Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction

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Instructions for Form 8886-T

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Instructions for Form 8886-T

Department of the Treasury
Internal Revenue Service

(Rev. March 2007)
Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
Purpose of Form
Certain tax-exempt entities are required to
file Form 8886-T to disclose information for
each prohibited tax shelter transaction to
which the entity was a party. See Prohibited
Tax Shelter Transaction below for a
definition of a prohibited tax shelter
transaction. See Party to a Prohibited Tax
Shelter Transaction below to determine if
you were a party to a prohibited tax shelter
transaction. See Notice 2006-65, 2006-31
I.R.B. 102 and Notice 2007-18, 2007-9
I.R.B. 608 for more information.
Generally, you must file a separate Form
8886-T for each prohibited tax shelter
transaction. However, you may report more
than one transaction on one form if the
transactions are the same or substantially
similar. See the definition of substantially
similar below.
Although a single initial disclosure is
required, you must file a follow-up Form
8886-T if there is a change in the identity of
the parties to a prohibited tax shelter
transaction.
The fact that a transaction must be
reported on this form does not mean the tax
benefits from the transaction will be
disallowed. However, you may be subject to
an excise tax on income from the
transaction. For more information, see the
instruction for Form 4720, Return of Certain
Excise Taxes Under Chapters 41 and 42 of
the Internal Revenue Code.
A taxable party to a prohibited tax shelter
transaction must provide a statement to any
tax-exempt entity (as defined below) party to
that transaction disclosing that the
transaction is a prohibited tax shelter
transaction.

Who Must File
Certain tax-exempt entities that are a party
to a prohibited tax shelter transaction must
file Form 8886-T. The following tax-exempt
entities are subject to these disclosure
requirements.
• An organization described in section
501(c) or 501(d).
• A state, a possession of the United
States, or the District of Columbia, or a
political subdivision of a state or possession
of the United States.
• An Indian tribal government.
• A plan described in section 401(a) which
includes a trust exempt from tax under
section 501(a).
• An annuity plan described in section
403(a) or annuity contract described in
section 403(b).
• A qualified tuition program described in
section 529.

• An eligible deferred compensation plan

described in section 457(b) which is
maintained by an employer described in
section 457(e)(1)(A).
• An individual retirement account.
• An individual retirement annuity.
• An archer MSA.
• A custodial account treated as an annuity
contract under section 403(b)(7)(A).
• A Coverdell education savings account.
• A health savings account.
For more information about the tax-exempt
entities that are subject to this disclosure
rule, see Notice 2006-65, 2006-31 I.R.B.
102.
Non-plan entity. If the entity is a non-plan
entity, this disclosure rule applies to the
entity. Form 8886-T must be filed by the
entity level.
Plan entity. If the entity is a plan entity,
this disclosure rule applies to the trustee(s)
of the entity. If the entity is a fully
self-directed qualified plan, IRA, or other
savings arrangement, this disclosure rule
applies to the beneficiary who approved or
caused the entity to be a party to a
prohibited tax shelter transaction.

Party to a Prohibited Tax
Shelter Transaction
A tax-exempt entity is a party to a tax shelter
transaction if it:
• facilitates the transaction by reason of its
tax-exempt, tax indifferent, or tax-favored
status, or,
• is identified in published guidance, by
type, class or role, as a party to a prohibited
tax shelter transaction.

Definitions
Transaction
A transaction includes all of the factual
elements relevant to the expected tax
treatment of any investment, entity, plan, or
arrangement and it includes any series of
steps carried out as part of a plan.

Substantially Similar
A transaction is substantially similar to
another transaction if it is expected to obtain
the same or similar types of tax
consequences and is either factually similar
or based on the same or similar tax strategy.
Receipt of an opinion regarding the tax
consequences of the transaction is not
relevant to the determination of whether the
transaction is the same as or substantially
similar to another transaction. Further, the
term substantially similar must be broadly
construed in favor of disclosure. See
Regulations section 1.6011-4(c)(4) for
examples.
Cat. No. 49104

