The indictment was sufficient, since it notified the taxpayer that he was charged with failing to properly compute his gross profits by excluding substantial amounts of gross receipts from his 1969, 1970, and 1971 tax returns.H. Boxer, DC, 75-2 USTC ¶9822.In determining whether the taxpayer's immunized testimony was instrumental in a witness' decision to testify against the taxpayer, so that the government could obtain an indictment, the appellate court held that the witness' state of mind during negotiations with the government should have been relevant to the factual determination to be made by the District Court. If the taxpayer was lying while immunized, the proper remedy would be prosecution for perjury or contempt of court rather than forfeiture of immunity.H. Kurzer, CA-2, 76-1 USTC ¶9399, 534 F2d 511.An indictment was dismissed because the Watergate Special Prosecutor had promised the defendants that no indictment would be brought under the particular provision.Phillips Petroleum Co., DC, 77-2 USTC ¶9590, 435 FSupp 622.An indictment was dismissed because it represented the culmination of government efforts to force the defendant to relinquish his venue rights.F. DeMarco, Jr., CA-9, 77-1 USTC ¶9354, 550 F2d 1224. Cert. denied, 434 US 827.A taxpayer was denied a motion to dismiss his indictment. In rejecting the motion, the court noted that the taxpayer was aware through his attorney of the basic nature of the charges levied against him. Also, the Constitution does not provide a defendant the right to knowledge of the details of a governmental investigation prior to indictment.F. Cisco, DC, 82-2 USTC ¶9554.The lower court did not abuse its discretion in dismissing an indictment as a remedy for the government's breach of its agreement not to prosecute a corporation or its principal officers in return for their admission that they made illegal political campaign contributions.Minnesota Mining and Mfg. Co., CA-8, 77-1 USTC ¶9259, 551 F2d 1106.The taxpayer's claim that his proceedings were prejudiced by excessive pre-indictment delay was rejected because there was no evidence that a witness, who allegedly was unable to appear at the proceedings due to the delay, would present unique testimony or that memories of witnesses had faded. Also, inconsistent jury verdicts on a multi-count indictment were not grounds for reversing the taxpayer's conviction.B.N. Horowitz, CA-9, 85-1 USTC ¶9373, 756 F2d 1400.A federal grand jury in West Virginia improperly indicted an accountant for aiding or assisting in the filing of fraudulent tax documents in Massachusetts. A person who assists another in the filing of fraudulent tax returns is a principal and may only be indicted in the district where he acted.W.F. Griffin, Jr., CA-1, 87-1 USTC ¶9299, 814 F2d 806.An indictment against the taxpayer was sufficient where, assuming the truth of the allegations contained in the indictment, the taxpayer was engaged in promoting an illegal tax scheme, the illegality of which he had fair notice of.G.L. Schulman, CA-9, 87-1 USTC ¶9334, 817 F2d 1355. Cert. denied, 8/5/87.An indictment charging an individual with the crime of filing false returns in violation of Code Sec. 7206(1) was valid. The argument that such indictment was vague and violated other constitutional rights because the tax return indicated entries were made under penalties of perjury and Code Sec. 7206 permits the imposition of penalties different from those provided in the federal perjury statute was rejected. The language made under the penalties of perjury merely indicates what types of documents are covered by statute and provides a discernible limit to the application of Code Sec. 7206(1). Such phrase could not reasonably confuse an individual regarding the consequences of filing a false tax return, and the indictment sufficiently apprised him of the charges.D.F. Marrinson, DC Ill., 87-2 USTC ¶9376.An indictment charging that the defendants used fraudulent means to create fictitious trading losses and interest expenses which they passed on to participants in various limited partnerships was permitted to stand. Even assuming arguendo that losses from tax straddle transactions entered into with the express purpose of generating such losses were deductible, the court ruled that a jury could still determine that the defendants' commodities straddles were sham transactions. Further, the fact that the New York Statute of Frauds could prevent their agreements from being enforced was irrelevant to whether the agreements in fact existed and were accepted by the parties.C.A. Atkins, DC N.Y., 87-2 USTC ¶9552, 661 FSupp 491.A district court erred in dismissing an indictment against a promoter of limited partnership tax shelters for making false statements on tax returns. He made false statements to the IRS and to the prospective investors when he represented that loans to the partnerships could enable the limited partners to have certain tax benefits, when, in fact, the loans were sham transactions. Thus, the indictment was reinstated.E.H. Heller, CA-11, 89-1 USTC ¶9281, 866 F2d 1336, vac'g an unreported District Court decision.The conviction of a former IRS agent for various tax offenses in connection with an illegal tax investment scheme he devised and executed was affirmed. The indictment was not faulty. The former agent was convicted of the offense for which he was indicted. Four counts of a superseding indictment, which the former agent challenged, were duplicative of counts in the original indictment. Consequently, the statute of limitations was not violated.R.H. Pacheco, CA-9, 90-2 USTC ¶50,458, 912 F2d 297.An indictment for subscribing a false return was dismissed for failure to allege intent. The taxpayer claimed deductions for contributions to certain retirement plans on a return filed prior to the extended due date but did not actually make such contributions. Since two IRS rulings allowed the taxpayer to claim deductions for contributions to certain retirement plans that have not been made at the time of filing, provided that the taxpayer makes the contributions prior to the due date of the return, the indictment should have alleged that the taxpayer had no intention of making the contributions at the time the return was filed.L.A. Robinson, DC Miss., 93-1 USTC ¶50,213, 811 FSupp 1174.A police sergeant's felony conviction for willfully filing false individual income tax returns did not violate the Grand Jury clause of the Fifth Amendment or prejudice his opportunity to present a defense. The trial court's decision, which was based on the individual's failure to report net receipts from a side business, did not constructively amend the indictment, which charged the individual with failure to report gross receipts from the business. Also, the court's narrowing of the charges did not prejudice the sergeant's defense since his willful failure to report the net receipts was always a central part of the case.M. Thompson, CA-7, 94-1 USTC ¶50,231, 23 F3d 1225.An indictment for making a false statement on a return was not defective for failure to state the year of the return. The indictment cited the date that the false return was filed, and the individual was provided with a copy of the return.C.T. Wickersham, CA-5, 94-2 USTC ¶50,400, 29 F3d 191.A lawyer was properly indicted on the charge of subscribing to a false tax return, rather than on tax evasion. Although he paid amounts for referrals and reported them on his return, that did not mean that his reported figures were allowable deductions rather than a material misstatement of fact.R.M. Standard, CA-9 (unpublished opinion), 96-1 USTC ¶50,302. Cert. denied, 117 SCt 690.The general manager of a nonprofit farming cooperative who was convicted of filing a false tax return had sufficient notice from the indictment of the IRS's evidence at trial. Although the evidence given to the grand jury differed from that at trial, the charge of underreporting income under Code Sec. 7206(1) was the same.L.L. Worman, CA-10 (unpublished opinion), 2000-1 USTC ¶50,359, 210 F3d 391, aff'g an unreported District Court decision.The district court's denial of a new trial did not impermissibly expand the scope of the original indictment of an individual for filing false tax returns or expose the taxpayer to charges not in that indictment. A statement in the indictment that the taxpayer received income that he failed to report on line 22 of Form 1040 also included alternative grounds. That reference did not remove from its scope income that would have been reported on other lines, and it did not require the government to prove that the income was converted from the taxpayer's alleged partner; it only had to prove that the taxpayer failed to report taxes on his income.L.L. Worman, CA-10 (unpublished opinion), 2001-2 USTC ¶50,759, aff'g an unreported District Court decision.An indictment failed to sufficiently allege that a shareholder of a real estate S corporation committed a material falsehood or omission in not reporting a third-party's ownership interest in the entity. The indictment did not specifically indicate what made the omission criminal since there was no allegation that the third party was a shareholder. The shareholder was not adequately informed of the nature of the accusation against him, and that portion of the indictment was dismissed.A.J. Pirro Jr., CA-2, 2000-1 USTC ¶50,451, 212 F3d 1281, aff'g an unreported District Court decision.Sufficient evidence existed to support an individual's convictions for conspiracy to defraud the government and assisting in the preparation of false income tax returns. The taxpayer cycled his clients' income through offshore trusts and subsequently filed false income tax returns. The transactions were conducted to evade the clients' tax liability and the participants in the scheme retained control over the cycled funds. Moreover, the taxpayer advocated the use of the offshore trusts and assisted in their creation and operation.T.C. Gaskill, CA-9 (unpublished opinion), 2000-2 USTC ¶50,702, 232 F3d 897. Aff'g in part and rev'g and rem'g in part, an unreported District Court decision.Taxpayer was not entitled to conduct discovery in connection with an indictment based on the IRS's failure to establish his liabilities before proceeding with a criminal investigation. Suppression of evidence would be appropriate if the IRS used civil subpoenas to obtain evidence after having made an institutional commitment to recommend prosecution of the defendant but without establishing the probable cause necessary for a criminal case. However taxpayer did not establish a prima facie case that a hearing on the suppression issue was warranted.K.L. Utecht, CA-7, 2001-1 USTC ¶50,311, 238 F3d 882.An indictment under Code Sec. 7206 properly provided a basis for subject matter jurisdiction because it tracked the language of the charging statutes. It contained the elements of the offense charged, fairly informed the defendant of the charge against which he must defend and enabled him to plead an acquittal or conviction in bar of future prosecutions. Furthermore, both the original indictment and the superseding indictment were valid charging instruments because each contained the signature of the grand jury's foreperson.L. Molesworth, 2005-2 USTC ¶50,571, 383 FSupp2d 1251.An individual's contention that an indictment against him for tax evasion should be dismissed because the IRS presented illegally obtained evidence to the grand jury was rejected. Even if the jury had examined illegally obtained evidence, the indictment was valid on its face and could not be challenged.J.F. Greve, CA-7, 2007-2 USTC ¶50,547, 490 F3d 566.A tax preparer's indictment on several counts of willful preparation of fraudulent tax returns was sufficient. The indictment contained enough details to put the tax preparer on notice of the alleged charges and provided an opportunity to prepare a defense. R.M. Blackstock, CA-10 (unpublished opinion), 2007-2 USTC ¶50,646, aff'g an unreported DC Okla. decision.A taxpayer was properly indicted for filing false corporate tax returns because he aided the corporation to file a false return. The corporation, which was controlled by the taxpayer, had a substantial net operating loss (NOL) that it was carrying forward from year-to-year, and the taxpayer assigned his income from other sources so that it was paid directly to this corporation instead of him. This allowed the corporation, which produced little income, to have income against which to offset the NOL, while the taxpayer avoided having to report that income on his individual return. Further, the charges contained in the indictment referring to his employment by the IRS and to the underlying basis for the corporation's carried-forward NOL were admissible in evidence and could not be stricken as surplusage. The probative value of such evidence outweighed any minimal prejudice it could entail to the taxpayer. H. Willner, DC N.Y., 2007-2USTC ¶50,751.

