New Tax Shelter Reporting Requirements and Penalties Enacted by Congress

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), enacted earlier this year, may expose tax-exempt entities and their managers—potentially including outside investment managers—to significant new penalties for engaging in “prohibited tax shelter transactions.” This term is broad and includes some transactions that have not been deemed abusive by the IRS. TIPRA also creates new disclosure and reporting requirements for parties to such transactions.

The legislation is intended to address recent criticism that some taxexempt entities serve as “accommodation parties” in tax shelter transactions. Concerns have been raised that the legislation has numerous ambiguities, and its potential scope is excessively broad.

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