Abusive tax schemes - Transactions promoted for the promise of tax benefits with no meaningful change in the taxpayer's control over or benefit from the taxpayer's income or assets. These transactions typically have no economic purpose other than reducing taxes, or may involve the use of multiple layers of domestic and foreign pass-through entities including: partnerships, S corporations, limited liability companies, and trusts.
High net worth individual - Any individual whose net worth is greater than $2 million immediately before the transaction.
Large entity - Any entity with gross receipts greater than $10 million during the year the reportable transaction occurs or in the preceding taxable year.
Listed transaction - A reportable transaction that is the same as, or substantially similar to, a transaction specifically identified by the IRS or FTB as a tax avoidance transaction.
Material Advisor - Any person who:
- Provides any material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction, and
- Receives or expects to receive gross income in excess of the threshold amount for such advice or assistance.
The threshold amount is $50,000 if an individual derives substantially all of the tax benefits. For all other persons, the threshold amount is $250,000.
Noneconomic substance transaction - Means the disallowance of any loss, deduction or credit, or addition to income attributable to a determination that the transaction or arrangement lacks economic substance. A transaction lacks economic substance if the taxpayer cannot demonstrate a valid California business purpose other than tax savings.
Organizer - Any person who discovers, creates, investigates, or initiates the tax shelter investment, devises the business or financial plans for the investment or carries out those plans through negotiations or transactions with others. This also includes, any other person who participates in the organization, sale, or management of the tax shelter.
Potentially abusive tax shelter - Any tax shelter required to be registered under prior federal law or is a reportable transaction under present federal law or state law.
Promoter - Any person who, directly or indirectly, organizes or assists in the organization of a tax shelter or who participates in the sale of any interests in a shelter.
Reportable transaction - Any transaction the IRS or FTB determines as having a potential for tax avoidance or evasion.
Seller - For purposes of the list maintenance requirement, a seller is:
- Any organizer, underwriter, broker, or dealer (or other similar person) who transfers any interest in a tax shelter.
- Any agent who negotiates the transfer of any interest in a tax shelter for the tax shelter, an organizer, or other person described in (1).
- Any investor (not described in (1)) who transfers any interest in a tax shelter, or
- Any other person who receives consideration in connection with another person's right to participate in a tax shelter, for services necessary to the organization or structure of such tax shelter (other than services that do not constitute participation in the organization or management of a tax shelter under Treasury Regulation section 301.6111-1T), or for information that is integral to the participation in such tax shelter.
Tax Benefit - Includes deductions, exclusions from gross income, nonrecognition of gain, tax credits, adjustments (or the absence of adjustments) to the basis of property, status and an entity exempt from Federal or State income taxation, and any other tax consequences that may reduce a taxpayer's Federal or State tax liability by affecting the amount, timing, character, or source of any item of income, gain expense, loss or credit.
Transaction - Includes any series of related steps carried out as part of a prearranged plan.