Alvin S. Brown, Esq.
Tax Attorney
www.irstaxattorney.com
703 425-1400

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Trust fund penalty - Payroll Taxes - Section 6672 joint and several liability

Thomas McLaren and Rita McLaren, Plaintiffs v. IRS Appeals Office and Michael Jeka, Defendants.

U.S. District Court, Dist. Mont., Butte Div.; CV-06-53-BU-RFC, September 28, 2007.

[ Code Secs. 6330 and 6672]

Responsible person: Failure to collect tax: Failure to pay over tax: Trust fund recovery penalty: Joint and several liability. --

A married couple's complaint challenging a Collection Due Process (CDP) hearing determination that they were liable for unpaid employment taxes was dismissed for failure to state a claim upon which relief could be granted. The couple did not contest the assessed trust fund recovery penalty. Instead, they argued that another partner should share responsibility for the taxes owed. However, liability under Code Sec. 6672 is joint and several. Thus, the IRS was not required to seek payment from every possible responsible person but could assess the tax against one responsible person and not another.




ORDER ADOPTING FINDINGS AND RECOMMENDATION OF U.S. MAGISTRATE JUDGE


CEBULL, United States District Judge: On September 10, 2007, United States Magistrate Judge Carolyn S. Ostby entered her Findings and Recommendation on the United States' Motion to Dismiss. Doc. 16. Although the United States made several arguments for dismissal, Magistrate Judge Ostby recommends the motion be granted for two reasons: (1) pursuant to Local Rule of Procedure 7.1(i) because Plaintiffs failed to respond to the motion to dismiss and such failure to respond is deemed an admission that the motion is well-taken; and (2) pursuant to Fed.R.Civ.P. 12(b)(6) because the Complaint fails to state a claim upon which relief may be granted.

Upon service of a magistrate judge's findings and recommendation, a party has 10 days to file written objections. 28 U.S.C. § 636(b)(1). In this matter, no party filed objections to the Findings and Recommendations. Failure to object to a magistrate judge's findings and recommendation waives all objections to the findings of fact. Turner v. Duncan, 158 F.3d 449, 455 (9th Cir. 1999). However, failure to object does not relieve this Court of its burden to review de novo the magistrate judge's conclusions of law. Barilla v. Ervin, 886 F.2. 1514, 1518 (9th Cir. 1989).

In this case, Magistrate Judge Ostby correctly ruled that Liability under 26 U.S.C § 6672 is joint and several and that the IRS is not required to seek payment from every responsible person and may assess the tax against one responsible person and not another. 14 MERTENS LAW OF FED. INCOME TAX'N § 54;105 (Sept. 2007). for those reasons, this Court finds Magistrate Judge Ostby's Findings and Recommendation are well grounded in law and fact and HEREBY ORDERED they be adopted them in their entirety.

For those reasons, IT IS FURTHER ORDERED that Defendant's Motion to Dismiss ( Doc. 16) is GRANTED .

The Clerk of Court shall notify the parties of the entry of this Order and close this case.


FINDINGS AND RECOMMENDATION OF U.S. MAGISTRATE JUDGE


OSTBY, United States Magistrate Judge: Plaintiffs Thomas McLaren ("Mr. McLaren") and Rita McLaren ("Mrs. McLaren") (collectively "the McLarens") initiated this action against Defendants the Internal Revenue Service ("IRS") and IRS appeals officer Michael Jeka (collectively "Defendants") on July 26, 2006. Cmplt. (Court's Doc. No. 1) at 1. The McLarens challenge Defendants' determination of taxes due from Anaconda Ace Hardware LLP, and assessed against Mr. McLaren by the IRS. Id. The McLarens have attached to their Complaint as Exhibit 1 the IRS "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330" and the IRS "Enclosure to Notice of Determination" addressed to Mr. McLaren. Cmplt. at Ex. 1.

Before the Court is the United States' Motion to Dismiss (Court's Doc. No. 16). Having reviewed the motion, Defendants' brief, and the record, it is recommended that Defendants' motion be granted for the reasons stated herein.



I. BACKGROUND

The McLarens allege in their Complaint, in relevant part, as follows:


III.

1. Jenka (sic) of the IRS Appeals office made a determination involving our due taxes from Anaconda Ace Hardware LLP - We believe that we are not responsible for the full amount because of our partnership. Another partner should share in the total amount owed but was dismissed by Mr. Jenka (sic) of responsibility for the taxes.


IV.

The relief we seek is that Mr. John Corrigan be added to the owed taxes and that the amount be reduced and/or the penalties reduced so we can afford to make payments or restitution.

Cmplt. at ¶¶III and IV.

On July 16, 2007, Defendants filed their Motion to Dismiss. They advance three primary arguments in support of their motion. Memorandum in Support of United States' Motion to Dismiss ("Defts' Br.") at 1-2.

First, Defendants argue that the Court lacks subject matter jurisdiction over Mrs. McLaren's claims because the outstanding tax liability is Mr. McLaren's. Thus, Defendants argue, Mrs. McLaren lacks standing, the Court lacks subject matter jurisdiction over her claims, and dismissal of her claims is appropriate under Rule 12(b)(1), Fed. R. Civ. P. 1 Id. at 1, 6-7.

Second, Defendants argue that the McLarens failed to serve the United States within 120 days of filing the complaint as required by Rule 4(m). 2 Thus, Defendants argue, dismissal is appropriate under Rule 12(b)(5) for insufficiency of service of process. Id. at 2.

Third, Defendants argue that the McLarens have failed to state a claim upon which relief can be granted. Thus, they argue, Rule 12(b)(6) mandates dismissal. Id. at 1, 8-13. The McLarens failed to respond to Defendants' motion to dismiss.



II. DISCUSSION

The Court has considered the record and the arguments presented. Having done so, the Court concludes that the motion to dismiss should be granted for two reasons.

First, under the Local Rules of this Court, the McLarens' failure to respond is a concession that the motion is well-taken. Rule 7.1(i) of the Local Rules of Procedure of the United States District Court for the District of Montana provides that the "[f]ailure to file a brief by the adverse party shall be deemed an admission that the motion is well taken." The McLarens' failure to respond to Defendants' motion indicates that they do not contest the motion and concede that it should be granted.

Second, the Court concludes that the McLarens' Complaint fails to state a claim upon which relief can be granted. Thus, the Court recommends that the Complaint be dismissed under Rule 12(b)(6).

Under Rule 12(b)(6), a reviewing court "`must construe the complaint in the light most favorable to the plaintiff and must accept all well-pleaded factual allegations as true.' " Syverson v. Int'l Bus. Machines Corp., 472 F.3d 1072, 1075 (9th Cir. 2007) (quoting Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000)). Dismissal is proper only when there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

In the case at hand, the IRS assessed Mr. McLaren with taxes under 26 U.S.C. §6672(a). Cmplt. at Ex. 1 (indicating "Tax Type/Form Number" as "IRC [Internal Revenue Code] 6672 / TFRP"); 26 U.S.C. §6672(a). The McLarens do not contest the assessed tax liability. Rather, they claim only that they "are not responsible for the full amount" and urge that "[a]nother partner should share in the total amount owed . . .." Cmplt. at ¶III.

Even if the Court, construing the facts of the Complaint in the light most favorable to the McLarens, determines that another person also may be liable, as the McLarens contend, the McLarens still are unable to prevail with this action under the law.

"Liability under Section 6672 is joint and several." 14 MERTENS LAW OF FED. INCOME TAX'N §54:105 (Sept. 2007) ("MERTENS") (citing Hartman v. U.S., 538 F.2d 1336, 1340 (8th Cir. 1976); see also Schultz v. U.S., 918 F.2d 164, 167 (Fed. Cir. 1990); Brown v. U.S., 591 F.2d 1136, 1142 (5th Cir. 1979); Savage v. U.S., 2006 WL 449117 *2 n.2 (E.D. Cal. 2006) (citing cases). Also, the IRS is not required to seek payment from every responsible person and may assess the tax against one responsible person and not another. 14 MERTENS §54:105 (citing Howard v. U.S., 711 F.2d 729, 735 (5th Cir. 1983)). Thus, even if some other person may share responsibility with Mr. McLaren for the tax that he admits is owed, the IRS has no obligation to pursue that individual and, under Section 6672, is permitted to pursue Mr. McLaren. Thus, he has failed to state a claim herein upon which relief can be granted. This, coupled with the fact that the McLarens did not respond to Defendants' motion to dismiss, convinces the Court that dismissal is appropriate. Because of this conclusion, the Court does not address Defendants' other arguments in support of their motion to dismiss.



III. CONCLUSION

Based on the foregoing,

IT IS RECOMMENDED that the United States' Motion to Dismiss (Court's Doc. No. 16) be GRANTED.

NOW, THEREFORE, IT IS ORDERED that the Clerk shall serve a copy of the Findings and Recommendations of the United States Magistrate Judge upon the parties. The parties are advised that pursuant to 28 U.S.C. §636, any objections to these findings must be filed with the Clerk of Court and copies served on opposing counsel within ten (10) days after receipt hereof, or objection is waived.

