Wisconsin Requirements to Disclose Reportable Transactions

For taxable years beginning on or after January 1, 2001, whenever a taxpayer or material advisor is required to disclose a "reportable transaction" (including a "listed transaction") for federal income tax purposes, the taxpayer or material advisor must disclose that transaction to Wisconsin. This requirement also applies to transactions which were required to be disclosed to the Internal Revenue Service (IRS) before January 1, 2001 but which affected Wisconsin tax liability for a subsequent taxable year.

These disclosure requirements apply to taxpayers who are required to file Wisconsin income or franchise tax returns and to the material advisors of those taxpayers.

What are "Reportable" and "Listed" Transactions?

Under current law, Wisconsin defines "reportable" and "listed" transactions in the same manner as for federal purposes.

A "reportable transaction" is one described in section 1.6011-4 of the U.S. Treasury Regulations. For federal income tax purposes, reportable transactions are those that must be disclosed on federal Form 8886, Reportable Transaction Disclosure Statement.

A "listed transaction" means the IRS has identified the transaction as a tax avoidance transaction. The IRS has identified listed transactions in several notices and Internal Revenue Bulletins and maintains an updated list of these transactions on its website at www.irs.gov/businesses/corporations, in the section for "Abusive Tax Shelters."

Disclosure Requirements for Taxpayers

If you are, or were, required to file Form 8886 with the IRS (or, for listed transactions that occurred in years before 2003, a similar form prescribed by the IRS) for any taxable year beginning on or after January 1, 2001, you are required to submit a copy to the Wisconsin Department of Revenue. This requirement also applies to transactions which were required to be disclosed to the IRS before January 1, 2001 but which affected Wisconsin tax liability for a subsequent taxable year.

Details of the Wisconsin filing deadlines and procedures for taxpayers follow:

Disclosure Requirements for Material Advisors

A "material advisor" is any person who provides material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction and who, directly or indirectly, derives income (for example, fees) from these services in an amount that exceeds the following amounts:

If a material advisor was required to make a disclosure to the Internal Revenue Service under section 6111 of the Internal Revenue Code regarding a reportable transaction carried out by a taxpayer who is required to file a Wisconsin income or franchise tax return, the material advisor must submit a copy of the disclosure to the Wisconsin Department of Revenue.

This requirement applies to reportable transactions required to be disclosed for federal income tax purposes after October 27, 2007 if they are not listed transactions, and to listed transactions which were required to be disclosed to the IRS on or after January 1, 2001 or before January 1, 2001 if the listed transaction affected the taxpayer's Wisconsin tax liability for a subsequent taxable year.

For federal income tax purposes, the IRS currently requires material advisors to make these disclosures by the last day of the month following the end of the applicable calendar quarter. The form prescribed by the IRS for this disclosure may be Form 8264, Application for Registration of a Tax Shelter, or Form 8918, Material Advisor Disclosure Statement, depending on when the transaction took place. The federal due date may be January 31, April 30, July 31, or October 31.

The due dates for Wisconsin disclosure are shown below:

Material advisors should send their Wisconsin disclosures to: Wisconsin Department of Revenue, Tax Shelters Program, PO Box 8958, Madison, WI 53708-8958.

Material advisors must also maintain lists: A material advisor must also maintain a list identifying each Wisconsin taxpayer for whom the person provided services as a material advisor with respect to a reportable transaction. Upon the Wisconsin Department of Revenue's written request, any material advisor required to maintain this list must provide it within 20 days. A material advisor must retain the information contained in this list for 7 years.

Penalties

If a taxpayer or material advisor does not comply with the reportable transaction disclosure requirements, or used a reportable transaction that constitutes a tax avoidance transaction and did not participate in the Tax Shelters Voluntary Compliance Program, specific penalties enacted by 2007 Act 20 may apply. These penalties and their effective dates are shown in the table below:

NOTE: All penalties listed below, in addition to other civil and/or criminal penalties, are waived for any transaction that is disclosed in the Tax Shelters Voluntary Compliance Program.

Penalty Listed Transactions Other Reportable Transactions
Taxpayer's failure to disclose a reportable transaction
  • $30,000
  • Effective retroactively for taxpayer's tax years beginning on or after 1/1/2001
  • Lesser of $15,000 or 10% of tax benefit obtained
  • Effective for taxpayer's tax years beginning after 10/27/2007
Material advisor's failure to disclose a reportable transaction, or disclosure containing false or incomplete information
  • $100,000
  • Effective retroactively for taxpayer's tax years beginning on or after 1/1/2001
  • $15,000
  • Effective for material advisor services provided after 10/27/2007
Material advisor's failure to provide required list of taxpayers within 20 days upon Department's written request
  • $10,000 for each day the material advisor does not provide the list, beginning with 21st day after receipt of Department's request
  • Effective retroactively for taxpayer's tax years beginning on or after 1/1/2001
  • $10,000 for each day the material advisor does not provide the list, beginning with 21st day after receipt of Department's request
  • Effective for material advisor services provided after 10/27/2007
Understatement of tax resulting from a reportable transaction
  • 20% of understatement if transaction disclosed
  • 30% of understatement if transaction not disclosed
  • Effective retroactively for taxpayer's tax years beginning on or after 1/1/2001
  • 20% of understatement if transaction disclosed
  • 30% of understatement if transaction not disclosed
  • Effective retroactively for taxpayer's tax years beginning on or after 1/1/2001
Understatement of tax resulting from a reportable transaction if not disclosed in Tax Shelters Voluntary Compliance Program
  • 50% of interest assessed on additional tax if taxpayer amends returns after Tax Shelters Voluntary Compliance Program ends
  • 100% of such interest if IRS or Department of Revenue discover the understatement on audit
  • Effective retroactively for taxpayer's tax years beginning on or after 1/1/2001
  • 50% of interest assessed on additional tax if taxpayer amends returns after Tax Shelters Voluntary Compliance Program ends
  • 100% of such interest if IRS or Department of Revenue discover the understatement on audit
  • Effective retroactively for taxpayer's tax years beginning on or after 1/1/2001

For More Information

You can find answers to frequently asked questions using the links below:

Also, you may contact the Department of Revenue as indicated below.

FOR MORE INFORMATION PLEASE CONTACT:

WISCONSIN DEPARTMENT OF REVENUE
Tax Shelters Program
PO Box 8958
Madison, WI 53708-8958
Phone: (608) 266-2772
Fax: (608) 267-0834
Email additional questions to DORFranchise@revenue.wi.gov

March 14, 2008