Video: Listed Transactions and Reportable Transactions

In this lesson, Nick Palazzolo, CPA, breaks down the complexities of listed and reportable transactions, particularly focusing on their significance in the realm of tax compliance. He skillfully demystifies listed transactions, explaining that they're specifically identified by the IRS as potential tax avoidance schemes and delves into the intricacies of why these transactions attract close scrutiny. Nick provides concrete examples, such as the 'son of a boss' transaction, to illuminate how they operate and the ramifications for professionals involved. Shifting gears, he also clarifies the concept of reportable transactions, outlining their characteristics and why they may be red flags for the IRS that demand extra attention. Throughout the lesson, Nick highlights the critical role that understanding these transactions plays in ensuring adherence to tax laws and combating tax evasion strategies.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Next up on our agenda we've got these items called listed transactions and reportable transactions. What are they? They're just two types of transactions that you need to know that the IRS has designated under these categories. First we're going to talk about listed transactions. Now these are going to be specific shelters or tax avoidance schemes, so you can see why that the IRS wants to list them out that were identified by the U.S. Treasury Department and the IRS as potentially abusive. The IRS maintains a list of such transactions in various notices and other guidance issued over time. This is to kind of create a permanent file of things to look out for as IRS agents are going to go around and look into individuals tax situations. These transactions often involve complex structures or arrangements that have the primary purpose of generating tax benefits such as deductions, credits, or losses that are not supported by the economic substance of the transaction. So yeah, tax shelters, tax avoidance schemes, you got multiple shell companies and you're trying to get that money through the shell companies without having to pay tax on that. That is going to be tax avoidance. What is an example here? And not that you really need to know examples, these are just here to illustrate for you. There's a transaction called a son of a boss transaction. It's a well-known listed transaction and a form of a tax shelter from the IRS's list. In this arrangement, a taxpayer contributes a highly leveraged asset, meaning there's a lot of debt on the assets. You borrow $10 million to buy a $10 million house. So yeah, it's $1 of debt for every dollar of the value of the house, which results in overstating the taxpayer's basis

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