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S.B. 139

             1     

REPORTABLE TRANSACTIONS ACT

             2     
2006 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Howard A. Stephenson

             5     
House Sponsor: Wayne A. Harper

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill amends the Revenue and Taxation title to create the Reportable Transactions
             10      Act.
             11      Highlighted Provisions:
             12          This bill:
             13          .    creates a part known as the "Reportable Transactions Act";
             14          .    provides definitions;
             15          .    requires a taxpayer to disclose a reportable transaction and provides procedures and
             16      requirements for making such a disclosure;
             17          .    requires a material advisor to disclose a reportable transaction and provides
             18      procedures and requirements for making such a disclosure;
             19          .    requires a material advisor to maintain a list containing certain information relating
             20      to a reportable transaction and provides procedures and requirements for
             21      maintaining the list;
             22          .    provides penalties;
             23          .    provides that the State Tax Commission may waive, reduce, or compromise a
             24      penalty for reasonable cause; and
             25          .    grants rulemaking authority to the State Tax Commission.
             26      Monies Appropriated in this Bill:
             27          None


             28      Other Special Clauses:
             29          This bill takes effect for taxable years beginning on or after January 1, 2007.
             30      Utah Code Sections Affected:
             31      ENACTS:
             32          59-1-1301, Utah Code Annotated 1953
             33          59-1-1302, Utah Code Annotated 1953
             34          59-1-1303, Utah Code Annotated 1953
             35          59-1-1304, Utah Code Annotated 1953
             36          59-1-1305, Utah Code Annotated 1953
             37          59-1-1306, Utah Code Annotated 1953
             38          59-1-1307, Utah Code Annotated 1953
             39          59-1-1308, Utah Code Annotated 1953
             40          59-1-1309, Utah Code Annotated 1953
             41     
             42      Be it enacted by the Legislature of the state of Utah:
             43          Section 1. Section 59-1-1301 is enacted to read:
             44     
Part 13. Reportable Transactions Act

             45          59-1-1301. Title.
             46          This part is known as the "Reportable Transactions Act."
             47          Section 2. Section 59-1-1302 is enacted to read:
             48          59-1-1302. Definitions.
             49          (1) "Gross income" is as defined in Section 61, Internal Revenue Code.
             50          (2) "Income tax" means a tax imposed under:
             51          (a) Chapter 7, Corporate Franchise and Income Taxes; or
             52          (b) Chapter 10, Individual Income Tax Act.
             53          (3) "Income tax return" means a return filed under:
             54          (a) Chapter 7, Corporate Franchise and Income Taxes; or
             55          (b) Chapter 10, Individual Income Tax Act.
             56          (4) "Listed transaction" means a reportable transaction that is the same as, or
             57      substantially similar to, a transaction or arrangement specifically identified as a listed
             58      transaction by the:


             59          (a) United States Secretary of the Treasury in written materials interpreting the
             60      requirements of Section 6011, Internal Revenue Code; or
             61          (b) commission by rule made in accordance with Title 63, Chapter 46a, Utah
             62      Administrative Rulemaking Act.
             63          (5) "Material advisor" is as defined in Section 6111, Internal Revenue Code.
             64          (6) "Noneconomic substance transaction" means a transaction or arrangement:
             65          (a) that lacks economic substance, as defined by state or federal law; or
             66          (b) in which an entity is disregarded because the entity lacks a valid nontax state
             67      business purpose.
             68          (7) "Reportable transaction" means a transaction or arrangement that:
             69          (a) is carried out through or invested in by one or more entities that:
             70          (i) are organized in this state;
             71          (ii) do business in this state;
             72          (iii) derive gross income from sources within this state;
             73          (iv) are subject to income tax; or
             74          (v) are otherwise subject to the jurisdiction of this state; and
             75          (b) is:
             76          (i) a noneconomic substance transaction;
             77          (ii) a transaction or arrangement described in 26 C.F.R. Sec. 1.6011-4(b)(2) through
             78      (7); or
             79          (iii) a reportable transaction as described by the commission by rule made in
             80      accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act.
             81          (8) "Taxpayer" means a person that is required to file an income tax return.
             82          (9) "Unitary group" is as defined in Section 59-7-101 .
             83          Section 3. Section 59-1-1303 is enacted to read:
             84          59-1-1303. Taxpayer disclosure of reportable transactions.
             85          (1) A taxpayer is subject to this section for each taxable year in which:
             86          (a) the taxpayer participates in a reportable transaction;
             87          (b) the taxpayer:
             88          (i) is included in a federal consolidated return under Sections 1501 and 1504(b),
             89      Internal Revenue Code; and


