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PTSTs: A nonplan entity that becomes a party to a PTST is liable for a tax on the greater of (1) its net income (after taking into account any other tax imposed by subtitle A with respect to the transaction) attributable to the PTST for the tax year or (2) 75% of the proceeds received by the entity for the tax year attributable to the PTST; see Sec.
Generally, according to the TIPRA Conference Report, Congress intended that, for an entity or an entity manager (in the case of the manager-level tax) to have reason to know that a transaction is a PTST, the entity or entity manager must have knowledge of sufficient facts that would lead a reasonable person to conclude that the transaction is a PTST; see Conf.
SLTs: If a nonplan entity becomes a party to a transaction that is not a PTST but subsequently becomes a listed transaction, the entity's income and proceeds attributable to the transaction are allocated between the periods before and after the listing; see Sec.
4965(d)(2) defines the entity manager as a person who approves or otherwise causes the entity to be a party to the PTST. The manager-level tax applies to any entity manager who approves the entity as a party (or otherwise causes the entity to be a party) to a PTST and knows or has reason to know that the transaction is a PTST; see Sec.
Moreover, the increased entity-level tax on knows-or-has-reason-to-know transactions does not apply to any PTST to which an exempt entity became a party before May 18, 2006; see Sec.
6033 to require any exempt entity that is a party to a PTST to disclose that fact to the IRS, as well as the identity of any other party to the transaction known to the entity; see Sec.
Providing clarity to this concept is critical, because taxation depends on an exempt entity's becoming or being a party to a PTST or an SLT.
4965 solely by reason of innocent, indirect involvement in a PTST. However, in light of the injection of a reason-to-know standard, there is still much uncertainty for exempt entities and their managers.
An entity manager is anyone who approves or otherwise causes the entity to be a party to the PTST. In the case of qualified retirement plans, this could be the plan sponsor, plan administrator or any other plan fiduciary.
The excise tax on entity managers is $20,000 for each approval or other act causing the entity to be a party to the PTST. This excise tax is in addition to any other applicable tax or penalty.
As noted, the TIPRA also added new disclosure requirements for exempt entities that are parties to PTSTs. In general, every exempt entity that is a party to such a transaction must disclose this fact to the IRS, as well as the identity of any other parties to the transaction known to the exempt entity.
The new excise tax applies to tax years ending after May 17, 2006, for PTSTs entered into before, on or after such date; no excise tax applies to income or proceeds properly allocable to any period ending before Aug.
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