Listed Transactions: IRS Identified Tax Avoidance Schemes

Listed transactions represent the most serious category of reportable transactions identified by the Internal Revenue Service. These are specific tax avoidance schemes that the IRS has determined to be abusive and has identified through published guidance such as notices, revenue rulings, or regulations. Taxpayers who participate in listed transactions face mandatory disclosure requirements and potentially severe penalties for non-compliance.

What are Listed Transactions?

A listed transaction is a transaction that is the same as, or substantially similar to, one of the types of transactions that the IRS has specifically identified and determined to be a tax avoidance transaction. Unlike Transactions of Interest, which represent transactions that may have potential for abuse but lack sufficient information for definitive identification, listed transactions are transactions that the IRS has definitively determined to be abusive tax avoidance schemes.

The key distinction is that listed transactions are not merely subject to disclosure requirements—they are transactions that the IRS has determined to be wrongful tax avoidance schemes. When the IRS identifies a transaction as a listed transaction, it is making a determination that the transaction is designed to avoid or evade taxes in an abusive manner. The disclosure requirements and penalties are consequences of this determination, not the defining characteristic of listed transactions.

The identification of a transaction as a listed transaction carries significant consequences. Taxpayers who participate in listed transactions are subject to strict disclosure requirements under Section 6011, and material advisors who promote or facilitate these transactions face enhanced disclosure and record-keeping obligations under Sections 6111 and 6112. More importantly, the IRS will challenge the tax benefits claimed from listed transactions, and taxpayers may face disallowance of deductions, credits, or other tax benefits, in addition to substantial penalties.

The Difference Between Listed Transactions and Other Reportable Transactions

It is important to understand the distinction between listed transactions and other types of reportable transactions. Reportable transactions is a broad category that encompasses all transactions the IRS requires to be disclosed. This category includes listed transactions, transactions of interest, confidential transactions, transactions with contractual protection, and loss transactions.

Listed transactions are a specific subset of reportable transactions. The critical difference is that listed transactions are transactions that the IRS has definitively determined to be abusive tax avoidance schemes. When the IRS identifies a transaction as a listed transaction, it has made a determination that the transaction is wrongful—it is designed to avoid or evade taxes in an abusive manner. The IRS will challenge and disallow the tax benefits claimed from listed transactions.

In contrast, Transactions of Interest are also reportable transactions, but they represent transactions that the IRS believes may have potential for abuse but lacks sufficient information to definitively determine whether they should be identified as tax avoidance schemes. Transactions of Interest are subject to disclosure requirements, but the IRS has not yet made a definitive determination that they are abusive. The disclosure requirement serves primarily to provide the IRS with information to evaluate whether the transaction should be identified as a listed transaction in the future.

The consequences differ significantly between listed transactions and other reportable transactions. Taxpayers who participate in listed transactions face not only disclosure requirements but also the certainty that the IRS will challenge and likely disallow the tax benefits claimed. Taxpayers may be required to pay additional taxes, interest, and penalties on disallowed amounts. The penalties for failing to disclose listed transactions are also substantially higher (up to $200,000) compared to other reportable transactions.

For Transactions of Interest and other non-listed reportable transactions, the disclosure requirement serves primarily to provide the IRS with information. While the IRS may still challenge these transactions, the determination that they are abusive has not yet been made. The penalties for non-disclosure are also lower for non-listed reportable transactions.

In summary, all listed transactions are reportable transactions, but not all reportable transactions are listed transactions. Listed transactions represent the most serious category because they are transactions the IRS has definitively determined to be abusive and wrongful.

Disclosure Requirements for Listed Transactions

Taxpayers who participate in listed transactions must file Form 8886, Reportable Transaction Disclosure Statement, with their tax return for each year in which they participate in the transaction. Additionally, a separate copy of Form 8886 must be filed with the Office of Tax Shelter Analysis (OTSA) at the following address:

Internal Revenue Service
OTSA Mail Stop 4915
1973 Rulon White Blvd
Ogden, UT 84201

The disclosure must be filed by the due date of the tax return, including extensions. Failure to file the required disclosure can result in penalties of up to $200,000 for listed transactions, which is significantly higher than the penalties for other reportable transactions.

Material Advisor Requirements

Material advisors who provide material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, or carrying out any listed transaction must file disclosure statements under Section 6111. A material advisor is defined as any person who provides material aid, assistance, or advice and directly or indirectly derives gross income in excess of the threshold amount for such services. For listed transactions, the threshold is $10,000 for natural persons and $25,000 for all other entities.