Prohibited Tax Shelter
Transaction
Prohibited tax shelter transactions include
transactions that are identified by the
Internal Revenue Service (IRS) as
potentially abusive “listed” tax avoidance
transactions and reportable transactions that
are confidential transactions or transactions
with contractual protection.
Listed transactions. This category
includes transactions that are the same as
or substantially similar to one of the types of
transactions that the IRS has determined to
be a tax avoidance transaction. These
transactions are identified by notice,
regulation, or other form of published
guidance as a listed transaction. For existing
guidance see:

• Notice 2004-67, 2004-41 I.R.B. 600
• Notice 2005-13, 2005-9 I.R.B. 630
For updates to this list go to the IRS web
page at www.irs.gov/businesses/
corporations and click on Abusive Tax
Shelters and Transactions. The listed
transactions in the above notices and rulings
will also be periodically updated in future
issues of the Internal Revenue Bulletin. You
can find a notice or ruling in the Internal
Revenue Bulletin at www.irs.gov/pub/
irs-irbs/irbXX-YY.pdf, where XX is the
two-digit year and YY is the two-digit bulletin
number. For example, you can find Notice
2004-67, 2004-41 I.R.B. 600, at www.irs.
gov/pub/irs-irbs/irb04-41.pdf.
Confidential transactions. This category
includes transactions that are offered under
conditions of confidentiality and for which an
advisor receives a minimum fee (defined
below). A transaction is considered to be
offered under conditions of confidentiality if
the advisor places a limitation on disclosure
of the tax treatment or tax structure of the
transaction and the limitation on disclosure
protects the confidentiality of the advisor’s
tax strategies. The transaction is treated as
confidential even if the conditions of
confidentiality are not legally binding. See
Regulations section 1.6011-4(b)(3) for more
information.
Minimum fee. For a corporation, or a
partnership or trust in which all of the
owners or beneficiaries are corporations, the
minimum fee is $250,000. For all others, the
minimum fee is $50,000. The minimum fee
includes all fees paid directly or indirectly for
the tax strategy, advice or analysis of the
transaction (whether or not related to the tax
consequences of the transaction),
implementation and documentation of the
transaction, and tax preparation fees to the
extent they exceed customary return
preparation fees. Fees do not include
amounts paid to a person, including an
advisor, in that person’s capacity as a party
to the transaction.

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Instructions for Form 8886-T

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Transactions with contractual protection.
This category includes transactions for
which a participant has the right to a full
refund or partial refund of fees if all or part of
the intended tax consequences from the
transaction are not sustained. It also
includes a transaction for which fees are
contingent on the realization of tax benefits
from the transaction. For exceptions and
other details, see Regulations section
1.6011-4(b)(4).
Exception.
Published guidance. A transaction is
not considered a prohibited tax shelter
transaction if the IRS makes a determination
in published guidance that it is not subject to
the reporting requirements. The IRS may
also determine by individual letter ruling that
an individual letter ruling request satisfies
the reporting requirements. However, an
individual letter ruling may be relied upon
only by the taxpayer who requested the
individual letter ruling. This includes a
transaction that would otherwise be included
in any of the above reportable transaction
categories.
Request for ruling. You may request a
ruling from the IRS to determine whether a
specific transaction is a prohibited tax
shelter transaction. The request for a ruling
must be submitted to the IRS by the date
Form 8886-T would otherwise be required to
be filed. See Rev. Proc. 2007-1, 2007-1
I.R.B. 1, or subsequent IRS guidance for
more details. The potential obligation of the
taxpayer to disclose the transaction under
this section will not be suspended during the
period that the ruling request is pending.

Recordkeeping
You must keep a copy of all documents and
other records related to a reportable
transaction. See Regulations section
1.6011-4(g) for more details.

When and How To File
The due date for Form 8886-T is May 15th
of the year after the year in which you
entered the transaction. If the regular due
date falls on a Saturday, Sunday, or legal
holiday, file by the next business day. For
example, you must file Form 8886-T no later
than May 15, 2008 for transactions you
entered into during 2007.
Special transition rule. If you became a
party to a prohibited tax shelter transaction
after May 17, 2006, and before January 1,
2007, the due date for filing Form 8886-T is
XXXXXXX, 2007.
Send the return to the:
Internal Revenue Service Center
Ogden, UT 84201-0027