1 All references to Rules herein are to the Federal Rules of Civil Procedure unless indicated otherwise.

2 Defendants also argue that the United States is the only proper defendant for two reasons. First, they argue, the IRS is an agency of the United States and, as such, it enjoys sovereign immunity. Congress has not waived this immunity. Thus, they argue, the IRS is not an entity subject to suit and the United States is properly substituted in its place.

Second, Defendants argue that Jeka, an IRS Appeals Officer, is sued herein in his official, and not individual, capacity. Thus, Defendants argue, a claim against him is actually a claim against the United States. Consequently, the United States is the only proper defendant in this action. Id. at 3.

Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax: Joint and Several Liability: Joint and several liability

Two corporate officers did not meet their burden of proving that their failure to collect and pay over employment taxes was not willful. Because liability under Code Sec. 6672 is joint and several, one officer's claim that the other officer had been directed to pay the tax but had embezzled the money was without merit. However, one officer was not liable for taxes that had accrued after he left the corporation.

H. Scott, DC Colo., 89-2 USTC ¶9445.

A jury found that both taxpayers, the president and a third party defendant, were responsible for paying over withheld income and social security taxes. Since both taxpayers bore the responsibility of truthfully accounting and paying over such taxes and the taxes were not paid over, the plaintiff-taxpayer was not entitled to recover amounts already paid, his suit was dismissed, and the third party defendant-taxpayer was also liable for an amount equal to taxes not paid over although the Government was limited to only one recovery.

M.B. Bagby, DC, 73-2 USTC ¶9485.

Although a corporation was operated by one of the owners, two other owners were held to be jointly and severally liable for unpaid employment taxes, where the two owners agreed to indemnify the managing owner for any liability arising from the operation of the corporation.

J.L. Barker, DC, 72-1 USTC ¶9225.

If two or more corporate officers have the responsibility and authority to cause the failure to collect and pay over the taxes, the taxpayer need be only one of the responsible persons in order for the government to assess the penalty. Therefore, this fact was not a valid defense where the taxpayer was one of the persons responsible.

J. Labowitz, DC, 73-1 USTC ¶9155, 352 FSupp 202.

F. Rizzo, DC, 73-1 USTC ¶9268.

Deering, DC, 73-1 USTC ¶9462.

A.M. Sinder, CA-6, 81-2 USTC ¶9612.

Similarly, except that a jury found that the taxpayer was not one of the responsible corporate officers.

P. Shinberg, DC, 73-1 USTC ¶9338.

In the following cases, it was held that two or more corporate officers were responsible for the failure to pay over withheld taxes.

M.C. Marker, Sr., DC, 73-2 USTC ¶9688.

J.L. Bernardi, DC, 74-1 USTC ¶9170. Aff'd, CA-7, 75-1 USTC ¶9133, 507 F2d 682. Cert. denied, 422 US 1042.

P. Kynell, DC, 74-1 USTC ¶9261.

J.F. Fortine, Sr., DC, 74-1 USTC ¶9297.

H. Miller, DC, 74-1 USTC ¶9343.

H.D. French, DC, 74-1 USTC ¶9367.

A.M. Pearson, DC, 74-2 USTC ¶9663.

H.E. Harrington, CA-1, 74-2 USTC ¶9772, 504 F2d 1306.

D.V. Adams, DC, 75-1 USTC ¶9104.

L.R. Ernce, DC, 75-1 USTC ¶9284.

S. Filis, DC, 75-1 USTC ¶9436. Aff'd, CA-5, (unpublished opinion 7/2/76).

K.P. Palmer, DC, 75-2 USTC ¶9649.

L. Friedman, DC, 77-1 USTC ¶9288.

V.T. Fletcher, DC, 81-1 USTC ¶9208.

J.E. Ronholt, DC Wash., 84-2 USTC ¶9678.

E.A. Kappas, DC, 83-2 USTC ¶9683, 578 FSupp 1435.

C.A. Rice, DC, 83-2 USTC ¶9717.

C.T. Huggins, DC, 84-1 USTC ¶9192.

M. Schlauch, DC Ohio, 84-1 USTC ¶9431.

R. Cantu, DC Wash., 84-1 USTC ¶9528.

C. Latimer, DC Ill., 84-2 USTC ¶9769, 593 FSupp 881.

E.W. Israel, DC Tex., 88-2 USTC ¶9449.

M.J. McCray, CA-5, 90-2 USTC ¶50,492.

The court granted the government's motion to file an amended answer, counterclaim and third-party complaint. It concluded that the third party might be liable to the government for all or part of the taxpayer's liability for the penalty assessed for unpaid withholding taxes. Thus, the liability of the taxpayer and the third party should be tried together.

W.R. Kasik, DC, 75-2 USTC ¶9525.

The district courts have permitted the government, as part of its counterclaim action for unpaid employment taxes, to join the officer bringing the refund suit and other company officials as third-party defendants.

Crompton-Richmond Co., Inc., Factors, DC, 67-2 USTC ¶9607, 273 FSupp 219.

B.A. Wilkie, DC, 68-1 USTC ¶9227, 279 FSupp 671.

W.R. Kasik, DC, 75-2 USTC ¶9525.

Similarly, even though the government did not join other parties whom the third-party officer defendant contended might be liable for the unpaid taxes.

J.P. Stiber, DC, 73-2 USTC ¶9755, 60 FRD 668.

The court dismissed complaints against fourth-party defendants who had been impleaded by third-party defendants who, the government had claimed in a refund suit, were or could be liable as responsible persons who had failed to pay over withholding tax. The third-party defendants alleged only that the fourth-party defendants might be liable to the government, not that they might be liable to them. Nor does Sec. 6672 provide for any right of contribution among all persons who might be liable for the penalty it imposes.

F.R. DiBenedetto, DC, 75-1 USTC ¶9503.

However, the taxpayer could not obtain, through discovery, certain internal IRS communications, nor could he obtain information from the IRS relating to the solvency of the cross-defendants.

T.P. Garity, DC, 81-2 USTC ¶9599.

A motion to dismiss, made by third-party defendants after the government compromised its claim of a one-hundred-percent penalty against the original plaintiff, was properly denied. It was in reality a motion for summary judgment, and a genuine issue of material fact remained as to whether the third-party defendants were liable as responsible persons for the failure of a corporation to pay over withholding taxes.

P.C. Lemieux, DC Conn., 84-2 USTC ¶9806.

Delinquent taxpayers' admissions to the propriety of 100 percent penalty assessments attributable to the individual failures to pay over withholding taxes effectively constituted an admission of joint and collective liability. Thus, tax liens upon real estate owned by a married couple as tenants by the entirety were valid prerequisites to the subsequent foreclosure action upon their residence. Under state law (Pennsylvania), the individual indebtedness of a husband and wife to a single creditor permits the treatment of the liability as joint liability for the purpose of attaching and foreclosing upon entireties property.

J.A. Eglinton, Jr., DC Pa., 90-1 USTC ¶50,322.

One of the taxpayer's claims that the IRS had entered into preferential settlements with the other taxpayers was dismissed since the IRS has the right to choose the taxpayers from whom the 100-percent penalty may be collected.

B.R. Neier, DC Kan., 91-1 USTC ¶50,234.

No right to indemnification or contribution existed for a taxpayer against whom the 100% penalty was sought for failure to collect and pay over tax or attempt to evade or defeat tax. Therefore, summary judgment was granted for the individual against whom the claim for indemnification was filed. The court determined that no statutory right to contribution exists under Code Sec. 6672. Further, the court rejected a decision from another federal district that an action for contribution or indemnity may be brought after the collection action is completed. That decision was based on the reasoning that the intent of Code Sec. 6672 is to ensure collection of tax. The court, however, stated that the intent of Code Sec. 6672 is to punish the taxpayer. Regardless, the indemnity action was brought before the collection action was completed. Also, because the allegation was not supported by affidavit, the court rejected the contention that another individual had agreed to pay the penalty with a pending loan.

D.W. Conley, DC Ind., 91-2 USTC ¶50,431, 773 FSupp 1176.

Principals of a corporation had no federal common law or statutory right of action for contribution or indemnity against others who also might be liable for penalties arising from their failure to collect, account for, and pay over the corporation's employment taxes. Further, an agreement releasing the principals from liability claims against the defunct corporation did not protect them from the penalty assessment. The penalty assessment was aimed at the personal liability of all individuals connected with the corporation who were responsible for collecting, accounting for, and paying over the corporation's employment taxes. To have allowed principals to recover from other responsible persons would have hindered the deterrent purpose of the statute.

T.A. Amerson, DC Mo., 92-2 USTC ¶50,460.

A motion to join a third person, who was not a responsible person, in order to seek contribution from him which was made by an alleged responsible person for failure to pay over withheld taxes was denied for lack of subject matter jurisdiction. No statutory right to contribution existed under Code Sec. 6672 and the claim would only frustrate Congress's goal of efficient tax collection proceedings. An alternative claim seeking joinder on the ground that the claim arose out of the same transaction due to a transfer of funds to the third party with the intention that the latter pay the disputed tax was rejected because it occurred in a later year.

J. Ringer, DC Tex., 94-2 USTC ¶50,585.

Although an officer left a corporation and entered into a settlement agreement with other shareholders in which those shareholders or the corporation would pay delinquent taxes, the agreement did not limit his personal liability. In addition, an installment agreement executed by the corporation with the IRS did not supplant the personal liability of the officer.

J.C. Lynch, BC-DC Ala., 95-2 USTC ¶50,410.

The taxpayers' burden of proving either that they were not responsible persons or that failure to pay the tax was not willful was not met by proof that another, such as the corporate employer, was in a position to pay the taxes.

W.C. Farrington, DC N.H., 96-1 USTC ¶50,094.

A corporate president qualified as a responsible person who acted willfully with respect to the entity's payroll tax delinquencies. His allegation that the IRS selectively enforced the trust fund recovery penalty by targeting him for prosecution despite the existence of other responsible persons was insufficient to warrant the dismissal of the case. The IRS, which presented credible evidence regarding his liability, was not required to prosecute all potential responsible persons.

