rp-04-66.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement;
determination of correct tax liability.
(Also: Part I, §§ 6011, 6112; 1.6011-4, 301.6112-1.)

Rev. Proc. 2004-66

SECTION 1. PURPOSE
This revenue procedure provides that certain losses are not taken into account in
determining whether a transaction is a reportable transaction for purposes of the
disclosure rules under § 1.6011-4(b)(5) of the Income Tax Regulations. However, these
transactions may be reportable transactions for purposes of the disclosure rules under
§ 1.6011-4(b)(2), (b)(3), (b)(4), (b)(6), or (b)(7).

SECTION 2. BACKGROUND

.01 Section 1.6011-4 requires a taxpayer that participates in a reportable
transaction to disclose the transaction in accordance with the procedures provided in
§ 1.6011-4. Under § 1.6011-4(b), there are six categories of reportable transactions.
One category of reportable transaction is a loss transaction. A loss transaction is
defined in § 1.6011-4(b)(5). Generally, a loss transaction is any transaction resulting in
the taxpayer claiming a loss under § 165 of the Internal Revenue Code of (i) at least
$10 million in a single taxable year or $20 million in any combination of taxable years for
corporations or partnerships with only corporations as partners, (ii) at least $2 million in
any single taxable year or $4 million in any combination of taxable years for other
partnerships, individuals, S corporations, and trusts, or (iii) at least $50,000 in any single
taxable year for individuals or trusts if the loss is attributable to a § 988 transaction.

.02 Section 1.6011-4(b)(8)(i) provides that a transaction will not be considered a
reportable transaction, or will be excluded from any individual category of reportable
transaction, if the Commissioner makes a determination by published guidance that the
transaction is not subject to the reporting requirements of § 1.6011-4.

2
SECTION 3. SCOPE

This revenue procedure applies to taxpayers that may be required to disclose
reportable transactions under § 1.6011-4, material advisors that may be required to
disclose reportable transactions under § 6111,
as amended by § 815 of the American
Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418 (October 22, 2004), and
material advisors that may be required to maintain lists under former and new § 6112.

SECTION 4. APPLICATION

.01 In general
. Losses from the sale or exchange of an asset with a qualifying
basis under section 4.02 of this revenue procedure or losses described in section 4.03
of this revenue procedure are not taken into account in determining whether a
transaction is a reportable transaction under § 1.6011-4(b)(5).

.02 Sale or exchange of an asset with a qualifying basis
.
(1) General rule
. A loss under § 165 from the sale or exchange of an asset is
not taken into account in determining whether a transaction is a loss transaction under
§ 1.6011-4(b)(5) if—

(a) the basis of the asset (for purposes of determining the loss) is a
qualifying basis;

(b) the asset is not an interest in a passthrough entity (within the meaning
of § 1260(c)(2), other than regular interests in a REMIC as defined in § 860G(a)(1));

(c) the loss from the sale or exchange of the asset is not treated as
ordinary under § 988;

(d) the asset has not been separated from any portion of the income it
generates; and

(e) the asset is not, and has never been, part of a straddle within the
meaning of § 1092(c), excluding a mixed straddle under § 1.1092(b)-4T.

(2) Qualifying basis
. For purposes of section 4 of this revenue procedure, a
taxpayer=s basis in an asset (less adjustments for any allowable depreciation,
amortization, or casualty loss) is a qualifying basis if—

(a) the basis of the asset is equal to, and is determined solely by reference
to, the amount (including any option premium) paid in cash by the taxpayer for the asset
and for any improvements to the asset;

(b) the basis of the asset is determined under § 358 by reason of it being
received in an exchange to which § 354, 355, or 361 applies, and the taxpayer=s basis

3
in the property exchanged in the transaction was described in this section 4.02(2);

(c) the basis of the asset is determined under § 1014;

(d) the basis of the asset is determined under § 1015, and the donor=s
basis in the asset was described in this section 4.02(2);

(e) the basis of the asset is determined under § 1031(d), the taxpayer=s
basis in the property that was exchanged for the asset in the § 1031 transaction was
described in this section 4.02(2), and any debt instrument issued or assumed by the
taxpayer in connection with the § 1031 transaction is treated as a payment in cash
under section 4.02(4) of this revenue procedure;

(f) the basis of the asset is adjusted under § 961 or § 1.1502-32, and the
taxpayer’s basis in the asset immediately prior to the adjustment was described in this
section 4.02(2); or

(g) the basis of the asset is adjusted under § 1272(d)(2) or § 1278(b)(4),
and the taxpayer’s basis in the asset immediately prior to the adjustment was described
in this section 4.02(2).

