The Internal Revenue Service and the Treasury Department recently released final regulations on the disclosure of reportable transactions (i.e., potentially tax avoidance transactions), and included the new “transaction of interest” category as one of the reportable transactions subject to disclosure.
In a quick follow-up, the Service named its first two “transactions of interest”: (1) “toggling” grantor trusts; and (2) transactions involving contributions of a successor member interest in a limited liability company (LLC).
Grantors use “toggling” grantor trust transactions to attempt to avoid recognizing gain, or to claim a tax loss greater than any actual economic loss, by purportedly terminating and then reestablishing the grantor status of the trust. Such transactions usually occur within a short period of time (e.g., within 30 days).
Taxpayers use transactions involving contributions of a successor member interest to claim charitable contributions that may be excessive. These transactions typically arise when a taxpayer: (1) Acquires a successor member interest (directly or indirectly) in real property; (2) transfers the interest to a tax-exempt organization; and (3) claims a charitable contribution deduction that is significantly higher than the amount that the taxpayer paid for the interest.