Material advisors must also maintain lists of investors under Section 6112 and provide such lists to the IRS upon request. These lists must be maintained for seven years following the earlier of the date on which the material advisor last made a tax statement relating to the transaction, or the date the transaction was last entered into. Failure to maintain or provide these lists can result in penalties of $10,000 per day for each day the failure continues after the IRS requests the information.

Tax Treatment and Penalties

Listed transactions are not merely subject to disclosure requirements—they are transactions that the IRS has determined to be abusive tax avoidance schemes. As a result, taxpayers who participate in listed transactions face multiple consequences beyond disclosure obligations.

The IRS will challenge the tax benefits claimed from listed transactions on various grounds, including lack of economic substance, failure to satisfy statutory requirements, or other legal doctrines. Taxpayers may face disallowance of deductions, credits, or other tax benefits claimed from listed transactions, meaning they may be required to pay additional taxes, interest, and penalties on the disallowed amounts.

The penalties for failing to comply with disclosure requirements for listed transactions are among the most severe in the tax code. Taxpayers who fail to file Form 8886 for a listed transaction may be subject to a penalty of up to $200,000 under Section 6707A. Material advisors who fail to file required disclosure statements may be subject to penalties of up to $200,000 under Section 6707(a). Additionally, the IRS may impose accuracy-related penalties under Section 6662 on parties involved in listed transactions. The statute of limitations for assessment may also be extended for listed transactions, giving the IRS more time to challenge the tax benefits claimed.

Categories of Listed Transactions

The IRS has identified numerous listed transactions over the years, covering a wide range of tax avoidance schemes. These transactions can be broadly categorized into several types, including basis-shifting transactions, income deferral schemes, abusive trust arrangements, captive insurance schemes, conservation easement transactions, and various other structured transactions designed to generate inappropriate tax benefits.

Identified Listed Transactions

The following sections describe some of the most significant listed transactions that the IRS has identified. This list is not exhaustive, as the IRS continues to identify new listed transactions through published guidance. Taxpayers and advisors should consult the most current IRS guidance to ensure they are aware of all identified listed transactions.

Notice 2017-10: Syndicated Conservation Easement Transactions

Published: December 23, 2016

Syndicated conservation easement transactions involve partnerships that acquire land and grant conservation easements to qualified charitable organizations, claiming charitable contribution deductions that are significantly inflated compared to the partnership's investment in the land. In these transactions, promoters typically form a partnership, acquire land (often at a relatively low cost), and then obtain an appraisal that values a conservation easement on the land at a much higher amount. The partnership grants the easement to a charity and allocates the inflated charitable deduction to investors, who may claim deductions that are many times their actual investment in the partnership.

The IRS has determined that these transactions are listed transactions because they typically lack economic substance, involve grossly inflated appraisals, and are designed primarily to generate tax deductions rather than to achieve legitimate conservation purposes. The structure allows investors to claim charitable deductions that far exceed their economic investment, creating inappropriate tax benefits.

Full Notice: Notice 2017-10 PDF

Notice 2016-66: Section 831(b) Micro-Captive Insurance Transactions

Published: November 1, 2016

Section 831(b) micro-captive insurance transactions involve arrangements where taxpayers create captive insurance companies and elect to have them taxed under Section 831(b) of the Internal Revenue Code, which allows certain small insurance companies to be taxed only on investment income. In abusive micro-captive structures, closely held businesses pay substantial premiums to related captive insurance companies, claiming deductions for these premiums while the captive excludes the premium income from taxation through the Section 831(b) election.

These transactions are identified as listed transactions when they lack the characteristics of genuine insurance, such as risk distribution and risk shifting, and when the contracts are interpreted, administered, and applied in a manner inconsistent with arm's length transactions and sound business practices. The arrangements are often structured so that the captive pays few claims and the premiums are eventually returned to the business owners through loans or other mechanisms, suggesting the primary purpose is tax avoidance rather than legitimate insurance coverage.

Full Notice: Notice 2016-66 PDF

Notice 2015-73: Basket Option Contracts

Published: September 24, 2015

Basket option contracts involve transactions where taxpayers enter into contracts with financial institutions that are denominated as options but are structured to provide the economic benefits of direct ownership of a basket of assets. These contracts are designed to defer income recognition and convert ordinary income and short-term capital gains into long-term capital gains. The contracts typically reference a basket of securities, commodities, or other assets, and taxpayers actively manage the assets in the basket while claiming that income is not recognized until the option is exercised or expires.