             90          (ii) participates in a reportable transaction; or
             91          (c) the taxpayer is a member of a group that:
             92          (i) is a unitary group; and
             93          (ii) participates in a reportable transaction.
             94          (2) (a) A taxpayer described in Subsection (1) shall disclose a reportable transaction to
             95      the commission in a manner required by the commission by rule made in accordance with Title
             96      63, Chapter 46a, Utah Administrative Rulemaking Act.
             97          (b) If a taxpayer described in Subsection (1) is required to file a disclosure statement
             98      under 26 C.F.R. Sec. 1.6011-4, the taxpayer shall provide the commission a copy of that
             99      disclosure statement in a manner required by the commission by rule made in accordance with
             100      Title 63, Chapter 46a, Utah Administrative Rulemaking Act.
             101          (3) Except as provided in Subsection (4), a taxpayer shall disclose a reportable
             102      transaction to the commission in the manner required by the commission by rule in accordance
             103      with Title 63, Chapter 46a, Utah Administrative Rulemaking Act.
             104          (4) (a) For a listed transaction entered into on or after January 1, 2004, but on or before
             105      December 31, 2006, a disclosure statement required by this section shall be attached to:
             106          (i) (A) the taxpayer's income tax return for the taxable year beginning on or after
             107      January 1, 2007 but beginning on or before December 31, 2007; and
             108          (B) any amended income tax return that the taxpayer files for the taxable year
             109      beginning on or after January 1, 2007 but beginning on or before December 31, 2007; and
             110          (ii) subject to Subsection (4)(b):
             111          (A) the taxpayer's income tax return for any taxable year after the taxable year
             112      beginning on or after January 1, 2007 but beginning on or before December 31, 2007, for
             113      which there is a reduction in income tax as a result of the listed transaction; and
             114          (B) any amended income tax return for any taxable year after the taxable year
             115      beginning on or after January 1, 2007 but beginning on or before December 31, 2007, for
             116      which there is a reduction in income tax as a result of the listed transaction.
             117          (b) For purposes of Subsection (4)(a)(ii), a reduction in income tax as a result of a
             118      listed transaction includes a loss, credit, or deduction if the loss, credit, or deduction results
             119      from a listed transaction that is carried forward or carried back.
             120          (5) For a reportable transaction entered into on or after January 1, 2004, a disclosure


             121      statement required by this section shall be attached to an amended income tax return filed on or
             122      after January 1, 2007, if the filing of the amended income tax return reflects a determination by
             123      the Internal Revenue Service of the federal income tax treatment of the reportable transaction.
             124          (6) (a) For a reportable transaction entered into on or after January 1, 2007, a disclosure
             125      statement required by this section shall be attached to:
             126          (i) (A) the taxpayer's income tax return for the taxable year during which the
             127      transaction was entered into; and
             128          (B) any amended income tax return that the taxpayer files for the taxable year during
             129      which the transaction was entered into; and
             130          (ii) subject to Subsection (6)(b):
             131          (A) the taxpayer's income tax return for any taxable year after the taxable year during
             132      which the transaction was entered into, for which there is a reduction in income tax as a result
             133      of the reportable transaction; and
             134          (B) any amended income tax return for any taxable year after the taxable year during
             135      which the transaction was entered into, for which there is a reduction in income tax as a result
             136      of the reportable transaction.
             137          (b) For purposes of Subsection (6)(a)(ii), a reduction in income tax as a result of a
             138      reportable transaction includes a loss, credit, or deduction if the loss, credit, or deduction
             139      results from a reportable transaction that is carried forward or carried back.
             140          Section 4. Section 59-1-1304 is enacted to read:
             141          59-1-1304. Penalty for taxpayer failure to disclose a reportable transaction.
             142          (1) (a) Except as provided in Subsection (1)(b), a taxpayer that fails to disclose a
             143      reportable transaction as required by Section 59-1-1303 is subject to a penalty of $15,000.
             144          (b) A taxpayer that fails to disclose a listed transaction as required by Section
             145      59-1-1303 is subject to a penalty of $30,000.
             146          (2) A penalty imposed by this section is in addition to any other penalty imposed by
             147      this title.
             148          Section 5. Section 59-1-1305 is enacted to read:
             149          59-1-1305. Penalty for taxpayer underpayment of tax attributable to a reportable
             150      transaction.
             151          (1) If the underpayment of a tax by a taxpayer is attributable to a reportable transaction,