W.W. Borland II, DC Mich., 2000-1 USTC ¶50,458. Aff'd, CA-6 (unpublished opinion), 2001-2 USTC ¶50,767.

A corporate treasurer's liability for the trust fund recovery penalty was not negated by the fact that there may be other individuals equally liable. The treasurer's was jointly and severally liable for the entire amount of the penalty.

J.A.P. Leiter, DC Kan., 2004-1 USTC ¶50,162.

The government was able to jointly recover the balance of unpaid employment taxes from the chairman of the board of a parochial school. As chairman, he had enough responsibility to be personally liable, he knew about the tax burden, and he signed several checks to some of the school's creditors instead of paying withheld taxes.

M.E. Holmes, DC Tex., 2004-2 USTC ¶50,301.

A company president, who was held liable for the trust fund recovery penalty at the summary judgment phase of a case, was relieved of liability for the IRS Certified Assessment amounts following the trial of the two other company officers for the same trust fund taxes. While, at the summary judgment phase, the president failed to carry his burden of proving the assessments against him were erroneous, the jury in the trial phase held that the assessments against the other officers were excessive and erroneous and determined that the actual assessment amounts were substantially less than the amounts determined by the IRS. An inherent unfairness to the president would result, considering the joint and several nature of the trust fund recovery penalty, if he were unable to obtain relief.

D.R. Ferguson, DC Iowa, 2005-1 USTC ¶50,119, 343 FSupp2d 787.

Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax: Partners and partnerships

An agreement between one partner (who received all of the partnership assets upon dissolution of the partnership and assumed all of the partnership liabilities) and the IRS for installment payments of unpaid employment taxes of a dissolved partnership did not discharge the other partner from liability for such taxes under the Colorado partnership statute. The act of forbearance by the IRS concerning collection was not a material alteration in the nature or timing of the underlying overdue obligation. Moreover, the IRS reserved its rights against the other partner.

J.R. Hays, CA-10, 89-2 USTC ¶9570.

According to the lower court, subsequently reversed, a general partnership and the individual who executed a limited partnership agreement on behalf of the general partnership were not entitled to a refund of employment taxes, penalties, and interest. Under state (California) law, the general partnership was treated as a general partner because the taxpayers neither recorded a Certificate of Limited Partnership nor substantially complied in good faith with California law. The IRS could not have had clear notice of the partnership arrangements because the certificate was not recorded until two years after it was executed. The IRS was not required to rely on the taxpayer's failure to record in order to recover on the basis of general partnership liability.

Gamma Farms, DC Calif., 90-2 USTC ¶50,378. Rev'd and rem'd, CA-9 (unpublished opinion 3/9/92).

A partnership that handled the payroll functions of another company was a "responsible person" for purposes of the 100% penalty for willfully failing in its duty to withhold and pay social security and income taxes owed by the company. The partnership had the ultimate authority for the decision not to pay the taxes. Further, the partnership acted on its own behalf in its dealings related to the company that owed the taxes. As a result, a general partner who owned 30.85% of the partnership was liable for her share of the tax liability assessed against the partnership, despite the fact that she was a silent partner with no managerial responsibility or involvement in the partnership. Because this was a bankruptcy action, the IRS bore the burden of proving its tax claim against the general partner.

J. Elms, BC-DC La., 93-1 USTC ¶50,284.

An individual was jointly and severally liable, pursuant to state (New York) law, for tax liabilities attributable to a partnership's failure to remit withheld payroll taxes. Although the individual asserted that he never had any association with, or knowledge of, the partnership, he entered into an agreement with the other two partners, was identified by one of the other partners as a co-partner, and was identified in the partnership's federal return, by name and social security number, as a partner.

M. Carlin, DC N.Y., 97-1 USTC ¶50,302.

The general partner in a law firm was personally liable for the partnership's employment tax deficiency. State (Texas) law, which made individual partners personally liable for the partnership's debts, was not preempted by the trust fund recovery penalty rules under Code Sec. 6672 because those provisions did not provide an exclusive remedy against members of a partnership and were not intended by Congress to preempt state partnership law.

W.P. Remington, CA-5, 2000-1 USTC ¶50,369, 210 F3d 281. Aff'g DC Tex., 98-2 USTC ¶50,739.

The partner of a responsible person was jointly and severally liable for trust fund taxes. Because the taxes were a debt of the partnership and the taxpayer was a partner in the business, she was jointly and severally liable for the tax, whether or not she was a responsible person under Code Sec. 6672. Code Sec. 6672 does not set the exclusive standard for establishing individual liability of partners; it is intended to be used with Code Sec. 3403 and state law.

C.B. Mira, BC-DC Pa., 99-2 USTC ¶50,760.

The general partner of a theatrical production was properly found liable under state (New York) law for the partnership's unpaid withholding tax liabilities. The taxpayer's contention that she was not a partner and that Code Sec. 6672 was the appropriate body of law under which the government was required to proceed were rejected. A prior suit she instituted against an advertising agency for copyright violations rested on her status as a partner; thus, she was judicially estopped from asserting otherwise in the instant litigation. Consequently, the IRS was permitted to seek relief either under Code Sec. 6672 or pursuant to state partnership law.

West Productions, Ltd., DC N.Y., 2001-1 USTC ¶50,358.

The general partner of a partnership was not entitled to a refund of trust fund recovery penalties imposed in connection with the partnership's unpaid employment taxes. He signed a partnership agreement, shared in the profits of the partnership, held a right to control the business and never filed a certificate of limited partnership. The taxpayer remained liable under Code Sec. 6702 because the tax liability existed on the date of the partnership's dissolution.

J.P. Helland, FedCl (unpublished opinion), 2002-2 USTC ¶50,754

Alvin S. Brown, Esq.
Tax Attorney
www.irstaxattorney.com

703 25-1400

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Offer in Compromise - IRS tax lien filed during OIC


Kenneth Holten Black and Marie K. Morilus Black v. Commissioner.
Docket No. 8251-06S . Filed November 5, 2007.

[6330]

Tax Court: Summary opinion: Collection: Installment agreement: Offer in compromise: Discretion of hearing officer: Notice of federal tax lien. --

An IRS Appeals officer did not abuse his discretion by sustaining a notice of federal tax lien (NFTL) that was filed against a married couple while they were attempting to negotiate an installment agreement. The Appeals officer considered the taxpayers' collection alternative; however, the taxpayers did not qualify for an offer in compromise because they had the ability to pay the liability in full through an installment agreement. In addition, the Appeals officer balanced the need to collect the taxes with the taxpayers' concern over the NFTL's intrusiveness. --

[6325]Tax Court: Summary opinion: Collection: Discretion of hearing officer: Notice of federal tax lien: Withdrawal of tax lien. --

An IRS Appeals officer did not abuse his discretion by refusing to withdraw a notice of federal tax lien (NFTL). The NFTL was not filed prematurely; the taxpayers' tax liability was assessed, notice and demand for payment was sent and the taxpayers were provided with a Collection Due Process (CDP) hearing notice. Moreover, an installment agreement does not preclude the filing of a NFTL nor require withdrawal of the lien after the agreement becomes effective. Finally, the taxpayers failed to submit any evidence that withdrawal of the NFTL would facilitate collection or would be in both their best interests and that of the United States.


.
DEAN, Special Trial Judge: This case was heard pursuant to the provisions of section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.


Background

Some of the facts have been stipulated and are so found. The stipulation of facts and the exhibits received into evidence are incorporated herein by reference. At the time the petition was filed, petitioners resided in Williamsville, New York.

Petitioners filed a joint Form 1040, U.S. Individual Income Tax Return, for 2004. The Internal Revenue Service (IRS) assessed the $24,143 tax shown on the return. The IRS assessed the following additional amounts: (1) A $143 addition to tax for failure to pay estimated tax; (2) a $115.96 addition to tax for failure to pay timely; and (3) $86.09 in accrued interest. After the application of a $12,547 credit for withholding taxes, the additional assessments resulted in an $11,941.05 unpaid balance.

The IRS sent petitioners a notice and demand for payment within 60 days of the assessment. In response, petitioners submitted an offer-in-compromise (OIC) on September 13, 2005, which the IRS rejected, and petitioners appealed. While petitioners' appeal was pending, the IRS filed a Notice of Federal Tax Lien (NFTL) at the Erie County Clerk, Buffalo, New York, on October 20, 2005. The IRS issued to petitioners a Letter 3172(DO), Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320, on October 21, 2005. In response, petitioners submitted a timely Form 12153, Request for a Collection Due Process Hearing, on November 9, 2005.