The IRS has identified these transactions as listed transactions because they are structured to achieve tax benefits that would not be available through direct ownership of the underlying assets. The contracts allow taxpayers to defer income recognition and potentially convert the character of income from ordinary or short-term to long-term capital gain, resulting in more favorable tax treatment than would be available through direct investment.

Full Notice: Notice 2015-73 PDF

Notice 2008-34: Distressed Asset Trust (DAT) Transactions

Published: March 10, 2008

Distressed Asset Trust transactions involve taxpayers contributing distressed or non-performing assets to a trust and claiming tax losses or charitable deductions based on the purported decline in value of those assets. The trust structure is designed to allow taxpayers to recognize losses or claim deductions while retaining control over the assets or the ability to benefit from any future recovery in value. These transactions often involve assets such as non-performing loans, distressed real estate, or other assets that have declined in value.

The IRS has identified these transactions as listed transactions because they typically lack economic substance and are designed to generate tax benefits without a corresponding economic loss. Taxpayers may claim losses or deductions that exceed their actual economic loss, or may structure the transaction to allow them to benefit from future appreciation while claiming current tax benefits.

Full Notice: Notice 2008-34 PDF

Notice 2007-83: Abusive Trust Arrangements Utilizing Cash Value Life Insurance

Published: November 1, 2007

This listed transaction involves trust arrangements that utilize cash value life insurance policies to improperly claim tax deductions for contributions to welfare benefit funds or other arrangements. In these transactions, employers or business owners establish trusts that purport to provide welfare benefits to employees, and the trusts use contributions to purchase cash value life insurance policies. The employers claim deductions for contributions to the trust, while the trust structure is designed to provide benefits primarily to the business owners or key employees rather than rank-and-file employees.

The IRS has identified these transactions as listed transactions because they typically fail to qualify for the tax benefits claimed, involve excessive contributions relative to the benefits provided, and are structured to provide tax benefits to business owners while maintaining control over the trust assets. The arrangements often lack the characteristics of legitimate welfare benefit plans and are designed primarily to generate tax deductions rather than provide employee benefits.

Full Notice: Notice 2007-83 PDF

Notice 2007-57: Loss Importation Transactions

Published: July 24, 2007

Loss importation transactions involve schemes where U.S. taxpayers acquire interests in foreign entities that have built-in losses, and then structure transactions to import those losses into the U.S. tax system. These transactions typically involve acquiring stock or other interests in foreign corporations or partnerships that hold assets with built-in losses, and then engaging in transactions that allow the U.S. taxpayer to recognize those losses for U.S. tax purposes without having incurred a corresponding economic loss.

The IRS has identified these transactions as listed transactions because they are designed to generate artificial tax losses that can be used to offset other taxable income. The transactions typically lack economic substance and are structured to exploit differences between U.S. and foreign tax rules to create inappropriate tax benefits.

Full Notice: Notice 2007-57 PDF

Notice 2005-13: Sale-In, Lease-Out (SILO) Transactions

Published: February 11, 2005

Sale-In, Lease-Out transactions involve arrangements where tax-exempt entities, such as municipal transit authorities or other governmental entities, sell assets to taxable corporations and then lease them back. The taxable corporation claims depreciation and interest deductions on the assets, while the tax-exempt entity continues to use them. These transactions are structured to generate tax benefits for the taxable corporation without a substantive change in the use or ownership of the assets.

The IRS has identified these transactions as listed transactions because they typically lack economic substance and are designed primarily to generate tax deductions rather than to achieve legitimate business purposes. The transactions often involve circular cash flows and are structured so that the tax benefits exceed any economic benefits, suggesting the primary purpose is tax avoidance.

Full Notice: Notice 2005-13 PDF

Notice 2004-30: S Corporation ESOP Transactions

Published: April 2, 2004

S Corporation ESOP transactions involve arrangements where S corporations establish Employee Stock Ownership Plans (ESOPs) and structure transactions to shift income to tax-exempt organizations or to improperly defer or avoid taxation. In these transactions, S corporations may allocate stock to ESOPs in a manner that allows income to be allocated to tax-exempt entities, or may structure transactions to defer income recognition inappropriately.

The IRS has identified these transactions as listed transactions because they are designed to exploit the tax-exempt status of ESOPs to achieve inappropriate tax benefits. The transactions typically lack economic substance and are structured to shift income to tax-exempt entities or defer taxation in a manner inconsistent with the intended purpose of ESOP rules.

