The Internal Revenue Service said it would add distressed-asset trust transactions to its list of tax avoidance transactions, signaling that such transactions need to be disclosed and may be subject to penalties.

DAT transactions occur, said the IRS, when a "tax-indifferent party" directly or indirectly contributes one or more distressed assets, such as a creditor's interest in debt, with a high basis and low fair market value to a trust or series of trusts and sub-trusts, and a U.S. taxpayer then acquires an interest in the trust or sub-trusts for the purpose of shifting a built-in loss from the tax-indifferent party to the U.S. taxpayer that has not incurred the economic loss.

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