Petitioners' hearing was held on January 18, 2006. Pursuant to the parties' discussions, petitioners signed a Form 433-D, Installment Agreement, on February 10, 2006. Petitioners, via a letter dated February 9, 2006, requested that the NFTL be withdrawn because the lien's filing would adversely affect their credit rating and could cause them financial hardship. Additionally, petitioners expressed their concern that a lien could affect their ability to secure college loans on their son's behalf. In response, the IRS sent petitioners a Letter 3193, Notice of Determination Concerning Collection Action(s) Under The issues for decision are whether the Appeals officer abused his discretion in: (1) Sustaining the NFTL; and (2) determining that the NFTL should not be withdrawn.
Discussion
Sec. 6322. In order for the Federal tax lien to have priority over other liens or security interests, the IRS must file an NFTL. section 6320(a) states that the IRS must give the person against whom a Federal tax lien is filed written notice of the lien's filing within 5 days after the date of its filing. section 6330. 6330(d)(1). In reviewing the IRS's determination, the Court applies an abuse of discretion standard when the underlying tax liability is not at issue. Sego v. Commissioner, 114 T.C. 604, 610 (2000). Pursuant to this standard, petitioners must prove that the filing of the NFTL and the rejection of their withdrawal request was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).1. Filing of the NFTL
Petitioners contend that respondent's Appeals officer abused his discretion by sustaining the NFTL.
The applicable laws and administrative procedures were satisfied. The parties agree that petitioners received the required notice and demand for payment within the 60-day timeframe mandated by Finally, Form 656, Offer in Compromise, which petitioners signed, specifically states that an NFTL "may be filed at any time while your offer is being considered".
Therefore, the Court concludes that respondent's Appeals officer did not abuse his discretion in upholding the NFTL. Accordingly, respondent's determination is sustained.2. Withdrawal of the NFTL
In pertinent part, Petitioners contend that respondent's Appeals officer abused his discretion when he refused to withdraw the NFTL because: (1) The NFTL's filing was premature; (2) an installment agreement was subsequently agreed to; and (3) it would be in petitioners' and the United States' best interests to remove the NFTL due to the damage it would cause to petitioners' credit rating.
The NFTL was not filed prematurely. Petitioners' tax liability was assessed, and notice and demand for payment was mailed to petitioners within 60 days of the assessment. The IRS issued a Notice 504, Balance Due-Urgent; a Letter 1058, Final Notice of Intent to Levy; as well as A Notice of Federal Tax Lien and Your Right to a Hearing under IRC 6320. The lien's filing occurred after assessment and notice and demand; at each step, petitioners were properly notified.
Entering into an installment agreement does not preclude the filing of an NFTL, nor is the IRS required to withdraw an NFTL after an installment agreement has become effective. Section 6323(j)(1) is permissive: the IRS "may" withdraw an NFTL, but failure to do so is not an abuse of discretion. The Court concludes that respondent's Appeals officer did not abuse his discretion in refusing to withdraw the NFTL. Accordingly, respondent's determination is sustained.
To reflect the foregoing,
An appropriate decision will be entered.

IRS Tax Help - Material Advisor Disclosure Requirement - IRS section 6111

Notice 2007-85 , I.R.B. 2007-45, October 16, 2007.

[ Code Sec. 6111]

Material advisors: Form of disclosure statement:

Disclosures due October 31, 2007. --

Due to the unavailability of Form 8918, Material Advisor Disclosure Statement, a material advisor required to file a completed Form 8918 by October 31, 2007, may satisfy the disclosure requirement of Reg. §301.6111-3(d) by filing Form 8264, Application for Registration of a Tax Shelter, instead.

Reportable transactions disclosed on Form 8264 should be disclosed in the manner described in Notices 2004-80, 2004-2 CB 963, and 2005-22, 2005-1 CB 756. Form 8918 is expected to be published soon. In the event Form 8918 is published before the October 31 due date, advisors may use either Form 8918 or Form 8264. However, unless instructed otherwise by the IRS, material advisors must still use Form 8918 (or its successor) for disclosures required to be filed after October 31, 2007.

This notice provides guidance to material advisors required to file a disclosure statement by October 31, 2007, under §301.6111-3 of the Procedure and Administration Regulations.BACKGROUNDOn August 3, 2007, the Internal Revenue Service and Treasury Department published final regulations under §301.6111-3 in the Federal Register (72 FR 43157) providing the rules relating to the disclosure of reportable transactions by material advisors under section 6111 of the Internal Revenue Code. See T.D. 9351. In general, these regulations apply to transactions with respect to which a material advisor makes a tax statement on or after August 3, 2007. However, these regulations apply to transactions of interest entered into on or after November 2, 2006, with respect to which a material advisor makes a tax statement on or after November 2, 2006.

The regulations provide that each material advisor, with respect to any reportable transaction, must file a return as described in §301.6111-3(d). Section 301.6111-3(d) provides that each material advisor required to file a disclosure statement under §301.6111-3 must file a completed Form 8918 "Material Advisor Disclosure Statement" (or successor form). The Form 8918 must be filed with the Office of Tax Shelter Analysis (OTSA) by the last day of the calendar month that follows the end of the calendar quarter in which the advisor became a material advisor with respect to the reportable transaction or in which the circumstances necessitating an amended disclosure occur.Prior to the publication of the final regulations, material advisors were required to disclose reportable transactions on Form 8264 "Application for Registration of a Tax Shelter." Notice 2004-80, 2004-50 I.R.B. 963, and Notice 2005-22, 2005-12 I.R.B. 756, described the manner in which the Form 8264 was to be completed.INTERIM PROVISION

The next due date for disclosures by material advisors is October 31, 2007. As of the date of release of this notice, Form 8918 has not yet been published. The IRS anticipates that the Form 8918 will be published soon.Due to the unavailability of Form 8918, a material advisor required to file a completed Form 8918 by October 31, 2007, will be treated as satisfying the disclosure requirement of §301.6111-3(d) if the material advisor files Form 8264 instead. If Form 8918 is published on or before October 31, 2007, material advisors may choose to use either Form 8918 or Form 8264 for disclosures required to be filed by October 31, 2007. For disclosures required to be filed after October 31, 2007, material advisors must use Form 8918 (or successor form) unless instructed otherwise by the IRS. Reportable transactions disclosed on the Form 8264 should be disclosed in the manner described in Notice 2004-80 and Notice 2005-22.

EFFECTIVE DATE

This notice is effective October 16, 2007, the date this notice was released to the public.DRAFTING INFORMATIONThe principal author of this notice is Charles D. Wien of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Charles D. Wien at 202-622-3070 (not a toll-free call).

§301.6111-3. Disclosure of reportable transactions
(a) In general. --Each material advisor, as defined in paragraph (b) of this section, with respect to any reportable transaction, as defined in §1.6011-4(b) of this chapter, must file a return as described in paragraph (d) of this section by the date described in paragraph (e) of this section.

(b) Material advisor

(1) In general. --A person is a material advisor with respect to a transaction if the person provides any material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction, and directly or indirectly derives gross income in excess of the threshold amount as defined in paragraph (b)(3) of this section for the material aid, assistance, or advice. The term transaction includes all of the factual elements relevant to the expected tax treatment of any investment, entity, plan or arrangement, and includes any series of steps carried out as part of a plan.

(2) Material aid, assistance, or advice

(i) In general. --Except as provided in paragraph (b)(5) of this section, a person provides material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any transaction if the person makes or provides a tax statement to or for the benefit of --

(A) A taxpayer who either is required to disclose the transaction under §§1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter because the transaction is a listed transaction or a transaction of interest, or would have been required to disclose the transaction under §§1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter if the transaction had become a listed transaction or a transaction of interest within the period of limitations in §1.6011-4(e) of this chapter;

(B) A taxpayer who the potential material advisor knows is or reasonably expects to be required to disclose the transaction under §1.6011-4 of this chapter because the transaction is or is reasonably expected to become a transaction described in §1.6011-4(b)(3) through (5) or (7) of this chapter;

(C) A material advisor who is required to disclose the transaction under this section because it is a listed transaction or a transaction of interest; or

(D) A material advisor who the potential material advisor knows is or reasonably expects to be required to disclose the transaction under this section because the transaction is or is reasonably expected to become a transaction described in §1.6011-4(b)(3) through (5) or (7) of this chapter.

(ii) Tax statement

(A) In general. --A tax statement is any statement (including another person's statement), oral or written, that relates to a tax aspect of a transaction that causes the transaction to be a reportable transaction as defined in §1.6011-4(b)(2) through (7) of this chapter. A tax statement under this section includes tax result protection that insures some or all of the tax benefits of a reportable transaction.

(B) Confidential transactions. --A statement relates to a tax aspect of a transaction that causes it to be a confidential transaction if the statement concerns a tax benefit related to the transaction and either the taxpayer's disclosure of the tax treatment or tax structure of the transaction is limited in the manner described in §1.6011-4(b)(3) of this chapter by or for the benefit of the person making the statement, or the person making the statement knows the taxpayer's disclosure of the tax structure or tax aspects of the transaction is limited in the manner described in §1.6011-4(b)(3) of this chapter.

(C) Transactions with contractual protection. --A statement relates to a tax aspect of a transaction that causes it to be a transaction with contractual protection if the statement concerns a tax benefit related to the transaction and either --

(1) The taxpayer has the right to a full or partial refund of fees paid to the person making the statement or the fees are contingent in the manner described in §1.6011-4(b)(4) of this chapter; or

(2) The person making the statement knows or has reason to know that the taxpayer has the right to a full or partial refund of fees (described in §1.6011-4(b)(4)(ii) of this chapter) paid to another if all or part of the intended tax consequences from the transaction are not sustained or that fees (as described in §1.6011-4(b)(4)(ii) of this chapter) paid by the taxpayer to another are contingent on the taxpayer's realization of tax benefits from the transaction in the manner described in §1.6011-4(b)(4) of this chapter.

(D) Loss transactions. --A statement relates to a tax aspect of a transaction that causes it to be a loss transaction if the statement concerns an item that gives rise to a loss described in §1.6011-4(b)(5) of this chapter.

(E) [Reserved].

(iii) Special rules

(A) Capacity as an employee. --A material advisor generally does not include a person who makes a tax statement solely in the person's capacity as an employee, shareholder, partner or agent of another person. Any tax statement made by that person will be attributed to that person's employer, corporation, partnership or principal. However, a person shall be treated as a material advisor if that person forms or avails of an entity with the purpose of avoiding the rules of section 6111 or 6112 or the penalties under section 6707 or 6708.

(B) Post-filing advice. --A person will not be considered to be a material advisor with respect to a transaction if that person does not make or provide a tax statement regarding the transaction until after the first tax return reflecting tax benefit(s) of the transaction is filed with the IRS. However, this exception does not apply to a person who makes a tax statement with respect to the transaction if it is expected that the taxpayer will file a supplemental or amended return reflecting additional tax benefits from the transaction.

(C) Publicly filed statements. --A tax statement with respect to a transaction that includes only information about the transaction contained in publicly available documents filed with the Securities and Exchange Commission no later than the close of the transaction will not be considered a tax statement to or for the benefit of a person described in paragraph (b)(2) of this section.

(3) Gross income derived for material aid, assistance, or advice

(i) Threshold amount

(A) In general. --The threshold amount of gross income is $50,000 in the case of a reportable transaction substantially all of the tax benefits from which are provided to natural persons (looking through any partnerships, S corporations, or trusts). For all other transactions, the threshold amount is $250,000.

