Instructions for Department of the Treasury
Internal Revenue Service
(Rev. February 2011)
(Use with the August 2008 revision of Form 8275-R.)
Regulation Disclosure Statement
Section references are to the Internal substance (within the meaning of separate Form 8275-R for items
Revenue Code unless otherwise noted. section 7701(o)) or failing to meet the reported by each entity.
requirements of any similar rule of
What’s New law.
Carrybacks, carryovers, and
recurring items. Carryover items
An underpayment attributable to a • Any otherwise undisclosed foreign must be disclosed in the tax year in
transaction lacking economic financial asset understatement. which they originated. You do not
substance, as defined under section Because of the importance to the have to file another Form 8275-R for
7701(o), or failing to meet the self-assessment system of disclosing those items for the tax years in which
requirements of any similar rule of positions contrary to regulations, the the carryover is taken into account.
law is subject to a 20% requirements for making such
accuracy-related penalty. The penalty Carryback items must be disclosed
disclosures are stringent. for the tax year in which they
increases to 40% if the transaction is • The disclosure is adequate only if it
not adequately disclosed. See originated. You do not have to file
is made separately on a Form another Form 8275-R for those items
Accuracy-Related Penalty on this 8275-R.
page. for the tax years in which the
• The penalty for reckless or carryback is taken into account.
intentional disregard of a regulation
General Instructions can be avoided by disclosure only if However, if you disclose items that
the position represents a good faith are of a recurring nature (such as
depreciation expense), you must file
Purpose of Form challenge to the validity of the
regulation and has a reasonable Form 8275-R for each tax year in
Form 8275-R is used by taxpayers basis. which the item occurs.
and tax return preparers to disclose
positions taken on a tax return that Instead of Form 8275-R, use Form If you are disclosing a position that
are contrary to Treasury regulations. 8275, Disclosure Statement, for the is contrary to a regulation, and the
The form is filed to avoid the portions disclosure of items or positions which position relates to a reportable
of the accuracy-related penalty due to are not contrary to regulations but transaction as defined in Regulations
disregard of regulations or to a which are not otherwise adequately section 1.6011-4(b), you must also
substantial understatement of income disclosed. make the disclosure as indicated in
tax for non-tax shelter items if the Regulations section 1.6011-4(d). See
return position has a reasonable Who Should File Form 8886, Reportable Transaction
basis. It can also be used for Form 8275-R is filed by individuals, Disclosure Statement, its instructions,
disclosures relating to the preparer corporations, pass-through entities, Notice 2006-6, 2006-5 I.R.B. 385,
penalties for tax understatements due and tax return preparers. available at http://www.irs.gov/irb/
to positions taken contrary to 2006-05_IRB/ar10.html, and Notice
For items attributable to a 2010-62, 2010-40 I.R.B. 411,
regulations and the economic pass-through entity, disclosure should
substance penalty. available at www.irs.gov/irb/
be made on the tax return of the 2010-40_IRB/ar09.html.
The portion of the entity. If the entity does not make the
disclosure, the partner (or
! accuracy-related penalty
shareholder, etc.) can make Accuracy-Related
attributable to the following
types of misconduct cannot be adequate disclosure of these items. Penalty
avoided by disclosure on Form Generally, the accuracy-related
8275-R. How To File penalty is 20% of any portion of a tax
• Negligence. When a return position is contrary to underpayment attributable to:
• Disregard of rules. regulations, you must file Form 1. Negligence or disregard of rules
• Any substantial understatement of 8275-R. File all Forms 8275-R with or regulations,
income tax. your original tax return. Keep a copy 2. Any substantial understatement
• Any substantial valuation for your records. You also may be of income tax,
misstatement under chapter 1. able to file Forms 8275-R with an 3. Any substantial valuation
• Any substantial overstatement of amended return. See Regulations misstatement under chapter 1 of the
pension liabilities. sections 1.6662-4(f)(1) and Internal Revenue Code,
• Any substantial estate or gift tax 1.6664-2(c)(3) for more information. 4. Any substantial overstatement
valuation understatements. To make adequate disclosure for of pension liabilities,
• Any claim of tax benefits from a items reported by a pass-through 5. Any substantial estate or gift tax
transaction lacking economic entity, you must complete and file a valuation understatement, or
Cat. No. 14317I
6. Any claim of tax benefits from a amount of the understatement for any credit that is directly or indirectly
transaction lacking economic year exceeds the greater of: attributable to the principal or
substance, as defined by section 1. 10% of the tax required to be significant purpose of the tax shelter
7701(o), or failing to meet the shown on the return for the tax year, to avoid or evade federal income tax.
