The Internal Revenue Service has issued a revenue procedure that said certain losses do not need to be taken into account in determining whether a transaction is considered a “reportable transaction.”

One category of reportable transaction is a loss transaction. Generally, a loss transaction is any transaction resulting in the taxpayer claiming a loss under Section 165 of the Tax Code of (i)  at least $10 million in a single taxable year or $20 million in any combination of taxable years for corporations or partnerships with only corporations as partners (looking through any partners that are themselves partnerships), whether or not any losses flow through to one or more partners; (ii) at least $2 million in any single taxable year or $4 million in any combination of taxable years for all other partnerships, individuals, S corporations, and trusts, whether or not any losses flow through to one or more partners, shareholders, or beneficiaries; or (iii) at least $50,000 in any single taxable year for individuals or trusts, whether or not the loss flows through from an S corporation or partnership, if the loss is attributable to a Section 988 transaction.

Section 1.6011-4(b)(8)(i) provides that a transaction will not be considered a reportable transaction, or will be excluded from any individual category of reportable transaction, if the Commissioner makes a determination by published guidance that the transaction is not subject to the reporting requirements.

Revenue Procedure 2013-11 applies to taxpayers that may be required to disclose reportable transactions under Section 1.6011-4, material advisors that may be required to disclose reportable transactions under Section 6111, and material advisors that may be required to maintain lists under Section 6112.

In general, according to the IRS, losses from the sale or exchange of an asset with a qualifying basis under the revenue procedure or losses described in  revenue procedure are not taken into account in determining whether a transaction is a reportable transaction under Section 1.6011-4(b)(5). A loss under Section 165 from the sale or exchange of an asset is not taken into account in determining whether a transaction is a loss transaction under Section 1.6011-4(b)(5) if (a) the basis of the asset (for purposes of determining the loss) is a qualifying basis; (b) the asset is not an interest in a passthrough entity (within the meaning of Section 1260(c)(2), other than regular interests in a REMIC as defined in Section 860G(a)(1)); (c) the loss from the sale or exchange of the asset is not treated as ordinary under Section 988, except in the case of a loss that is recognized by a bank described in Section 581 or Section 582(c)(2)(A)(i) (concerning foreign banks as limited by Section 582(c)(2)(C)); (d) the asset has not been separated from any portion of the income it generates; and (e) the asset is not, and has never been, part of a straddle within the meaning of Section 1092(c), excluding a mixed straddle under Section 1.1092(b)-4T.

For purposes of section 4 of the revenue procedure, a taxpayer's basis in an asset (less adjustments for any allowable depreciation, amortization, or casualty loss) is a qualifying basis if (a) the basis of the asset is equal to, and is determined solely by reference to, the amount (including any option premium) paid in cash by the taxpayer for the asset and for any improvements to the asset; (b) the basis of the asset is determined under Section 358 by reason of it being received in an exchange to which SectionSection 354, 355, or 361 applies, and the taxpayer's basis in the property exchanged in the transaction was described in this section 4.02(2); (c) the basis of the asset is determined under Section 1014; (d) the basis of the asset is determined under Section 1015, and the donor's basis in the asset was described in this section 4.02(2); (e) the basis of the asset is determined under Section 1031(d), the taxpayer's basis in the property that was exchanged for the asset in the Section 1031 transaction was described in this section 4.02(2), and any debt instrument issued or assumed by the taxpayer in connection with the Section 1031 transaction is treated as a payment in cash under section 4.02(4) of this revenue procedure; (f) the basis of the asset is adjusted under Section 961 or Section 1.1502-32, and the taxpayer's basis in the asset immediately prior to the adjustment was described in this section 4.02(2); or (g) the basis of the asset is adjusted under Section 1272(d)(2) or Section 1278(b)(4), and the taxpayer's basis in the asset immediately prior to the adjustment was described in this section 4.02(2).

For purposes of section 4.02(2)(a) of this revenue procedure, an amount included as compensation income under Section 83 by the taxpayer will be treated as an amount paid in cash by the taxpayer for an asset if the amount is included in the taxpayer's basis in the asset.

Except as provided below, an amount paid in cash will not be disregarded for purposes of section 4.02(2) of this revenue procedure merely because the taxpayer issued a debt instrument to obtain the cash. However, if the taxpayer has issued a debt instrument to the person (or a related party as described in Section 267(b) or Section 707(b)) who sold or transferred the asset to the taxpayer, assumed a debt instrument (or took an asset subject to a debt instrument) issued by the person (or a related party as described in Section 267(b) or Section 707(b)) who sold or transferred the asset to the taxpayer, or issued a debt instrument in exchange for improvements to an asset, the taxpayer will be treated as having paid cash for the asset or the improvement only if the debt instrument is secured by the asset and all amounts due under the debt instrument have been paid in cash no later than the time of the sale or exchange of the asset (except in the case of stock or securities traded on an established securities market, the settlement date) for which the loss is claimed.

The following losses under Section 165 are not taken into account in determining whether a transaction is a loss transaction under Section 1.6011-4(b)(5):

(1) A loss from fire, storm, shipwreck, or other casualty, or from theft, as those terms are defined for purposes of Section 165(c)(3);

(2) A loss from a compulsory or involuntary conversion as described in Section 1231(a)(3)(A)(ii) and (a)(4)(B);

(3) A loss to which Section 475(a) or Section 1256(a) applies;

(4) A loss arising from any mark-to-market treatment of an item under SectionSection 475(f), 1296(a), 1.446-4(e), 1.988-5(a)(6), or 1.1275-6(d)(2), and any loss from a sale or disposition of an item to which one of the foregoing provisions applied, provided that the taxpayer computes its loss by using a qualifying basis (as defined in section 4.02(2) of this revenue procedure) or a basis resulting from previously marking the item to market, or computes its loss by making appropriate adjustments for previously determined mark-to-market gain or loss;

(5) A loss arising from a hedging transaction described in Section 1221(b), if the taxpayer properly identifies the transaction as a hedging transaction, or from a mixed straddle account under Section 1.1092(b)-4T;

(6) A loss attributable to basis increases under Section 860C(d)(1) during the period of the taxpayer's ownership;

(7) A loss attributable to the abandonment of depreciable tangible property that was used by the taxpayer in a trade or business and that has a qualifying basis under section 4.02(2) of this revenue procedure;

(8) A loss arising from the bulk sale of inventory if the basis of the inventory is determined under Section 263A;

(9) A loss that is equal to, and is determined solely by reference to, a payment of cash by the taxpayer (for example, a cash payment by a guarantor that results in a loss or a cash payment that is treated as a loss from the sale of a capital asset under Section 1234A or Section 1234B);

(10) A loss from the sale to a person other than a related party (within the meaning of Section 267(b) or Section 707(b)) of property described in Section 1221(a)(4) in a factoring transaction in the ordinary course of business; or

(11) A loss arising from the disposition of an asset to the extent that the taxpayer's basis in the asset is determined under Section 338(b).

The revenue procedure is effective Dec. 6, 2012, the date this revenue procedure was released to the public.