n-08-111.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Intermediary Transaction Tax Shelters

Notice 2008-111

SECTION 1. PURPOSE AND BACKGROUND

This Notice clarifies Notice 2001-16, 2001-1 C.B. 730, and supersedes Notice
2008-20, 2008-6 I.R.B. 406, regarding Intermediary Transaction Tax Shelters. Notice
2001-16 identified the Intermediary Transaction Tax Shelter (hereafter, an “Intermediary
Transaction”) as a listed transaction under § 1.6011-4(b)(2) of the Income Tax
Regulations. For purposes of this Notice, an Intermediary Transaction is defined in
terms of its plan and in terms of more objective components. Under this Notice, a
transaction is treated as an Intermediary Transaction with respect to a particular person
only if that person engages in the transaction pursuant to the Plan (as defined in
sections 2 and 4), the transaction contains the four objective components indicative of
an Intermediary Transaction set forth in section 3, and no safe harbor exception in
section 5 applies to that person. A transaction may be an Intermediary Transaction with
respect to one person and not be an Intermediary Transaction with respect to another
person. This Notice does not affect the legal determination of whether a person's
treatment of the transaction is proper or whether such person is liable, at law or in
equity, as a transferee of property in respect of the unpaid tax obligation described in
section 3.
SECTION 2. DEFINITION OF THE PLAN

An Intermediary Transaction involves a corporation (T) that would have a Federal

income tax obligation with respect to the disposition of assets the sale of which would
result in taxable gain (Built-in Gain Assets) in a transaction that would afford the
acquiror or acquirors (Y) a cost or fair market value basis in the assets. An Intermediary
Transaction is structured to cause the tax obligation for the taxable disposition of the
Built-in Gain Assets to arise, in connection with the disposition by shareholders of T (X)
of all or a controlling interest in T’s stock, under circumstances where the person or
persons primarily liable for any Federal income tax obligation with respect to the
disposition of the Built-in Gain Assets will not pay that tax (hereafter, the Plan). This
plan can be effectuated regardless of the order in which T’s stock or assets are
disposed. A transaction is not an Intermediary Transaction for purposes of this Notice if
there is neither any X nor any Y engaging in the transaction pursuant to the Plan (as
defined in section 4).
SECTION 3. COMPONENTS OF AN INTERMEDIARY TRANSACTION
There are four components of an Intermediary Transaction, and a transaction
must have all four components to be the same as or substantially similar to the listed
transaction described in Notice 2001-16, even if the transaction is engaged in pursuant
to the Plan. The four components are:
1. A corporation (T) directly or indirectly (e.g., through a pass-through entity or a
member of a consolidated group of which T is a member) owns assets the sale of which
would result in taxable gain (T’s Built-in Gain Assets) and, as of the Stock Disposition
Date (as defined in component two), T (or the consolidated group of which T is a
member) has insufficient tax benefits to eliminate or offset such taxable gain (or the tax)
in whole. The tax that would result from such sale is hereinafter referred to as T’s Built-

in Tax. However, for purposes of this component, T will not be considered to have any
Built-in Tax if, on the Stock Disposition Date, such amount is less than five percent of
the value of the T stock disposed of in the Stock Disposition (as defined in component
two). In determining whether T’s (or the consolidated group’s) tax benefits are
insufficient for purposes of the first sentence, the following tax benefits shall be
excluded: (i) any tax benefits attributable to a listed transaction under § 1.6011-4(b)(2),
and (ii) any tax benefits attributable to built-in loss property acquired within 12 months
before any Stock Disposition described in component two, to the extent such built-in
losses exceed built-in gains in property acquired in the same transaction(s). All
references to T in this notice include successors to T.
2. At least 80 percent of the T stock (by vote or value) is disposed of by T’s
shareholder(s) (X), other than in liquidation of T, in one or more related transactions
within a 12 month period (Stock Disposition). The first date on which at least 80 percent
of the T stock (by vote or value) has been disposed of by X in a Stock Disposition is the
Stock Disposition Date.
3. Either within 12 months before, simultaneously, or within 12 months after the
Stock Disposition Date, at least 65 percent (by value) of T’s Built-in Gain Assets are
disposed of (Sold T Assets) to one or more buyers (Y) in one or more transactions in
which gain is recognized with respect to the Sold T Assets. For purposes of this
component, transactions in which T disposes of all or part of its assets to either another
member of the controlled group of corporations (as defined in § 1563) of which T is a
member, or a partnership in which members of such controlled group satisfy the
requirements of §1.368-1(d)(4)(iii)(B), will be disregarded provided there is no plan to

