DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
For Immediate Release
Contact: Tara Bradshaw
November 19, 2003
TREASURY AND IRS SHUT DOWN ABUSIVE TAX AVOIDANCE TRANSACTION
INVOLVING CONTESTED LIABILITY TRUSTS
Today the Treasury Department and the Internal Revenue Service issued guidance to prevent the
use of trusts to accelerate deductions for liabilities that a taxpayer is contesting. The use of a trust
to accelerate improperly deductions under section 461(f) is now a “listed transaction”. A
taxpayer using a trust for this purpose will have to disclose it to the IRS and an advisor
promoting its use will be required to keep a list of taxpayers.
“The notice and regulations are part of our continuing efforts to identify and shut down abusive
tax avoidance transactions,” stated Treasury assistant Secretary for Tax Policy Pam Olson.
“Once again, we have put taxpayers on notice. A taxpayer that uses improperly a trust to
accelerate a deduction for a contested liability will have to disclose that to the IRS.”
Taxpayers have transferred their own stock or the stock or note of a related party to contested
liability trusts to satisfy the requirements of section 461(f). The temporary regulations provide
that such a transfer does not satisfy the requirements of section 461(f). In addition, the
temporary regulations clarify that a taxpayer's transfer of money or other property to a trust,
escrow account, or court to provide for the satisfaction of a contested workers compensation,
tort, or other payment liability generally does not satisfy the economic performance requirement
of the Code. Rather, economic performance occurs when payment is made to the claimant.
Notice 2003-77 also denotes as listed transactions certain transfers to contested liabilities trusts,
including transfers in which the transferor has retained control over the trust assets.