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CONTINGENT FEE PROJECTS: IRS GUIDANCE UNDER NEW TAX SHELTER RULES
November 17, 2004
The recently-enacted "American Jobs Creation Act" (AJCA) has tough new penalties for taxpayers who fail to disclose potentially abusive transactions. A parallel set of penalties apply to tax advisors who assist in such transactions.
Transactions covered by these penalties include "transactions with contractual protection." This covers deals where the tax advisor (or shelter promoter) will refund fees if the promised tax breaks don't materialize. It also covers contingent fee transactions.
The AJCA allows the IRS to waive reporting requirements contingent fee transactions that aren't likely to be abusive. The IRS yesterday used this authority to waive AJCA reporting for three types of contingent fee projects (Rev. Proc. 2004-65):
- Work opportunity credit projects
- Welfare-to-work credit projects
- Indian employment credit projects.
This leaves many popular contingent fee arrangements reportable, including research credit studies and building cost componentization studies (where building costs are analyzed to isolate expenses eligible for shorter depreciation lives).
The IRS issued other tax-shelter guidance under AJCA yesterday. It is summarized in this IRS press release.
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