dispose of at least 65 percent (by value) of T’s Built-in Gain Assets to one or more
persons that are not members of such controlled group, or to partnerships not described
herein.
4. At least half of T’s Built-in Tax that would otherwise result from the disposition
of the Sold T Assets is purportedly offset or avoided or not paid.
SECTION 4. ENGAGING IN THE TRANSACTION PURSUANT TO THE PLAN
A transaction that has all four components described in section 3 is only an
Intermediary Transaction with respect to a person that engages in the transaction
pursuant to the Plan. A person engages in the transaction pursuant to the Plan if the
person knows or has reason to know the transaction is structured to effectuate the Plan.
Additionally, any X that is at least a 5% shareholder of T (by vote or value), or any X
that is an officer or director of T, engages in the transaction pursuant to the Plan if any
of the following knows or has reason to know the transaction is structured to effectuate
the Plan: (i) any officer or director of T; (ii) any of T’s advisors engaged by T to advise T
or X with respect to the transaction; or (iii) any advisor of that X engaged by that X to
advise it with respect to the transaction. For purposes of this section, if T has more than
five officers then the term “officer” shall be limited to the chief executive officer of T (or
an individual acting in such capacity) and the four highest compensated officers for the
taxable year (other than the chief executive officer or an individual acting in such
capacity). A person can engage in the transaction pursuant to the Plan even if it does
not understand the mechanics of how the tax liability purportedly might be offset or
avoided, or the specific financial arrangements, or relationships of other parties or of T
after the Stock Disposition.

A person will not be treated as engaging in the transaction pursuant to the Plan
merely because it has been offered attractive pricing terms by the opposite party to a
transaction.
Thus, a transaction may be an Intermediary Transaction with respect to X but not
Y, or with respect to Y but not X, in situations where one party engages in the
transaction pursuant to the Plan and the other does not. A transaction may also be an
Intermediary Transaction with respect to some but not all Xs and/or some but not all Ys,
depending on whether they engage in the transaction pursuant to the Plan. A
transaction will not be an Intermediary Transaction with respect to any person that does
not engage in the transaction pursuant to the Plan regardless of the amounts reported
on any return.
SECTION 5. SAFE HARBOR EXCEPTIONS FOR CERTAIN PERSONS;
PARTICIPATION GENERALLY
01. Safe Harbor Exceptions for Certain Persons
A transaction is not an Intermediary Transaction with respect to the following
persons under the following circumstances:
• Any X, if the only T stock it disposes of is traded on an established securities
market (within the meaning of § 1.453-3(d)(4)) and prior to the disposition X
(including related persons described in section 267(b) or 707(b)) did not hold five
percent (or more) by vote or value of any class of T stock disposed of by X.
• Any X, T, or M, if, after the acquisition of the T stock, the acquiror of the T stock
is the issuer of stock or securities that are publicly traded on an established
securities market in the United States, or is consolidated for financial reporting

