December 16 2021

IRS Issues Practice Unit on Investigations of Tax Shelters

Source: IBFD Tax Research Platform News

The US Internal Revenue Service (IRS) has released a Practice Unit explaining its procedures for investigations into tax shelter promoters.

The Practice Unit is entitled "Tax Shelter Promoter Investigations Under IRC 6700" (COR-P-022). The Practice Unit, released on 14 December 2021, indicates a revised date of 25 November 2021.

The Practice Unit states that section 6700 of the US Internal Revenue Code (IRC) permits assertion of penalties against any person who:

  • organizes, or sells any interest in:
    • a partnership or other entity;
    • an investment plan or arrangement; or
    • any other plan or arrangement; and
  • makes, or causes someone else to make, a fraudulent statement about any material matter or gross valuation overstatement.

The goal of a promoter investigation is to:

  • identify and quickly terminate the abusive promotion or activity;
  • assert promoter penalties where applicable; and
  • identify participants in the abusive transaction.

The Practice Unit lists the following as the steps of a promoter investigation:

  • determining if a promoter has engaged in conduct that violates the applicable civil penalty statutes;
  • obtaining participant lists;
  • determining if:
    • the promotion is reoccurring or likely to reoccur; and
    • the promoter should be referred for an injunction; and
  • ensuring compliance with the requirements of IRC section 6111 (dealing with the disclosure of tax shelter transactions) and IRC section 6112 (dealing with the requirement for material advisors of tax shelter transactions to keep lists of advisees).

NotePractice Units, issued by the Large Business & International (LB&I) division of the IRS, serve as both job aids and training materials on tax issues for IRS staff. Practice Units are not official pronouncements of law or directives and thus may not be used or cited as precedent.