Statement of Basis and Purpose

Colorado Department of Revenue

Regulation 39-22-653

1 CCR 201-2

Basis

This regulation is promulgated pursuant to §39-21-112 and §39-22-653, C.R.S.

Purpose

Content of Disclosure of Federal Transactions.

Section 39-22-653, C.R.S. allows a taxpayer, at the taxpayer’s option, to file with the department either IRS form 8886 or a disclosure statement authorized by the department for a Federal Transaction. The department has elected at the present time not to create an alternative to the IRS form 8886 disclosure statement.

A taxpayer must file with the department a complete copy of the IRS form 8886, and any amendments, that the taxpayer filed, or should have filed, with the Internal Revenue Service, regardless of whether the taxpayer actually filed such form with the Internal Revenue Service. This requirement makes clear that the taxpayer has an independent disclosure obligation to file with the department.

The time for filing the disclosure statement is set forth in statute, including for transactions for which the statute of limitations for assessment are still open. This means that a taxpayer who filed an income tax return on April 15, 2005, for tax year 2004 is not required to file a disclosure statement for transactions occurring in 2004.

Content of Disclosure of Colorado Listed Transactions (captive REITs and RICs). This regulation assumes that a Colorado Listed Transaction is not also a Federal Transaction, which is disclosed by filing IRS form 8886. The department will create a form (Taxpayer’s Colorado Listed Transaction Disclosure Statement) to facilitate the disclosure of a Colorado Listed Transaction. Until such form is created, a taxpayer satisfies the disclosure requirements for Colorado Listed Transactions by filing a written statement that includes the name and ownership of each captive REIT and/or RIC and each entity’s total assets and total income earned prior to any dividend paid deduction. In cases where a Colorado Listed Transaction is also a Federal Reportable or Federal Listed Transaction, then the taxpayer must file IRS form 8886.

Pass-Through Entities / Combined / Consolidated income tax returns. Both a pass-through entity and its partners, members or owners may have disclosure responsibilities pursuant to §39-22-653, C.R.S. and regulation 39-22-653. In order to reduce the number of otherwise redundant disclosures, the department will accept a single disclosure from the pass-through entity if the disclosure contains all the information that would have been disclosed had the partner, member, or owner, separately filed its own disclosure statement. A pass-through entity includes a partnership and a limited liability company that for federal income tax purposes to be treated as a partnership. A similar rule applies to combined and/or consolidated Colorado income tax returns.