(3) Section 83 income
. For purposes of section 4.02(2)(a) of this revenue
procedure, an amount included as compensation income under § 83 by the taxpayer will
be treated as an amount paid in cash by the taxpayer for an asset if the amount is
included in the taxpayer’s basis in the asset.

(4) Debt instruments
. Except as provided below, an amount paid in cash will
not be disregarded for purposes of section 4.02(2) of this revenue procedure merely
because the taxpayer issued a debt instrument to obtain the cash. However, if the
taxpayer has issued a debt instrument to the person (or a related party as described in
§ 267(b) or § 707(b)) who sold or transferred the asset to the taxpayer, assumed a debt
instrument (or took an asset subject to a debt instrument) issued by the person (or a
related party as described in § 267(b) or § 707(b)) who sold or transferred the asset to
the taxpayer, or issued a debt instrument in exchange for improvements to an asset, the
taxpayer will be treated as having paid cash for the asset or the improvement only if the
debt instrument is secured by the asset and all amounts due under the debt instrument
have been paid in cash no later than the time of the sale or exchange of the asset
(except in the case of stock or securities traded on an established securities market, the
settlement date) for which the loss is claimed.

.03 Other losses
. The following losses under § 165 are not taken into account in
determining whether a transaction is a loss transaction under § 1.6011-4(b)(5):

4
(1) A loss from fire, storm, shipwreck, or other casualty, or from theft, as
those terms are defined for purposes of § 165(c)(3);

(2) A loss from a compulsory or involuntary conversion as described in
§ 1231(a)(3)(A)(ii) and 1231(a)(4)(B);

(3) A loss to which § 475(a) or § 1256(a) applies;

(4) A loss arising from any mark-to-market treatment of an item under
§§ 475(f), 1296(a), 1.446-4(e), 1.988-5(a)(6), or 1.1275-6(d)(2), and any loss from a
sale or disposition of an item to which one of the foregoing provisions applied, provided
that the taxpayer computes its loss by using a qualifying basis (as defined in section
4.02(2) of this revenue procedure) or a basis resulting from previously marking the item
to market, or computes its loss by making appropriate adjustments for previously
determined mark-to-market gain or loss;

(5) A loss arising from a hedging transaction described in § 1221(b), if the
taxpayer properly identifies the transaction as a hedging transaction, or from a mixed
straddle account under § 1.1092(b)-4T;

(6) A loss attributable to basis increases under § 860C(d)(1) during the
period of the taxpayer=s ownership;

(7) A loss attributable to the abandonment of depreciable tangible property
that was used by the taxpayer in a trade or business and that has a qualifying basis
under section 4.02(2) of this revenue procedure;

(8) A loss arising from the bulk sale of inventory if the basis of the inventory
is determined under § 263A; or

(9) A loss that is equal to, and is determined solely by reference to, a
payment of cash by the taxpayer (for example, a cash payment by a guarantor that
results in a loss or a cash payment that is treated as a loss from the sale of a capital
asset under § 1234A or § 1234B).

(10) A loss from the sale to a person other than a related party (within the
meaning of § 267(b) or § 707(b)) of property described in § 1221(a)(4) in a factoring
transaction in the ordinary course of business.

(11) A loss arising from the disposition of an asset to the extent that the
taxpayer’s basis in the asset is determined under § 338(b).

SECTION 5. EFFECT ON OTHER DOCUMENTS

5
This document modifies and supersedes Rev. Proc. 2003-24, 2003-11 I.R.B.
599.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective November 16, 2004, the date this revenue
procedure was released to the public. This revenue procedure applies to transactions
that are entered into on or after January 1, 2003.

SECTION 7. DRAFTING INFORMATION

The principal authors of this revenue procedure are Tara P. Volungis and
Charlotte Chyr of the Office of Associate Chief Counsel (Passthroughs & Special
Industries). For further information regarding this revenue procedure contact Ms.
Volungis or Ms. Chyr at (202) 622-3080 (not a toll free call).