USA Law and Practice Contributed by: Devon M. Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
substance generally requires a transaction to change a taxpayer’s economic position in a meaningful way (other than the effect of federal income tax), where there are non-federal income tax purposes for engag - ing in the transaction. Individual Code provisions, Treasury Regulations, and case law also provide for other anti-abuse doctrines such as “substance-over- form”, “step transaction”, “business purpose” and “sham transaction” doctrines. All of these doctrines generally serve a similar purpose: to look beyond the form of a transaction and disallow otherwise applica - ble tax benefits if the transaction violates the spirit of the law. Additionally, the IRS maintains and publishes a list of transactions that the IRS considers to be abusive (“listed transactions”) and has identified a number of transactions that are subject to additional scrutiny (“reportable transactions”). Many of the arrangements identified as listed transactions include a cross-border aspect. Taxpayers that participate in listed transac - tions or reportable transactions (and material advisers of such taxpayers), must disclose such transactions to the IRS. 5.2 Anti-Avoidance Mechanisms The US tax system primarily relies on voluntary com - pliance by taxpayers to file and pay their taxes. To the extent a US resident does not voluntarily com - ply, monetary and criminal penalties may apply (see 6.1 Tax Penalties and 6.2 Criminal Penalties ). Tax filings (referred to as “information returns”) are also required by taxpayers, employers, business entities and business partners for a variety of transactions. The IRS is the primary agency tasked with enforcing the Code, and it collects and reviews, and may audit, these information returns and other tax returns. To aid the IRS in identifying tax fraud and evasion, there are mandatory reporting requirements for listed trans - actions and reportable transactions (see 5.1 Defini - tion and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes and 5.4 Reporting Obligations and Disclosure Regimes ). Additionally, the IRS also utilises a whistle-blower programme, whereby a person may report information about sus - pected tax fraud, evasion or tax law violation to the IRS. Such person may receive a whistle-blower award of 15–30% of the amount the IRS collects as a result
of the information provided. The IRS also has a vol - untary disclosure programme where taxpayers may contact and co-operate with the IRS to resolve tax matters (including unreported income, as long as it is not derived from illegal activities); such voluntary disclosure and payment of tax owed (generally, plus interest and penalties) may allow a taxpayer to avoid criminal penalties. 5.3 Blacklists and Non-Cooperative Jurisdictions The US does not generally maintain a list of non-coop - erative or high-risk jurisdictions for tax purposes. The Treasury, through its Office of Foreign Assets Control, does administer economic and trade sanctions based on US foreign policy and national security, but these are not generally based on the tax policy of the rel - evant jurisdictions. Companies or residents of certain jurisdictions (eg, China) may be limited in their ability to own entities that receive certain tax credits in the US (eg, certain clean energy tax credits). However, to the extent Section 899 (or similar pro - vision) is enacted, such a list may be kept (see 4.4 Specific Features or Deviations of Pillar Two ). 5.4 Reporting Obligations and Disclosure Regimes The IRS maintains and publishes a list of transactions that it considers to be abusive (ie, listed transactions) and has identified a number of transactions that are subject to additional scrutiny (ie, reportable transac - tions). Taxpayers that participate in a listed transaction or a reportable transaction must disclose such trans - actions to the IRS. Additionally, material advisers (eg, generally persons providing assistance or advice with respect to these transactions), must also report such transactions to the IRS. Failure to make these disclo - sures may result in penalties (eg, up to USD100,000 for individuals and USD200,000 for non-individuals, for failure to disclose listed transactions). 5.5 Role of Tax Authorities and Enforcement Measures The IRS generally has broad powers to gather infor - mation and records related to the taxpayer through information returns, tax returns, subpoenas (of tax - payers and of third parties, including banks) that may
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