Distressed Asset Trust (DAT) transactions are now listed transactions

The Asset Protection Society™ (APS™) is here to warn its members and the general public of any transactions and/or scams or schemes that may harm the client, the advisor, and/or their practice and their reputations.  Advisors need to steer clear of becoming involved with IRS-listed transactions, asset protection scams, or other illegal activity; the APS™ is here to help them do so by warning them of plans to stay away from; one of the latest plans, the Distressed Asset Trust transaction.  For an advisor’s involvement in a DAT transaction fines may be imposed of $100,000 (for natural persons) or $200,000 in any other case.

The IRS recently issued Notice 2008-34 to prevent the shifting of a built-in loss from a tax-indifferent party to a U.S. taxpayer that has not incurred the economic loss.  IRS Notice 2008-34 names DAT transactions as a listed transaction warning taxpayers and anyone involved with the transactions that fines may be imposed for their involvement.

In the past, before October 23, 2004, taxpayers used partnerships to improperly engage in the DAT variations listed below.  “The American Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1418) (AJCA), amended §§ 704, 734 and 743 effective after October 22, 2004, for contributions of built-in loss property to a partnership, for basis adjustment rules in the case of a distribution for which there is a substantial basis reduction, and for basis adjustment rules in the case of a transfer of a partnership interest for which there is a substantial built-in loss. The revisions to §§ 704, 734, and 743 generally (1) require that a built-in loss may be taken into account only by the contributing partner and not other partners, and (2) make the basis adjustment rules mandatory in cases with a substantial basis reduction or substantial built-in loss.” See IRS Notice 2008-34, www.irs.gov/irb/2008-12_IRB/ar.12.html

IRS Notice 2008-34 is now warning that using the DAT transaction to circumvent the American Jobs Creation Act is a listed transaction; the APS™ through its founders and members are warning you as an advisor and/or client to stay away from this type of transaction.

Jarrett T. Bostwick, J.D., LL.M., and Gabriel G. Tsui, C.P.A., J.D.