Full Notice: Notice 2004-30 PDF

Notice 2004-20: Abusive Foreign Tax Credit Transactions

Published: March 5, 2004

Abusive foreign tax credit transactions involve schemes where taxpayers generate foreign tax credits through arrangements that lack economic substance. These transactions typically involve circular cash flows, offsetting positions, or other structures designed to create the appearance of foreign tax payments without corresponding economic activity. Taxpayers use these credits to offset U.S. tax liability, reducing their overall tax burden inappropriately.

The IRS has identified these transactions as listed transactions because they are designed to generate foreign tax credits without genuine foreign tax liability. The transactions typically involve artificial structures that create the appearance of foreign tax payments while the economic substance suggests the primary purpose is tax avoidance rather than legitimate foreign business activity.

Full Notice: Notice 2004-20 PDF

Notice 2004-8: Abusive Roth IRA Transactions

Published: January 16, 2004

Abusive Roth IRA transactions involve arrangements where taxpayers use Roth IRAs to shift taxable income and appreciation into the tax-exempt environment of the IRA inappropriately. These transactions typically involve transferring assets to Roth IRAs at undervalued prices, or using Roth IRAs to invest in closely held businesses or other arrangements that allow income and appreciation to accumulate tax-free in a manner inconsistent with the intended purpose of Roth IRA rules.

The IRS has identified these transactions as listed transactions because they are designed to circumvent contribution limits and tax obligations by shifting income and gains to tax-exempt Roth IRAs. The transactions typically involve undervalued asset transfers or investment structures that allow inappropriate tax-free accumulation of income and appreciation.

Full Notice: Notice 2004-8 PDF

Notice 2003-55: Lease Strips and Other Stripping Transactions

Published: August 5, 2003

Lease strips and other stripping transactions involve arrangements where taxpayers separate income streams from underlying property or assets to achieve inappropriate tax benefits. In lease strip transactions, taxpayers may separate rental income from the underlying property, allocating income to tax-indifferent parties while retaining deductions. These transactions are designed to accelerate deductions or defer income recognition inappropriately.

The IRS has identified these transactions as listed transactions because they are structured to achieve tax benefits through artificial separation of income and deductions. The transactions typically lack economic substance and are designed to exploit differences in tax treatment between different types of income or different taxpayers to achieve inappropriate tax benefits.

Full Notice: Notice 2003-55 PDF

Notice 2002-21: CARDS Transactions

Published: March 18, 2002

CARDS (Custom Adjustable Rate Debt Structure) transactions involve arrangements where taxpayers create artificial basis in partnership interests through complex financing structures. These transactions typically involve partnerships, foreign entities, and financing arrangements designed to inflate the taxpayer's basis in partnership interests, allowing them to claim losses or deductions that exceed their actual economic investment.

The IRS has identified these transactions as listed transactions because they are designed to create artificial tax basis that can be used to generate inappropriate tax benefits. The transactions typically involve circular cash flows and complex structures that create the appearance of investment without corresponding economic substance.

Full Notice: Notice 2002-21 PDF

Notice 2000-44: Son of BOSS Transactions

Published: June 26, 2000

Son of BOSS (Bond and Option Sales Strategy) transactions involve arrangements where taxpayers create artificial losses through offsetting positions in financial instruments. These transactions typically involve entering into offsetting long and short positions in options or other financial instruments, and then disposing of one position while claiming a loss that exceeds the actual economic loss. The transactions are designed to generate artificial tax losses that can be used to offset other taxable income.

The IRS has identified these transactions as listed transactions because they are structured to create artificial tax losses without corresponding economic losses. The transactions typically involve offsetting positions that are designed to create the appearance of a loss for tax purposes while the economic substance suggests no genuine loss has occurred.

Full Notice: Notice 2000-44 PDF

Revenue Ruling 2002-69: LILO Transactions

Published: September 3, 2002

LILO (Lease-In, Lease-Out) transactions involve arrangements similar to SILO transactions, where tax-exempt entities lease assets to taxable corporations and then lease them back. The taxable corporation claims depreciation and interest deductions, while the tax-exempt entity continues to use the assets. These transactions are structured to generate tax benefits for the taxable corporation without substantive changes in asset use or ownership.

The IRS has identified these transactions as listed transactions through Revenue Ruling 2002-69 because they typically lack economic substance and are designed primarily to generate tax deductions. The transactions often involve circular cash flows and are structured so that the tax benefits exceed any economic benefits.

Full Notice: Revenue Ruling 2002-69 PDF

Notice 2003-54: Common Trust Fund Straddles and S Corporation Tax Shelter Transactions

Published: July 3, 2003

This notice identifies two types of listed transactions involving pass-through entities. The first involves common trust fund straddles, where taxpayers use pass-through entities such as partnerships or S corporations to enter into offsetting positions in financial instruments, creating artificial losses for tax purposes. The second involves S corporation tax shelter transactions where S corporations are used to shift income to tax-exempt organizations or to create inappropriate tax benefits through the allocation of income, deductions, or credits.

