IRS Issues Final Rules on Exempt Parties to Prohibited Shelters

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IRS issues final rules (T.D. 9492) eliminating part of the proposed definition of a “party to a tax shelter,” so that a tax-exempt entity that enters into a transaction to reduce or eliminate its own tax liability generally will not be considered a party to a prohibited tax shelter under the final rules. However, the final rules on the entity-level and manager-level excise taxes allow regulators to identify specific circumstances where tax-exempt entities will be treated as parties. The regulations eliminate the second part of the proposed definition of a “party to a tax shelter,” so that an exempt entity that enters into a transaction to reduce its own tax liability generally will not be considered a party to a prohibited tax shelter under the final rules.