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IRS Designates Distressed Asset Trusts as 'Listed Transactions'


The IRS has just published a Notice designating Distressed Asset Trust (DAT) transactions as "listed transactions" under the Federal income tax laws. The IRS only lists transactions that it considers to be abusive tax shelters.

In a DAT transaction, a tax-indifferent (e.g., foreign) party places distressed assets in a trust. The assets have a fair market value lower than their basis. A U.S. party contributes cash to the trust in an amount equal to the fair market value of the assets and becomes a trust beneficiary. Through the creation of sub-trusts, the structure attempts to shift the loss inherent in the assets from the tax-indifferent party to the U.S. party. The IRS says it will challenge the attempt to shift the loss using several legal theories.

This type of structure was formerly undertaken through partnerships. Amendments to the Internal Revenue Code, effective after October 22, 2004, prevent the use of partnerships for this purpose. The new notice on DAT transactions is retroactively effective to transactions entered into after October 22, 2004.

Persons engaging in a listed transaction, or one substantially similar, are subject to special disclosure requirements. In addition, tax-exempt entities participating in such transactions may be subject to an excise tax.

To view the IRS notice, go to

This message is not intended to constitute tax advice. Accordingly, this message was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed on such taxpayer by the Internal Revenue Service.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Harold J. Heltzer
Partner – Washington, D.C.
Phone: +1 202.624.2565