(B) Listed transactions and transactions of interest. --For listed transactions described in §§1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, the threshold amounts in paragraph (b)(3)(i)(A) of this section are reduced from $50,000 to $10,000 and from $250,000 to $25,000. For transactions of interest described in §§1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, the threshold amounts in paragraph (b)(3)(i)(A) of this section may be reduced as identified in the published guidance describing the transaction.

(C) [Reserved].

(D) Substantially all of the tax benefits. --For purposes of this section, the determination of whether substantially all of the tax benefits from a reportable transaction are provided to natural persons is made based on all the facts and circumstances. Generally, unless the facts and circumstances prove otherwise, if 70 percent or more of the tax benefits from a reportable transaction are provided to natural persons (looking through any partnerships, S corporations, or trusts) then substantially all of the tax benefits will be considered to be provided to natural persons.

(ii) Gross income derived directly or indirectly for the material aid, assistance, or advice. --In determining the amount of gross income a person derives directly or indirectly for material aid, assistance, or advice, all fees for a tax strategy or for services for advice (whether or not tax advice) or for the implementation of a reportable transaction are taken into account. Fees include consideration in whatever form paid, whether in cash or in kind, for services to analyze the transaction (whether or not related to the tax consequences of the transaction), for services to implement the transaction, for services to document the transaction, and for services to prepare tax returns to the extent return preparation fees are unreasonable in light of all of the facts and circumstances. A fee does not include amounts paid to a person, including an advisor, in that person's capacity as a party to the transaction. For example, a fee does not include reasonable charges for the use of capital or the sale or use of property. The IRS will scrutinize carefully all of the facts and circumstances in determining whether consideration received in connection with a reportable transaction constitutes gross income derived directly or indirectly for aid, assistance, or advice. For purposes of this section, the threshold amount must be met independently for each transaction that is a reportable transaction and aggregation of fees among transactions is not required.

(4) Date a person becomes a material advisor

(i) In general. --A person will be treated as becoming a material advisor when all of the following events have occurred (in no particular order) --

(A) The person provides material aid, assistance or advice as described in paragraph (b)(2) of this section;

(B) The person directly or indirectly derives gross income in excess of the threshold amount as described in paragraph (b)(3) of this section; and

(C) The transaction is entered into by the taxpayer to whom or for whose benefit the person provided the tax statement, or in the case of a tax statement provided to another material advisor, when the transaction is entered into by a taxpayer to whom or for whose benefit that material advisor provided a tax statement.

(ii) Determining if the taxpayer entered into the transaction. --Material advisors, including those who cease providing services before the time the transaction is entered into, must make reasonable and good faith efforts to determine whether the event described in paragraph (b)(4)(i)(C) of this section has occurred.

(iii) Listed transactions and transactions of interest. --If a transaction that was not a reportable transaction is identified as a listed transaction or a transaction of interest in published guidance after the occurrence of the events described in paragraph (b)(4)(i) of this section, the person will be treated as becoming a material advisor on the date the transaction is identified as a listed transaction or a transaction of interest.

(5) Other persons designated as material advisors. --Published guidance may identify other types or classes of persons as material advisors.

(c) Definitions. --For purposes of this section, the following definitions apply:

(1) Reportable transaction. --The term reportable transaction is defined in §1.6011-4(b)(1) of this chapter.

(2) Listed transaction. --The term listed transaction is defined in §1.6011-4(b)(2) of this chapter. See also §§20.6011-4(a), 25.6011-4(a), 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter.

(3) Derive. --The term derive means receive or expect to receive.

(4) Person. --The term person means any person described in section 7701(a)(1), including an affiliated group of corporations that join in the filing of a consolidated return under section 1501.

(5) Substantially similar. --The term substantially similar is defined in §1.6011-4(c)(4) of this chapter.

(6) Tax. --The term tax means Federal tax.

(7) Tax benefit. --A tax benefit includes deductions, exclusions from gross income, nonrecognition of gain, tax credits, adjustments (or the absence of adjustments) to the basis of property, status as an entity exempt from Federal income taxation, and any other tax consequences that may reduce a taxpayer's Federal tax liability by affecting the amount, timing, character, or source of any item of income, gain, expense, loss, or credit.

(8) Tax return. --The term tax return means a Federal tax return and a Federal information return.

(9) Tax structure. --The tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed Federal tax treatment of the transaction.

(10) Tax treatment. --The tax treatment of a transaction is the purported or claimed Federal tax treatment of the transaction.

(11) Taxpayer. --The term taxpayer is defined in §1.6011-4(c)(1) of this chapter.

(12) Tax result protection. --The term tax result protection includes insurance company and other third party products commonly described as tax result insurance.

(13) Transaction of interest. --The term transaction of interest is defined in §1.6011-4(b)(6) of this chapter. See also §§20.6011-4(a), 25.6011-4(a), 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter.

(d) Form and content of material advisor's disclosure statement

(1) In general. --A material advisor required to file a disclosure statement under this section must file a completed Form 8918, "Material Advisor Disclosure Statement" (or successor form) in accordance with this paragraph (d) and the instructions to the form. To be considered complete, the information provided on the form must describe the expected tax treatment and all potential tax benefits expected to result from the transaction, describe any tax result protection with respect to the transaction, and identify and describe the transaction in sufficient detail for the IRS to be able to understand the tax structure of the reportable transaction and the identity of any material advisor(s) whom the material advisor knows or has reason to know acted as a material advisor as defined in paragraph (b) of this section with respect to the transaction. An incomplete form containing a statement that information will be provided upon request is not considered a complete disclosure statement. A material advisor may file a single form for substantially similar transactions. An amended form must be filed if information previously provided is no longer accurate, if additional information that was not disclosed becomes available, or if there are material changes to the transaction. A material advisor is not required to file an additional form for each additional taxpayer that enters into the same or substantially similar transaction. If the form is not completed in accordance with the provisions in this paragraph (d) and the instructions to the form, the material advisor will not be considered to have complied with the disclosure requirements of this section.

(2) Reportable transaction number. --The IRS will issue to a material advisor a reportable transaction number with respect to the disclosed reportable transaction. Receipt of a reportable transaction number does not indicate that the disclosure statement is complete, nor does it indicate that the transaction has been reviewed, examined, or approved by the IRS. Material advisors must provide the reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor as defined in paragraph (b) of this section. The reportable transaction number must be provided at the time the transaction is entered into, or, if the transaction is entered into prior to the material advisor receiving the reportable transaction number, within 60 calendar days from the date the reportable transaction number is mailed to the material advisor.

(e) Time of providing disclosure. --The material advisor's disclosure statement for a reportable transaction must be filed with the Office of Tax Shelter Analysis (OTSA) by the last day of the month that follows the end of the calendar quarter in which the advisor became a material advisor with respect to the reportable transaction or in which the circumstances necessitating an amended disclosure statement occur. The disclosure statement must be sent to OTSA at the address provided in the instructions for Form 8918 (or a successor form).

(f) Designation agreements. --If more than one material advisor is required to disclose a reportable transaction under this section, the material advisors may designate by written agreement a single material advisor to disclose the transaction. The transaction must be disclosed by the last day of the month following the end of the calendar quarter that includes the earliest date on which a material advisor who is a party to the agreement became a material advisor with respect to the transaction as described in paragraph (b)(4) of this section. The designation of one material advisor to disclose the transaction does not relieve the other material advisors of their obligation to disclose the transaction to the IRS in accordance with this section, if the designated material advisor fails to disclose the transaction to the IRS in a timely manner.

(g) Protective disclosures. --If a potential material advisor is uncertain whether a transaction must be disclosed under this section, the advisor may disclose the transaction in accordance with the requirements of this section and comply with all the provisions of this section, and indicate on the disclosure statement that the disclosure statement is being filed on a protective basis. The IRS will not treat disclosure statements filed on a protective basis any differently than other disclosure statements filed under this section. For a protective disclosure to be effective, the advisor must comply with the regulations under this section and §301.6112-1 by providing to the IRS all information requested by the IRS under these sections.

(h) Rulings. --If a potential material advisor requests a ruling as to whether a specific transaction is a reportable transaction on or before the date that disclosure would otherwise be required under this section, the Commissioner in his discretion may determine that the submission satisfies the disclosure rules under this section for that transaction if the request fully discloses all relevant facts relating to the transaction which would otherwise be required to be disclosed under this section. The potential obligation of the person to disclose the transaction under this section (or to maintain or furnish the list under §301.6112-1) will not be suspended during the period that the ruling request is pending.

(i) Effective/applicability date

(1) In general. --This section applies to transactions with respect to which a material advisor makes a tax statement on or after August 3, 2007. However, this section applies to transactions of interest entered into on or after November 2, 2006 with respect to which a material advisor makes a tax statement under §301.6111-3 on or after November 2, 2006. Paragraph (h) of this section applies to ruling requests received on or after November 1, 2006. Otherwise, the rules that apply with respect to transactions entered into before August 3, 2007 are contained in Notice 2004-80 (2004-50 IRB 963); Notice 2005-17 (2005-8 IRB 606); and Notice 2005-22 (2005-12 IRB 756)(see §601.601(d)(2)(ii)(b) in effect prior to August 3, 2007.

(2) [Reserved].

[Reg. §301.6111-3.]

 [T.D. 9351, 7-31-2007
of Reportable Transactions: Interim guidance, American Jobs Creation Act of 2004 (P.L. 108-357)The guidance contained in Notice 2005-22 will be superseded by Proposed Reg. §301.6111-3 (see ¶37,002.08.The IRS has provided additional interim guidance to material advisors who are required, with regard to any reportable transaction, to file Form 8264, Application for Registration of a Tax Shelter, with respect to that transaction. The interim guidance states that material advisors should not modify Form 8264 but should complete the form as if it had been modified as indicated in Notice 2004-80, I.R.B. 2004-50, 963. A person will be treated as becoming a material advisor when three events have taken place: (1) the material advisor makes a tax statement, (2) the material advisor receives, or expects to receive, the minimum fees with respect to the reportable transaction and (3) the transaction is entered into by the taxpayer. The guidance also extends the time for filing Form 8264 so that, for a person who becomes a material advisor after October 22, 2004, and on or before March 31, 2005, the form must be filed on or before April 30, 2005.