Penalties
There is a monetary penalty under section
6652(c) for the failure to disclose information
required under section 6033(a)(2) with
respect to a prohibited tax shelter
transaction. The penalty for failure to include
information with respect to a prohibited tax
shelter transaction is $100 for each day
during which such failure continues, not to
exceed $50,000 for each required
disclosure. In addition, the IRS is authorized
to make a written demand on the entity or

manager specifying a future date by which
the required disclosure must be filed. If you
fail to comply with this demand, there is an
additional penalty in the amount of $100 per
day after the expiration of the time specified
in the demand, not to exceed $10,000 for
each required disclosure.
A penalty is assessed for each failure to
file a Form 8886-T, if you (a) fail to file the
form by the due date, or (b) file a form that
fails to include all the information required
(or includes incorrect information). Form
8886-T must be completed in its entirety
with all required attachments to be
considered complete. Do not enter
“Information provided upon request” or
“Details available upon request,” or any
similar statement in the space provided.
Inclusion of any such statements subjects
you to penalty. See section 6652(c) and
Notice 2006-65, 2006-31 I.R.B. 102 for more
information.

Name, Address, etc.
Enter the name, address, and employer
identification number of the entity. Include
the suite, room, or other unit number after
the street address. If the Post Office does
not deliver mail to the street address, show
the P.O. box number instead of the street
address. The name, address and employer
identification number should be the same as
shown on other forms filed with the IRS.

Signature and Verification
The director, trustee, officer, or other
authorized official must sign Form 8886-T.
Also, a person with a valid power of
attorney may sign for the entity. Include a
copy of the power of attorney with the
return.

Specific Instructions
How To Complete
Form 8886-T
In order to be considered complete, Form
8886-T must be completed in its entirety
with all required attachments. Do not simply
write “See Attached.” If the information
required exceeds the space provided,
complete as much information as possible in
the available space and attach the
remaining information on additional sheets.
The additional sheets must be in the same
order as the lines to which they correspond.
You must also include the entity name and
identifying number at the top of each
additional sheet.

Line 1
Check the box which indicates the type of
tax-exempt entity.

Line 2
Check the box for all categories that apply to
the transaction being reported. The
categories of prohibited tax shelter
transactions are described under Party to a
Tax Shelter Transaction on page 1. Do not
report more than one transaction on this

-2-

form unless the transactions are the same
or substantially similar. See the definition of
substantially similar on page 1. If the
transaction was substantially similar to a
listed transaction, check the box next to
“listed transaction.” If you checked the listed
transaction box, you must also identify the
transaction in line 3.
If the transaction is a listed
transaction or substantially similar to
CAUTION a listed transaction, you must check
the listed transaction box in addition to any
others that may apply.

!

Line 3
If you selected “listed transaction” in line 2,
provide a brief identifying description of the
listed transaction and identify the notice,
revenue ruling, or regulation (for example,
Regulations section 1.634(a)-8 or Notice
2002-70) that identified the listed transaction
as shown in Notice 2004-67 or later IRS
guidance.

Line 4
Provide the complete names and addresses
of all other parties to the transaction, if
known. If you need additional space, attach
a separate sheets identifying your entity
name and employer identification number
and the line to which the sheet refers.
Paperwork Reduction Act Notice. You
are not required to provide the information
requested on a form that is subject to the
Paperwork Reduction Act unless the form
displays a valid OMB control number. Books
or records relating to a form or its
instructions must be retained as long as
their contents may become material in the
administration of any Internal Revenue law.
Generally, tax returns and return information
are confidential, as required by section
6103.
The time needed to complete and file this
form will vary depending on individual
circumstances. The estimated burden for
individual taxpayers filing this form is
approved under OMB control number
XXXX-XXXX and is included in the
estimates shown in the instructions for their
individual income tax return. The estimated
burden for all other taxpayers who file this
form is shown below.
Recordkeeping . . . . . . . . . .
Learning about the law or the
form . . . . . . . . . . . . . . . . . .
Preparing, copying,
assembling, and sending the
form to the IRS . . . . . . . . . . .

X hr., XX
min.
X hr., XX
min.
X hr., XX
min.

If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form simpler, we
would be happy to hear from you. You can
write to the Internal Revenue Service, Tax
Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111 Constitution
Ave. NW, IR-6406, Washington, DC 20224.
Do not send the form to this address.
Instead, see When and How To File, earlier.