The Treasury Department and the Internal Revenue Service have issued notices warning about two kinds of transactions that could arouse their interest: "toggling" grantor trusts and contributions of a successor member interest in a limited liability company.
Both the Treasury Department and the IRS believe both types of transactions have the potential for abuse, but they have not gone so far as to identify them as tax avoidance transactions. The "transactions of interest" rubric is meant to be a kind of middle ground, but the transactions are nevertheless subject to disclosure.
Toggling grantor trust transactions are used by grantors of trusts in an attempt to avoid recognizing a gain or to claim a tax loss greater than any actual economic loss by seeming to terminate but then quickly re-establishing the grantor status of the trust, typically within 30 days.
The transactions involving contributions of a successor member interest are used to claim charitable contributions that could be excessive. They happen when a taxpayer acquires a successor member interest, either directly or indirectly, in real property, transfers the interest to a tax-exempt organization, and then claims a charitable contribution deduction significantly higher than the amount paid for the interest.
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