[Full Text-Notice 2005-22]

The purpose of this notice is to clarify and modify Notice 2004-80, 2004-50 I.R.B. 963, to provide additional guidance for material advisors who are required to comply with §§6111 and 6112 of the Internal Revenue Code, as amended, and to grant an extension of time for material advisors to comply with the new filing requirements under §6111.BACKGROUNDSection 6111, as amended by the American Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418 (the Act), requires that each material advisor with respect to any reportable transaction make a return setting forth information identifying and describing the transaction and any potential tax benefits expected to result from the transaction no later than the date specified by the Secretary. Notice 2004-80 announced that the Internal Revenue Service and the Treasury Department intend to issue regulations providing rules under §6111.Notice 2004-80 also provides interim rules implementing the requirements of §6111 until the Secretary prescribes regulations. Under Notice 2004-80, each material advisor with respect to a reportable transaction must file a return on Form 8264, Application for Registration of a Tax Shelter, within 30 days after the date on which the person becomes a material advisor. Notice 2004-80 also provides transitional relief in the case of a person who becomes a material advisor after October 22, 2004, and on or before December 31, 2004, that allows the material advisor to file the return before February 1, 2005. Notice 2005-17, 2005-8 I.R.B. 606, released on January 28, 2005, grants additional transitional relief allowing a person who becomes a material advisor after October 22, 2004, and on or before January 29, 2005, to file the return before March 1, 2005.Since the issuance of Notice 2004-80, questions have arisen regarding the application of the interim rules to material advisors. In addition, Notice 2005-17 states that the Service and Treasury intend to provide further guidance on the issue of the date on which a person becomes a material advisor with respect to a reportable transaction (including whether the obligation of a material advisor arises only when a reportable transaction is entered into by a taxpayer). This notice provides additional interim rules that will apply until further guidance is issued and grants additional transitional relief.ADDITIONAL INTERIM PROVISIONS1. Completion of Form 8264Notice 2004-80 provides that each material advisor required under §6111, as amended, to file a return with respect to a reportable transaction must complete Parts I (except item 1(b)), IV, and V of Form 8264. In completing Form 8264, the form and instructions are to be read to apply, by substituting: (1) "reportable transaction" each place "tax shelter" or "confidential corporate tax shelter" appears; (2) "material advisor" each place "organizer" or "principal organizer" appears; and (3) "Date the material advisor became a material advisor with respect to the reportable transaction" in place of "Date an interest in the tax shelter was first offered for sale" in Part I, line 7, of the form.Questions have arisen whether a material advisor is required to modify the Form 8264 by striking or replacing lines or fields. A material advisor may not make modifications to the Form 8264. A material advisor must simply complete the form as if it had been modified to read as described in Notice 2004-80.2. Material Advisors and Transitional ReliefNotice 2004-80 provides that a material advisor who is required to file a return under §6111 must file the return within 30 days after the date on which the person becomes a material advisor. Notice 2004-80 provides that a material advisor is defined in §301.6112-1(c)(2). Notice 2004-80 also provides that a material advisor may file a single Form 8264 for substantially similar transactions. A material advisor is required to supplement information disclosed on Form 8264 if the information provided is no longer accurate, or if additional information that was not disclosed on Form 8264 becomes available.Questions have arisen regarding when a person becomes a material advisor. Section 301.6112-1(c)(2) defines a material advisor as a person who makes a tax statement and receives or expects to receive a minimum fee with respect to a reportable transaction. Section 301.6112-1(c)(2)(B) provides that a material advisor includes a person who makes a tax statement to or for the benefit of a taxpayer who the potential material advisor (at the time the transaction is entered into) knows is or reasonably expects to be required to disclose the transaction under §1.6011-4.Until further guidance is issued, a material advisor will be treated as becoming a material advisor under §6111 when all of the following events have occurred: (1) the material advisor makes a tax statement, (2) the material advisor receives (or expects to receive) the minimum fees, and (3) the transaction is entered into by the taxpayer. Material advisors, including those who cease providing services prior to the time the transaction is entered into, must make reasonable and good faith efforts to determine whether the taxpayer entered into the transaction.Moreover, the time for providing disclosure as provided in Notice 2004-80 is amended by this notice. Until further guidance is issued, a material advisor will meet its return filing obligation under §6111 if the Form 8264 is filed by the last day of the month that follows the end of the calendar quarter in which the advisor became a material advisor. Also, the transitional relief provided in Notice 2004-80 and Notice 2005-17 for disclosure of a transaction under §6111 is extended. Accordingly, if a person becomes a material advisor after October 22, 2004, and on or before March 31, 2005, that material advisor must file the return on or before April 30, 2005.Once a material advisor has filed a Form 8264 with respect to a transaction, the material advisor is not required to file an additional Form 8264 for each additional taxpayer that subsequently enters into the same transaction or to file a Form 8264 for a separate transaction that is the same as or substantially similar to the transaction for which the material advisor has filed a Form 8264.Questions also have arisen regarding whether the tolling provisions of §1.6011-4(f) would apply to requests from a potential material advisor for a letter ruling. Until further guidance is issued, if the advisor submits a request for a letter ruling on or before the date the return under §6111 is due and fully discloses all relevant facts relating to the transaction, the obligation of the potential material advisor to disclose the transaction will be suspended as provided in §1.6011-4(f). However, a request for a letter ruling by a potential material advisor will not toll the disclosure provisions of §1.6011-4 for taxpayers who participate in the transaction. See §1.6011-4(f) for tolling provisions applicable to material advisors and taxpayers.Finally, questions have arisen regarding the nature of the statement relating to the financial accounting treatment of the item(s) giving rise to a significant book-tax difference described in §1.6011-4(b)(6). In addition, some practitioners have erroneously concluded that Notice 2004-80 was intended to exclude persons who do not provide accounting advice. The financial accounting statement described in Notice 2004-80 includes statements made by any material advisor, including accountants, lawyers, or investment advisors.3. Effective Date of Notice 2004-80Notice 2004-80 is effective for transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004. Questions have arisen regarding the definition of material aid, assistance, or advice provided after October 22, 2004. For purposes of the disclosure required by §6111, disclosure is required for reportable transactions with respect to which a material advisor makes a tax statement (other than post-filing advice described in §301.6112-1(c)(2)(iv)(A)) after October 22, 2004, regardless of whether any portion of the fee was received before October 22, 2004, or whether the transaction was entered into before October 22, 2004. (For the timing of the disclosure, see Section 2 of this notice, above.)EFFECTIVE DATEThis notice is effective February 24, 2005, the date this notice was released to the public.EFFECT ON OTHER DOCUMENTSThis document clarifies and modifies Notice 2004-80 and Notice 2005-17.DRAFTING INFORMATIONThe principal author of this notice is Tara P. Volungis of the Office of the Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Ms. Volungis at (202) 622-3080 (not a toll-free call).Notice 2005-22, I.R.B. 2005-12, 756, clarifying and modifying Notice 2005-17, I.R.B. 2005-8, 606 and Notice 2004-80, I.R.B. 2004-50, 963 (This guidance will be superseded by Proposed Reg. §301.6111-3 (see ¶37,002.08).Prior to Notice 2005-22, I.R.B. 2005-12, 756 above, the IRS extended the transitional relief in Notice 2004-80, I.R.B. 2004-50, 963, for filing Form 8264 in the case of a person who becomes a material advisor after October 22, 2004. A person who became a material advisor after October 22, 2004, and on or before January 29, 2005 was required to file Form 8264 before March 1, 2005.Notice 2005-17, I.R.B. 2005-8, 606, clarified and modified by Notice 2005-22, I.R.B. 2005-12, 756.Guidance is provided that reflects changes made by the American Jobs Creation Act of 2004 (P.L. 108-357) to the requirements for disclosure of reportable transactions by taxpayers and material advisors.

[Full Text-Notice 2004-80]

