Table of Contents
Section references are to the Internal Revenue Code unless otherwise noted.
Form 8275-R is used by taxpayers and tax return preparers to disclose positions taken on a tax return that are contrary to Treasury regulations. The form is filed to avoid the portions of the accuracy-related penalty due to disregard of regulations or to a substantial understatement of income tax for non-tax shelter items if the return position has a reasonable basis. It can also be used for disclosures relating to the preparer penalties for tax understatements due to positions taken contrary to regulations.
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Negligence.
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Disregard of rules.
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Any substantial understatement of income tax on a tax shelter item.
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Any substantial valuation misstatement under chapter 1.
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Any substantial overstatement of pension liabilities.
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Any substantial estate or gift tax valuation understatements.
Because of the importance to the self-assessment system of disclosing positions contrary to regulations, the requirements for making such disclosures are stringent.
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The disclosure is adequate only if it is made separately on a Form 8275-R.
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The penalty for reckless or intentional disregard of a regulation may be avoided by disclosure only if the position represents a good faith challenge to the validity of the regulation and has a reasonable basis.
Instead of Form 8275-R, use Form 8275, Disclosure Statement, for the disclosure of items or positions which are not contrary to regulations but which are not otherwise adequately disclosed.
Form 8275-R is filed by individuals, corporations, pass-through entities, and income tax return preparers.
For items attributable to a pass-through entity, disclosure should be made on the tax return of the entity. If the entity does not make the disclosure, the partner (or shareholder, etc.) may make adequate disclosure of these items.
When a return position is contrary to regulations, you must file Form 8275-R. File all Forms 8275-R with your original tax return. Keep a copy for your records. You also may be able to file Forms 8275-R with an amended return. See Regulations sections 1.6662-4(f) and 1.6664-2(c)(3) for more information.
To make adequate disclosure for items reported by a pass-through entity, you must complete and file a separate Form 8275-R for items reported by each entity.
Generally, the accuracy-related penalty is 20% of any portion of a tax underpayment attributable to:
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Negligence or disregard of rules or regulations,
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Any substantial understatement of income tax,
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Any substantial valuation misstatement under chapter 1 of the Internal Revenue Code,
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Any substantial overstatement of pension liabilities, or
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Any substantial estate or gift tax valuation understatement.
However, the penalty is 40% of any portion of a tax underpayment attributable to one or more gross valuation misstatements in (3), (4), or (5) above if the applicable dollar limitation under section 6662(h)(2) is met.
An understatement is the excess of:
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The amount of tax required to be shown on the return for the tax year, over
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The amount of tax shown on the return for the tax year, reduced by any rebates.
There is a substantial understatement of income tax if the amount of the understatement for any year exceeds the greater of:
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10% of the tax required to be shown on the return for the tax year, or
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$5,000 ($10,000 for a corporation other than an S corporation or a personal holding company as defined in section 542).
An understatement of a corporation (other than an S corporation or a personal holding company) is substantial if it exceeds the lesser of:
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10% of the tax required to be shown on the return for the tax year (or, if greater, $10,000), or
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$10,000,000.
For purposes of the substantial understatement portion of the accuracy-related penalty, the amount of the understatement will be reduced by the part that is attributable to the following items.
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An item (other than a tax shelter item) for which there was substantial authority for the treatment claimed at the time the return was filed or on the last day of the tax year to which the return relates.
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An item (other than a tax shelter item) that is adequately disclosed on this form if there is a reasonable basis for the tax treatment of the item. (In no event will a corporation be treated as having a reasonable basis for its tax treatment of an item attributable to a multi-party financing transaction entered into after August 5, 1997, if the treatment does not clearly reflect the income of the corporation.)
For corporate tax shelter transactions (and for tax shelter items of other taxpayers for tax years ending after October 22, 2004), the only exception to the substantial understatement portion of the accuracy-related penalty is the reasonable cause exception. For more details, see section 6662(d) and Regulations section 1.6664-4.
A preparer who files a return or claim for refund is subject to a penalty in an amount equal to the greater of $1000 or 50 percent of the income derived (or to be derived) by the tax return preparer, with respect to the return or claim, for taking a position which understates any part of the liability if:
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There is not a reasonable belief that the position would more likely than not be sustained on its merits,
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The preparer knew or reasonably should have known of the position, and
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The position was not disclosed as provided in section 6662(d)(2)(B)(ii); or
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There was no reasonable basis for the position.
The penalty will not apply if it can be shown that there was reasonable cause for the understatement and that the preparer acted in good faith.
In cases where any part of the understatement of the liability is due to a willful attempt by the return preparer to understate the liability, or if the understatement is due to reckless or intentional disregard of rules or regulations by the preparer, the preparer is subject to a penalty equal to the greater of $5,000 or 50 percent of the income derived, or to be derived, by the tax return preparer with respect to the return or claim. This penalty shall be reduced by the amount of the penalty paid by such person for taking an unreasonable position, or a position with no reasonable basis, as described immediately above.
A preparer is not considered to have recklessly or intentionally disregarded a rule if a position is adequately disclosed and is not frivolous.
Note.
For more information about the accuracy-related penalty and preparer penalties, and the means of avoiding these penalties, see the regulations under section 6662, 6664, and 6694.
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