requirements of any similar rule of or Economic substance. To satisfy
law. 2. $5,000. the disclosure requirements under
The penalty is 40% of any portion section 6662(i), you may adequately
An understatement of a disclose with a timely filed original
of a tax underpayment attributable to corporation (other than an S
one or more gross valuation return (determined with regard to
corporation or a personal holding extensions) or a qualified amended
misstatements in (3), (4), or (5) above company, as defined in section 542)
if the applicable dollar limitation under return (as defined under Regulations
is substantial if it exceeds in any year section 1.6664-2(c)(3)) the relevant
section 6662(h)(2) is met. The the lesser of:
penalty also increases to 40% for facts affecting the tax treatment of the
failing to adequately disclose a 1. 10% of the tax required to be transaction.
transaction that lacks economic shown on the return for the tax year
(or, if greater, $10,000), or Note. If you filed a Schedule UTP,
substance in (6) above. See you may not need to file Form 8275-R
Economic Substance on this page. 2. $10,000,000.
to satisfy the disclosure requirements
The penalty is 40% of any portion of For purposes of the substantial of section 6662(i). See the
an underpayment that is attributable understatement portion of the Instructions for Schedule UTP.
to any undisclosed foreign financial accuracy-related penalty, the amount
asset understatement. of the understatement will be reduced Tax Return Preparer
Reasonable basis. Generally, you by the part that is attributable to the Penalties
can avoid the disregard of regulations following items. A preparer who files a return or claim
and substantial understatement • An item (other than a tax shelter for refund is subject to a penalty in an
portions of the accuracy-related item) for which there was substantial amount equal to the greater of $1,000
penalty if the position is adequately authority for the treatment claimed at or 50 percent of the income derived
disclosed and the position has at the time the return was filed or on the (or to be derived) by the tax return
least a reasonable basis. To avoid last day of the tax year to which the preparer, with respect to the return or
the disregard of regulations portion of return relates. claim, for taking a position which the
the accuracy-related penalty, the • An item (other than a tax shelter preparer knew or reasonably should
position taken must also represent a item) that is adequately disclosed on have known would understate any
good-faith challenge to the validity of this form if there is a reasonable part of the liability if:
the regulation. Reasonable basis is a basis for the tax treatment of the item. • There is or was no substantial
relatively high standard of tax (In no event will a corporation be authority for the position.
reporting that is significantly higher treated as having a reasonable basis • The position is a tax shelter (as
than not frivolous or not patently for its tax treatment of an item defined in section 6662(d)(2)(C)(ii)) or
improper. The reasonable basis attributable to a multi-party financing a reportable transaction to which
standard is not satisfied by a return transaction entered into after August section 6662A applies and it was not
position that is merely arguable. 5, 1997, if the treatment does not reasonable to believe that the
The penalty will not be imposed on clearly reflect the income of the position would more likely than not be
any part of an underpayment if there corporation.) sustained on its merits.
was reasonable cause for your For corporate tax shelter • The position was disclosed as
position and you acted in good faith transactions (and for tax shelter items provided in section 6662(d)(2)(B)(ii),
in taking that position. of other taxpayers for tax years is not a tax shelter or a reportable
ending after October 22, 2004), the transaction to which section 6662A
The reasonable cause and applies, and there was no reasonable
only exception to the substantial
! good faith exception does not
understatement portion of the basis for the position.
apply to any portion of an
underpayment attributable to a accuracy-related penalty is the The penalty will not apply if it can
transaction that lacks economic reasonable cause exception. For be shown that there was reasonable
substance under section 7701(o). more details, see section 6662(d) and cause for the understatement and
Regulations section 1.6664-4. that the preparer acted in good faith.
If you failed to keep proper books
and records or failed to substantiate Tax shelter items. A tax shelter, for In cases where any part of the
items properly, you cannot avoid the purposes of the substantial understatement of the liability is due
penalty by disclosure. understatement portion of the to a willful attempt by the return
accuracy-related penalty, is a preparer to understate the liability, or
Substantial Understatement partnership or other entity, plan, or if the understatement is due to
An understatement is the excess of: arrangement, with a significant reckless or intentional disregard of
purpose to avoid or evade federal rules or regulations by the preparer,
1. The amount of tax required to income tax. For transactions on or
be shown on the return for the tax the preparer is subject to a penalty
before August 5, 1997, a tax shelter equal to the greater of $5,000 or 50
year, over is a partnership or other entity, plan,
2. The amount of tax shown on percent of the income derived (or to
or arrangement, whose principal be derived) by the tax return preparer
the return for the tax year, reduced by purpose is to avoid or evade federal
any rebates. with respect to the return or claim.
