The Internal Revenue Service and the Treasury Department said they would consider a complicated tax maneuver involving controlled foreign corporations a "transaction of interest," but stopped short of identifying it as a "tax avoidance transaction."

Notice 2009-7 describes the transaction as one in which a U.S. taxpayer who owns controlled foreign corporations that hold stock of a lower-tier CFC through a domestic partnership takes the position that Subpart F income of the lower-tier CFC, or an amount determined under Section 956(a) of the Tax Code related to holdings of U.S. property by the lower-tier CFC, does not result in income inclusions under Section 951(a) for the U.S. taxpayer.

The IRS and the Treasury said the transaction "has the potential for tax avoidance or evasion, but [we] lack enough information to determine whether the transaction should be identified specifically as a tax avoidance transaction. "

People who enter into these transactions on or after Nov. 2, 2006, must disclose the transactions. Material advisors also have disclosure and list-maintenance obligations. When the IRS and the Treasury have gathered enough information, they may designate it as a listed transaction, or provide a new category of reportable transactions. In the interim, the IRS may challenge the taxpayer's position under judicial doctrines such as sham transaction, substance over form, and economic substance.

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