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IRS Instructions for Form 8275-R

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IRS Instructions for Form 8275-R - Regulation Disclosure Statement - Revised February 2011

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									Instructions for                                                                              Department of the Treasury
                                                                                              Internal Revenue Service

Form 8275-R
(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
 CAUTION
         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.
 CAUTION
         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
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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
name.                                                                                   below.
                                            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.
rentals.”
                                               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




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