income tax. This penalty shall be reduced by the
There is a substantial A tax shelter item is any item of amount of the penalty paid by such
understatement of income tax if the income, gain, loss, deduction, or person for taking an unreasonable
position, or a position with no disclosing rather than a separate Paperwork Reduction Act Notice.
reasonable basis, as described description of each item within the We ask for the information on this
immediately above. group. form to carry out the Internal
A preparer is not considered to Columns (d) through (f). Enter the Revenue laws of the United States.
have recklessly or intentionally location of the item(s) by identifying You are required to give us the
disregarded a rule if a position is the form number or schedule and the information if you wish to use this
adequately disclosed and has a line number in columns (d) and (e) form to make adequate disclosure to
reasonable basis. and the amount of the item(s) in avoid the portion of the
Note. For more information about column (f). accuracy-related penalty due to a
the accuracy-related penalty and substantial understatement of income
preparer penalties, and the means of Part II tax or disregard of regulations, or to
avoiding these penalties, see the Your disclosure must include: avoid certain preparer penalties. We
regulations under sections 6662, need it to ensure that you are
1. A description of the relevant
6664, and 6694. complying with these laws and to
facts affecting the tax treatment of the
allow us to figure and collect the right
item. To satisfy this requirement you
amount of tax.
must include information that
Specific Instructions reasonably can be expected to
apprise the IRS of the identity of the
You are not required to provide the
information requested on a form that
Be sure to supply all of the item, its amount, and the nature of is subject to the Paperwork Reduction
information requested in Parts I and II the controversy or potential Act unless the form displays a valid
and, if applicable, Part III. Your controversy. Information concerning OMB control number. Books or
disclosure will be considered the nature of the controversy can records relating to a form or its
adequate if you file Form 8275-R and include a description of the legal instructions must be retained as long
supply the information requested in issues presented by the facts, and as their contents may become
detail. 2. A statement explaining why you material in the administration of any
Use Part IV on page 2 if you need believe this regulation to be invalid. Internal Revenue law. Generally, tax
more space for Part I or II. Indicate returns and return information are
the corresponding part and line Unless provided otherwise in confidential, as required by section
number from page 1. You can use a ! the General Instructions 6103.
continuation sheet(s) if you need CAUTION
above, your disclosure will not The time needed to complete and
additional space. Be sure to put your be considered adequate unless (1) file this form will vary depending on
name and identifying number on each and (2) above are provided using individual circumstances. The
sheet. Form 8275-R. For example, your estimated burden for individual
disclosure will not be considered taxpayers filing this form is approved
Part I adequate if you attach a copy of an under OMB control number
Column (a). Enter a detailed citation acquisition agreement to your tax 1545-0074 and is included in the
for each regulation for which you return to disclose the issues involved estimates shown in the instructions
have taken a contrary position. in determining the basis of certain for their individual income tax return.
acquired assets. If Form 8275-R is The estimated burden for all other
Column (b). Identify the item by taxpayers who file this form is shown
not completed and attached to the
return, the disclosure will not be
If any item you disclose is from a considered valid even if the
pass-through entity, you must identify information in (1) and (2) above is Recordkeeping . . . . . . . 3 hr., 35 min.
the item as such. If you disclose provided using another method, such Learning about the law
items from more than one as a different form or an attached or the form . . . . . . . . 53 min.
pass-through entity, you must letter. Preparing and sending
complete a separate Form 8275-R for the form to the IRS . . 59 min.
each entity. Also, see How To File on Part III
page 1. If you have comments concerning
Column (c). Enter a complete Line 4. Contact your pass-through the accuracy of these time estimates
description of the item(s) you are entity if you do not know where its or suggestions for making this form
disclosing. return was filed. However, for simpler, we would be happy to hear
partners and S corporation from you. See the instructions for the
Example. If an entertainment shareholders, information for line 4
expense was reported in column (b), tax return with which this form is filed.
can be found on the Schedule K-1
then list in column (c) “theater tickets, that you received from the
catering expenses, and banquet hall partnership or S corporation.
If the pass-through entity filed its
If you claim the same tax treatment return electronically using e-file, enter
for a group of similar items in the “e-file” on line 4.
same tax year, enter a description
identifying the group of items you are