The IRS has identified these transactions as listed transactions because they are structured to generate artificial tax benefits through the use of pass-through entities. The transactions typically lack economic substance and are designed to exploit the pass-through nature of partnerships and S corporations to achieve inappropriate tax results that would not be available through direct ownership or other structures.

Full Notice: Notice 2003-54 PDF

Notice 2003-22: Offshore Deferred Compensation Arrangements

Published: March 4, 2003

Offshore deferred compensation arrangements involve transactions where U.S. taxpayers establish deferred compensation arrangements with offshore entities to improperly defer or avoid U.S. taxation on compensation income. These transactions typically involve U.S. employers or service providers establishing arrangements with foreign entities that purport to defer compensation, but the arrangements are structured to avoid U.S. tax obligations in a manner inconsistent with U.S. tax rules governing deferred compensation.

The IRS has identified these transactions as listed transactions because they are designed to circumvent U.S. tax rules on deferred compensation through the use of offshore structures. The transactions typically lack economic substance and are structured to defer or avoid U.S. taxation on compensation that should be currently includible in income.

Full Notice: Notice 2003-22 PDF

Notice 2001-16: Intermediary Transactions

Published: January 19, 2001

Intermediary transactions involve arrangements where taxpayers use intermediary entities to facilitate the sale of businesses or assets in a manner that defers or avoids taxation on the gain. In these transactions, a business owner may sell their business to an intermediary entity, which then sells the business to the ultimate buyer. The intermediary structure is designed to avoid recognizing gain on the sale, allowing the original owner to defer or avoid tax on the transaction despite effectively selling the business.

The IRS has identified these transactions as listed transactions because they are structured to defer or avoid taxation on business sales through the use of intermediary entities. The transactions typically lack economic substance and are designed to exploit technical interpretations of tax rules to achieve inappropriate tax deferral or avoidance.

Full Notice: Notice 2001-16 PDF

Additional Listed Transactions

The IRS has identified numerous other listed transactions over the years, including transactions involving basis-shifting through corporate distributions, abusive use of Section 351 transactions, improper use of welfare benefit plans, and various other structured transactions designed to generate inappropriate tax benefits. Some of these include transactions identified in Revenue Ruling 90-105 (accelerated deductions for qualified plan contributions), Notice 95-34 (abusive VEBA arrangements), Notice 99-59 (BOSS transactions involving corporate distributions of encumbered property), and various other notices and revenue rulings.

Taxpayers and advisors should consult the complete list of identified listed transactions on the IRS website at irs.gov/businesses/corporations/listed-transactions and should be aware that the IRS continues to identify new listed transactions through published guidance. The IRS regularly updates its list of identified listed transactions, and taxpayers and advisors have an ongoing obligation to be aware of newly identified transactions.

Important Considerations

Taxpayers who have participated in listed transactions should understand that these transactions have been determined by the IRS to be abusive tax avoidance schemes. The IRS actively audits these transactions and will challenge the tax benefits claimed. The IRS may disallow deductions, credits, or other tax benefits claimed from listed transactions on various grounds, including lack of economic substance, failure to satisfy statutory requirements, or other legal doctrines. Taxpayers who have claimed tax benefits from listed transactions should expect those benefits to be challenged and potentially disallowed, resulting in additional tax liability, interest, and penalties.

Additionally, taxpayers may face substantial penalties for failing to disclose participation in listed transactions, and the statute of limitations for assessment may be extended for listed transactions, giving the IRS more time to examine and challenge these transactions. The combination of potential disallowance of tax benefits, interest on underpaid taxes, and penalties can result in significant financial consequences for taxpayers who have participated in listed transactions.

Material advisors who have promoted or facilitated listed transactions face enhanced disclosure and record-keeping requirements, and may be subject to significant penalties for non-compliance. Advisors should be aware that the IRS actively pursues material advisors who fail to comply with their disclosure and record-keeping obligations.

Conclusion

Listed transactions represent the most serious category of reportable transactions, and participation in these transactions carries significant risks. Taxpayers who have participated in listed transactions should consult with qualified tax professionals to ensure proper disclosure and to understand the potential consequences. Material advisors should ensure they are in compliance with all disclosure and record-keeping requirements. Given the severe penalties and the IRS's active enforcement efforts, it is essential for taxpayers and advisors to understand their obligations with respect to listed transactions.