purposes with such an issuer.
• Any Y, if the only Sold T Assets it acquires are either (i) securities (as defined in
section 475(c)(2)) that are traded on an established securities market (within the
meaning of § 1.453-3(d)(4)) and represent a less-than-five-percent interest in that
class of security, or (ii) assets that are not securities and do not include a trade or
business as described in § 1.1060-1(b)(2).
02. Participation
If one of the foregoing safe harbor exceptions does not apply to a person, that
person engaged in a transaction pursuant to the Plan, and the transaction has all four
components described in section 3, the determination of whether the person
participated in an Intermediary Transaction for purposes of § 1.6011-4 in any given
taxable year is made under the general rule in § 1.6011-4(c)(3)(i)(A).
SECTION 6. EFFECTIVE DATE; DISCLOSURE, LIST MAINTENANCE, AND
REGISTRATION REQUIREMENTS; PENALTIES; OTHER CONSIDERATIONS
Transactions that are the same as, or substantially similar to, the transaction
described in Notice 2001-16 were identified as “listed transactions” under § 1.6011-
4(b)(2) effective January 19, 2001. Accordingly, this Notice is generally effective
January 19, 2001. However, this Notice imposes no requirements with respect to any
obligation under § 6011, § 6111, or § 6112 due before December 1, 2008, not otherwise
imposed by Notice 2001-16. Because this Notice supersedes Notice 2008-20, any
disclosure filed pursuant to Notice 2008-20 will be treated as made pursuant to Notice
2001-16. Independent of their classification as listed transactions, transactions that are
the same as, or substantially similar to, the transaction described in Notice 2001-16 may

already be subject to the requirements of § 6011, § 6111, or § 6112, or the regulations
thereunder.
Persons required to disclose these transactions under § 1.6011-4 and who fail to
do so may be subject to the penalty under § 6707A. Persons required to disclose or
register these transactions under § 6111 who have failed to do so may be subject to the
penalty under § 6707(a). Persons required to maintain lists of investors under § 6112
who fail to provide such lists when requested by the Service may be subject to the
penalty under § 6708(a). A person that is a tax-exempt entity within the meaning of
§ 4965(c), or an entity manager within the meaning of § 4965(d), may be subject to
excise tax, disclosure, filing or payment obligations under § 4965, § 6033(a)(2), § 6011,
and § 6071. Some taxable parties may be subject to disclosure obligations under
§ 6011(g) that apply to “prohibited tax shelter transactions” as defined by § 4965(e)
(including listed transactions).
In addition, the Service may impose other penalties on persons involved in this
transaction or substantially similar transactions (including an accuracy-related penalty
under § 6662 or 6662A) and, as applicable, on persons who participate in the promotion
or reporting of this transaction or substantially similar transactions (including the return
preparer penalty under § 6694, the promoter penalty under § 6700, and the aiding and
abetting penalty under § 6701).
Further, under § 6501(c)(10), the period of limitations on assessment may be
extended beyond the general three-year period of limitations for persons required to
disclose transactions under § 1.6011-4 who fail to do so. See Rev. Proc. 2005-26,
2005-1 C.B. 965.

The Service and the Treasury Department recognize that some taxpayers may
have filed tax returns taking the position that they were entitled to the purported tax
benefits of the types of transactions described in Notice 2001-16. These taxpayers
should consult with a tax advisor to ensure that their transactions are disclosed properly
and to take appropriate corrective action.
SECTION 7. EFFECT ON OTHER DOCUMENTS
Notice 2001-16 is clarified. Notice 2008-20 is superseded.
SECTION 8. REQUEST FOR COMMENTS
The Service and the Treasury Department seek comments regarding the above
definitions, components, and safe harbors for the purpose of reflecting more accurately
which transactions are the same as or substantially similar to an Intermediary
Transaction and which parties are engaging in a transaction pursuant to the Plan.
Comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR
(Notice 2008-111), Room 5203, PO Box 7604, Ben Franklin Station, Washington, DC
20044. Alternatively, comments may be hand delivered Monday through Friday
between the hours of 8:00 a.m. and 4:00 p.m. to: CC:PA:LPD:PR (Notice 2008-XX),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington,
DC. Comments may also be submitted electronically, via the following email address:
Notice.Comments@irscounsel.treas.gov
. Please include “Notice 2008-111” in the
subject line of any electronic submissions. All comments received will be open to public
inspection and copying.
DRAFTING INFORMATION
The principal author of this notice is Douglas C. Bates of the Office of Associate

Chief Counsel (Corporate). For further information regarding this notice contact Mr.
Bates on (202) 622-7550 (not a toll free call).