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December 31, 2003
TO: ADVISER DISTRIBUTOR TAX ISSUES TASK FORCE No. 20-03
TAX MEMBERS No. 69-03
RE: FINAL REGULATIONS ON DISCLOSURE OF CONFIDENTIAL TRANSACTIONS
We are pleased to inform you that final regulations1 have been issued that clarify the
scope of a taxpayer’s obligation to disclose tax shelter transactions pursuant to the “confidential
transaction” trigger of Treas. Reg. section 1.6011-4(b)(3). The new final regulations generally
adopt suggestions made by the Institute, following the release in March 2003 of final tax shelter
regulations,2 to narrow the scope of the confidential transaction trigger by exempting non-
abusive transactions.3 While these new final regulations generally are effective December 29,
2003, they may be relied upon for transactions entered into on or after January 1, 2003.
Under the new final regulations, a confidential transaction is one offered to a taxpayer
under “conditions of confidentiality” and for which the taxpayer has paid an advisor a
minimum fee (either $250,000 or $50,000, depending on the taxpayer). The regulations further
provide that a transaction is offered under conditions of confidentiality if the advisor “places a
limitation on disclosure by the taxpayer of the tax treatment or tax structure of the transaction
and the limitation on disclosure protects the confidentiality of that advisor’s tax strategies.”
1 Please go to http://www.treas.gov/press/releases/reports/td9108(confidentiality).pdf to see the final confidential
transaction regulations.
2 The March 2003 regulations, likewise adopting Institute suggestions, provide several reporting exceptions for
regulated investment companies (“RICs”) -- including an exception from the confidential transaction trigger. See
Institute Memorandum to Accounting/Treasurers Committee No. 55-02, Advisor Distributor Tax Issues Task Force
No. 4-02, Tax Members No. 56-02 and Unit Investment Trust Members No. 41-02 (No. 15499), dated December 31,
2002 and Institute Memorandum to 529 Plan Advisory Committee No. 4-03 (No. 15568), dated January 23, 2003 for a
discussion of the comments we submitted in response to the temporary and proposed regulations. See Institute
Memorandum to 529 Plan Advisory Committee No. 14-03, Accounting/Treasurers Members No. 13-03, Advisor
Distributor Tax Issues Task Force No. 5-03, Tax Members No. 15-03 and Unit Investment Trust Members No. 9-03
(No. 15707), dated March 7, 2003 for a discussion of the final regulations.
3 See Institute Memorandum to 529 Plan Advisory Committee No. 42-03, Accounting/Treasurers Committee No. 33-
03, Advisor Distributor Tax Issues Task Force No. 13-03, Tax Members No. 41-03 and Unit Investment Trust Members
No. 27-03 (No. 16386), dated August 1, 2003. Examples of these non-abusive transactions, cited in the Institute’s
submission, that might be within the March regulations include employment agreements, covenants not to compete,
litigation settlements and agreements intended to protect legitimate proprietary business information that does not
relate to the tax benefits of a transaction.
Lisa Robinson
Assistant Counsel