             152      the taxpayer is subject to a penalty that is equal to the product of:
             153          (a) 10%; and
             154          (b) the amount of the tax underpayment attributable to the reportable transaction.
             155          (2) If a taxpayer amends an income tax return to change the tax treatment of a
             156      reportable transaction after the day on which the commission contacts the taxpayer regarding
             157      the examination of the income tax return, that change in the tax treatment of the reportable
             158      transaction contained in the amended income tax return may not be considered in determining a
             159      tax underpayment under this section.
             160          (3) A penalty imposed by this section is in addition to any other penalty imposed by
             161      this title.
             162          Section 6. Section 59-1-1306 is enacted to read:
             163          59-1-1306. Material advisor disclosure of reportable transactions.
             164          (1) (a) A material advisor shall disclose a reportable transaction to the commission on a
             165      form provided by the commission.
             166          (b) The disclosure described in Subsection (1)(a):
             167          (i) shall include information:
             168          (A) identifying and describing the transaction; and
             169          (B) describing any potential tax benefits expected to result from the transaction; and
             170          (ii) may include information other than the information described in Subsection
             171      (1)(b)(i) as required by the commission.
             172          (2) If a material advisor described in Subsection (1) is required to file a return
             173      disclosing a reportable transaction under Section 6111, Internal Revenue Code, the material
             174      advisor shall provide the commission a copy of that return.
             175          (3) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
             176      commission shall make rules prescribing:
             177          (a) the date a:
             178          (i) disclosure required by Subsection (1) shall be filed with the commission; and
             179          (ii) copy of a return required by Subsection (2) shall be filed with the commission;
             180          (b) that only one person may be required to meet the requirements of Subsection (1) or
             181      (2) if two or more persons would otherwise be required to meet the requirements of Subsection
             182      (1) or (2); and


             183          (c) exemptions from Subsection (1) or (2).
             184          Section 7. Section 59-1-1307 is enacted to read:
             185          59-1-1307. Material advisor maintenance of list.
             186          (1) For each reportable transaction, a material advisor shall maintain a list of the
             187      persons to which the material advisor provides material aid, assistance, or advice with respect
             188      to organizing, managing, promoting, selling, implementing, insuring, or carrying out a
             189      reportable transaction.
             190          (2) The list described in Subsection (1) shall include:
             191          (a) the name of each person described in Subsection (1) that is:
             192          (i) a taxpayer;
             193          (ii) (A) a taxpayer; and
             194          (B) a member of a unitary group; or
             195          (iii) (A) a taxpayer; and
             196          (B) included in a federal consolidated return under Sections 1501 and 1504(b), Internal
             197      Revenue Code;
             198          (b) the same information required to be contained in the list described in 26 C.F.R.
             199      Sec. 301.6112-1; and
             200          (c) any additional information required by the commission by rule made in accordance
             201      with Title 63, Chapter 46a, Utah Administrative Rulemaking Act.
             202          (3) The list described in Subsection (1) shall be maintained in the same form and
             203      manner as the list described in 26 C.F.R. Sec. 301.6112-1.
             204          (4) A material advisor required to maintain a list under Subsection (1) shall:
             205          (a) make the list available to the commission upon written request by the commission;
             206      and
             207          (b) retain the information that is required to be included on the list for seven years.
             208          (5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
             209      commission shall make rules prescribing that only one person may be required to meet the
             210      requirements of this section if two or more persons would otherwise be required to meet the
             211      requirements of this section.
             212          Section 8. Section 59-1-1308 is enacted to read:
             213          59-1-1308. Material advisor penalties.


             214          (1) The penalty for failure of a material advisor to disclose a reportable transaction as
             215      required by Section 59-1-1306 is $20,000.
             216          (2) If a material advisor that is required to disclose a reportable transaction in
             217      accordance with Section 59-1-1306 provides false or incomplete information to the
             218      commission, the penalty is $20,000.
             219          (3) If a material advisor that is required to maintain a list under Section 59-1-1307 fails
             220      to make that list available to the commission within a 20-day period after the day on which the
             221      commission mails a written request for that list, the material advisor is subject to a penalty of
             222      $10,000 for each day that the material advisor fails to make that list available to the
             223      commission after the expiration of the 20-day period.
             224          (4) A penalty imposed by this section is in addition to any other penalty imposed by
             225      this title.
             226          Section 9. Section 59-1-1309 is enacted to read:
             227          59-1-1309. Penalty may be waived, reduced, or compromised for reasonable
             228      cause.
             229          Upon making a record of its actions, and upon reasonable cause shown, the commission
             230      may waive, reduce, or compromise a penalty imposed by this part.
             231          Section 10. Effective date.
             232          This bill takes effect for taxable years beginning on or after January 1, 2007.




Legislative Review Note
    as of 1-12-06 5:24 PM


Based on a limited legal review, this legislation has not been determined to have a high
probability of being held unconstitutional.

Office of Legislative Research and General Counsel


Interim Committee Note
    as of 01-13-06 10:16 AM


The Revenue and Taxation Interim Committee recommended this bill.


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