The purpose of this notice is to alert taxpayers to recent amendments to §§6111, 6112, and 6708 of the Internal Revenue Code. The notice announces that the Internal Revenue Service and the Treasury Department will issue regulations under §6111 and amend the regulations under §6112. The regulations under §6111 and §6112 will apply to transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004. The Service and Treasury also will issue regulations under §6708 that will apply to written requests made after October 22, 2004, for investor lists required to be maintained under §6112. This notice provides guidance for material advisors who are required to comply with §§6111 and 6112, as amended, and who are potentially subject to penalty under §6708, as amended. This notice also invites comments from the public regarding rules and standards relating to §§6111, 6112, and 6708, as amended.BACKGROUND AND PRIOR LAWPrior to the recent amendments, §6111(a) required an organizer of a tax shelter to register the shelter with the Secretary not later than the day on which interests in the shelter were first offered for sale. Under former §6111(c), a tax shelter was defined as any investment with respect to which any person could reasonably infer from the representations made in connection with the offering for sale of interests that the tax shelter ratio for any investor as of the close of any of the first five years ending after the investment was offered for sale may have been greater than two to one and which was: (1) required to be registered under federal or state securities laws; (2) sold pursuant to an exemption from registration requiring the filing of a notice with a federal or state securities agency; or (3) a substantial investment (the aggregate amount which may have been offered for sale exceeded $250,000 and the expected involvement of at least five investors). Under former §6111(d), other entities, plans, arrangements or transactions could be treated as tax shelters for purposes of former §6111(a) if: (1) a significant purpose of the structure was the avoidance or evasion of federal income tax for a direct or indirect corporate participant; (2) the offer was made under conditions of confidentiality; and (3) the tax shelter promoter may have received fees in excess of $100,000 in the aggregate.THE AMERICAN JOBS CREATION ACT OF 2004The American Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418, (the Act) was enacted on October 22, 2004. Section 815 of the Act amended §6111 to require each material advisor with respect to any reportable transaction to make a return (in such form as the Secretary may prescribe) setting forth: (1) information identifying and describing the transaction; (2) information describing any potential tax benefits expected to result from the transaction; and (3) other information as the Secretary may prescribe. Section 6111(a), as amended, provides that the return must be filed not later than the date specified by the Secretary. Section 6111(b)(1) defines a material advisor and includes a requirement that the material advisor receive certain threshold amounts of gross income that the Secretary may prescribe.The amendments to §6111 authorize the Secretary to prescribe regulations that provide: (1) that only one person shall be required to meet the requirements of §6111(a) in cases in which two or more persons would otherwise be required to meet such requirements; (2) exemptions from the requirements of §6111; and (3) rules as may be necessary or appropriate to carry out the purposes of §6111.Section 815 of the Act also amended §6112 to provide that each material advisor (as defined in new §6111) with respect to any reportable transaction is required to maintain a list (in such manner as the Secretary may by regulations prescribe) identifying each person with respect to whom the advisor acted as a material advisor with respect to the transaction, and containing other information as the Secretary may by regulations require.Section 815 of the Act is effective for transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004, the date of enactment of the Act.Section 817 of the Act amended §6708 to impose a penalty on a material advisor who fails to make available, within 20 business days after the date of a written request by the Secretary, a list required to be maintained under §6112(a). The new amount of the penalty is $10,000 for each day after the 20th day that the material advisor fails to provide the list. Section 6708(a)(2) provides a reasonable cause exception to the imposition of the penalty under §6708. Section 817 of the Act is effective for requests made after October 22, 2004, the date of the enactment of the Act.INTERIM PROVISIONSThe Service and Treasury intend to issue regulations providing rules under §§6111, 6112, and 6708, as amended. However, because the amendments to §§6111, 6112, and 6708 currently are effective, the Service and Treasury are providing the following interim rules implementing the requirements of §§6111, 6112, and 6708, as amended, until the Secretary prescribes regulations. The interim rules as adopted by this notice incorporate, in part, rules in the current regulations under §§6011, 6111, and 6112. These interim rules will apply until further guidance is issued.A. Disclosure by Material Advisors Under §6111 As indicated above, section 815 of the Act amended §6111 to require that each material advisor with respect to any reportable transaction make a return setting forth information identifying and describing the transaction and any potential tax benefits expected to result from the transaction no later than the date specified by the Secretary. Until further guidance is issued, the definition of a reportable transaction, the definition of a material advisor, and the requirements for filing a return under §6111 are as indicated below.1. Definition of Reportable TransactionFor purposes of new §6111(a), a "reportable transaction" is defined in §1.6011-4(b) of the Income Tax Regulations. In addition, the rules in §301.6112-1(b)(2) and (c)(2) (without regard to provisions relating to a transaction required to be registered under former §6111) will apply for purposes of determining whether a transaction is a reportable transaction with respect to a material advisor. Determinations made by public guidance pursuant to §1.6011-4(b)(8) that a transaction will not be considered a reportable transaction or will be excluded from a category of reportable transactions, including Rev. Proc. 2004-65 (relating to transactions with contractual protection), Rev. Proc. 2004-66 (relating to loss transactions), Rev. Proc. 2004-67 (relating to transactions with a significant book-tax difference), and Rev. Proc. 2004-68 (relating to transactions with a brief asset holding period) also will apply for purposes of new §§6111 and 6112.2. Definition of a Material AdvisorFor purposes of new §6111, a "material advisor" is defined in §301.6112-1(c)(2) of the Procedure and Administration Regulations. The existing rules under §301.6112-1(c)(2), (c)(3), and (d) (without regard to the provisions relating to a transaction required to be registered under former §6111), including the minimum fee amounts for listed transactions under §301.6112-1(c)(3)(ii), will apply for purposes of determining whether a person is a material advisor.In the case of a transaction with a significant book-tax difference described in §1.6011-4(b)(6), a person will be considered a material advisor with regard to the transaction for purposes of §§6111 and 6112 only if the person who makes a tax statement described in §301.6112-1(c)(2)(iii)(E) also makes a statement, oral or written, that relates to the financial accounting treatment of the item(s) that gives rise to a significant book-tax difference described in §1.6011-4(b)(6).3. Filing of Return Under §6111Until Form 8264, Application for Registration of a Tax Shelter, is revised, or a successor form is issued, for purposes of new §6111(a), a material advisor required to file a return with respect to a reportable transaction must complete Form 8264 in the following manner. A material advisor is required to complete only Parts I (except item 1(b)), IV, and V of Form 8264. In completing Form 8264, the form and instructions are to be read to apply, by substituting: (1) "reportable transaction" each place "tax shelter" or "confidential corporate tax shelter" appears; (2) "material advisor" each place "organizer" or "principal organizer" appears; and (3) "Date the material advisor became a material advisor with respect to the reportable transaction" in place of "Date an interest in the tax shelter was first offered for sale" in Part I, line 7, of the form. In Part IV, fees must be determined by applying the rules in §301.6112-1(c)(3)(iii) instead of the instructions. In Part V, the material advisor must identify the type of reportable transaction under §1.6011-4(b) that is being disclosed, and describe the facts of the transaction and the potential tax benefits expected to result from the transaction. Form 8264 must be signed under penalties of perjury. The form must be sent to the Internal Revenue Service Center, Ogden, UT 84201.A material advisor may file a single Form 8264 for substantially similar transactions. A material advisor is required to supplement information disclosed on Form 8264 if the information provided is no longer accurate, or if additional information that was not disclosed on Form 8264 becomes available.In addition, the following rules contained in §301.6111-1T will apply: (1) Q&A-3 and 50 regarding representations made to investors about disclosures under §6111; (2) Q&A-38 and 39 regarding designation agreements; (3) Q&A 49 regarding timely mailing; and (4) Q&A-51 through 57 regarding the furnishing of registration numbers and the reporting requirement on Form 8271, Investor Reporting of Tax Shelter Registration Number, or any successor form.4. Due Date of Return Under §6111Section 6111(a), as amended, provides that the Secretary may specify the date the return must be filed by a material advisor. A material advisor, as defined in §301.6112-1(c)(2), who is required to file a return under §6111 must file the return within 30 days after the date on which the person becomes a material advisor. However, if a person becomes a material advisor after October 22, 2004, and on or before December 31, 2004, that material advisor must file the return before February 1, 2005. If a person is required to disclose a reportable transaction under the provisions of §6111, as amended, and the person has registered the transaction under former §6111 prior to October 22, 2004, that registration will satisfy the disclosure requirements for the new provisions in §6111, provided that the material advisor amends the previous registration to reflect any information required under this notice.B. Maintenance of Lists by Material Advisors Under §6112 Section 815 of the Act amended §6112 to provide that each material advisor (as defined in new §6111(b)) with respect to any reportable transaction is required to maintain a list identifying each person with respect to whom the advisor acted as a material advisor with respect to the transaction. Section 817 of the Act amended §6708 to impose a penalty on a material advisor who fails to make a list available upon written request within 20 business days after the date of the request.For purposes of new §6112, the existing rules under §301.6112-1 (without regard to the provisions relating to a transaction required to be registered under former §6111) relating to the preparation, maintenance, retention, and furnishing of lists will apply to material advisors required to maintain lists with respect to a reportable transaction.For purposes of former §6112, §301.6112-1 will continue to apply to organizers and sellers (defined as material advisors in §301.6112-1(c)(2)) who are required to maintain lists under former §6112. Consequently, an organizer or seller under former §6112 must continue to maintain any list described in §301.6112-1(e) for the seven-year period described in §301.6112-1(f) even if such period expires after October 22, 2004.For purposes of §6708, the 20 business-day period within which a person must provide the list required to be maintained under §6112 shall begin on the first business day following the earlier of the date that the IRS: (1) mails a request for the list by certified or registered mail to the last known address of the material advisor required to maintain the list or (2) hand-delivers the written request in person. Business days include every calendar day other than Saturdays, Sundays, or legal holidays. For purposes of this notice, "legal holiday" shall have the same meaning provided in §7503.REQUEST FOR COMMENTSThe Service and Treasury intend to issue regulations implementing the requirements of §§6111, 6112, and 6708, as amended. The Service and Treasury continue to balance the benefits to the government of early and complete disclosure with the burden imposed on taxpayers and their representatives. The Service and Treasury invite interested persons to submit comments regarding the requirements of §§6111, 6112, and 6708, including comments on the definition of material advisor and comments on ways to reduce taxpayer burden and to improve disclosure. Comments on guidance under §§6111, 6112, or 6708, may be submitted to: CC:PA:LPD:PR (NOT-155984-04), Room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions also may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (NOT-155984-04), Couriers Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC. Alternatively, taxpayers may submit electronic comments directly to the IRS e-mail address: notice.comments@irscounsel.treas.gov.

EFFECTIVE DATE

This notice is effective for transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004. This notice is also effective for written requests made after October 22, 2004, for investor lists required to be maintained under §6112.DRAFTING INFORMATIONThe principal author of this notice is Tara P. Volungis of the Office of the Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Ms. Volungis at (202) 622-3080 (not a toll free call).Notice 2004-80, I.R.B. 2004-50, 963, clarified and modified by Notice 2005-17, I.R.B. 2005-8, 606 and Notice 2005-22, I.R.B. 2005-12, 756.A material advisor required to file a completed Form 8918 by October 31, 2007, may satisfy the disclosure requirement of Reg. §301.6111-3(d) by filing Form 8264, Application for Registration of a Tax Shelter, instead. Reportable transactions disclosed on Form 8264 should be disclosed in the manner described in Notices 2004-80, 2004-2 CB 963, and 2005-22, 2005-1 CB 756. In the event Form 8918 is published before the October 31 due date, advisors may use either Form 8918 or Form 8264. However, unless instructed otherwise by the IRS, material advisors must still use Form 8918 (or its successor) for disclosures required to be filed after October 31, 2007.Notice 2007-85, I.R.B. 2007-45.


Alvin S. Brown, Esq.
Tax Attorney
703 425-1400
www.irstaxattorney.com

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