U.S. Individual Income Tax Return

Instructions for Form 8275-R (Rev. July 2007)
Purpose: This is the first circulated proof of the Instructions for Form 8275-R
(Rev. July 2007) for your review and comments. See below for a discussion of
the major changes.
TPCC Meeting: None, but one may be arranged if requested.
Prior Version: The Instructions for Form 8275 (Rev. February 2006) is available
at: http://www.irs.gov/pub/irs-pdf/i8275.pdf
Form: Form 8275-R (Rev. February 2002) is to be used with these instructions.
It is available at: http://www.irs.gov/pub/irs-pdf/f8275r.pdf
Other Products: Circulations of draft tax forms, instructions, notices, and
publications are posted at:
http://taxforms.web.irs.gov/draft_products.html
Comments: Please email, fax, call, or mail any comments by June 15, 2007,
Melody G. DeVoe
Individual Forms and Publications
SE:W:CAR:MP:T:I:P
Email: [email protected]
Phone: 202-283-7635
Fax: 202-283-2485
Major Changes to the Instructions for Form 8275-R (Rev. July 2007)
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The instructions for completing Part II were rewritten at Chief Counsel’s
request to elaborate on the filing requirements.

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The instructions for Part III were expanded for proper completion by efilers at the direction of the Modernized E-file Project.

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Instructions for Form 8275-R

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Instructions for
Form 8275-R

Department of the Treasury
Internal Revenue Service

(Rev. July 2007)
(Use with the February 2002 revision of Form 8275-R.)
Regulation Disclosure Statement

General Instructions
Section references are to the Internal
Revenue Code unless otherwise
noted.

Purpose of Form
Form 8275-R is used by taxpayers
and income tax 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 income tax
understatements due to positions
taken contrary to regulations.
The portion of the
accuracy-related penalty
CAUTION attributable to the following
types of misconduct cannot be
avoided by disclosure on Form
8275-R.
• Negligence.
• Disregard of rules.
• Any substantial understatement of
income tax.
• Any substantial valuation
misstatement under chapter 1.
• Any substantial overstatement of
pension liabilities.
• 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.
• The disclosure is adequate only if it
is made separately on a Form
8275-R.
• 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.

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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.

Who Should File
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.

How To File
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.
Carrybacks, carryovers, and
recurring items. Carryover items
must be disclosed in the tax year in
which they originated. You do not
have to file another Form 8275-R for
those items for the tax years in which
the carryover is taken into account.
Carryback items must be disclosed
for the tax year in which they
originated. You do not have to file
another Form 8275-R for those items
for the tax years in which the
carryback is taken into account.
However, if you disclose items that
are of a recurring nature (such as
depreciation expense), you must file
Form 8275-R for each tax year in
which the item occurs.
Cat. No. 14317I

If you are disclosing a position that
is contrary to a regulation, and the
position relates to a reportable
transaction as defined in Regulations
section 1.6011-4(b), you must also
make the disclosure required by
Regulations section 1.6011-4(b). See
Form 8886, Reportable Transaction
Disclosure Statement, its instructions,
and Rev. Proc. 2004-45, which is on
page 140 of Internal Revenue Bulletin
2004-31 at http://www.irs.gov/pub/
irs-irbs/irb04-31.pdf.

Accuracy-Related
Penalty
Generally, the accuracy-related
penalty is 20% of any portion of a tax
underpayment attributable to:
1. Negligence or disregard of rules
or regulations,
2. Any substantial understatement
of income tax,
3. Any substantial valuation
misstatement under chapter 1 of the
Internal Revenue Code,
4. Any substantial overstatement
of pension liabilities, or
5. 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.
Reasonable basis. Generally, you
can avoid the disregard of regulations
and substantial understatement
portions of the accuracy-related
penalty if the position is adequately
disclosed and the position has at
least a reasonable basis. To avoid
the disregard of regulations portion of
the accuracy-related penalty, the
position taken must also represent a
good-faith challenge to the validity of
the regulation. Reasonable basis is a
relatively high standard of tax
reporting that is significantly higher
than not frivolous or not patently

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Instructions for Form 8275-R

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improper. The reasonable basis
standard is not satisfied by a return
position that is merely arguable.
The penalty will not be imposed on
any part of an underpayment if there
was reasonable cause for your
position and you acted in good faith
in taking that position.
If you failed to keep proper books
and records or failed to substantiate
items properly, you cannot avoid the
penalty by disclosure.

Substantial Understatement
An understatement is the excess of:
1. The amount of tax required to
be shown on the return for the tax
year, over
2. 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:
1. 10% of the tax required to be
shown on the return for the tax year,
or
2. $5,000 ($10,000 for a
corporation other than an S
corporation or a personal holding
company as defined in section 542).
For tax years beginning after
October 22, 2004, an understatement
of a corporation (other than an S
corporation or a personal holding
company) is substantial if it exceeds
the lesser of:
1. 10% of the tax required to be
shown on the return for the tax year
(or, if greater, $10,000), or
2. $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.
• 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.
• 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.)
• A tax shelter item (other than a
corporate tax shelter item), for tax
years ending before October 23,
2004, if (a) there was substantial
authority for the treatment at the time
the return was filed or on the last day
of the tax year to which the return
relates, and (b) you reasonably
believed that the tax treatment of the
item was more likely than not the
proper tax treatment.
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 1.6664-4(f).
Tax shelter items. A tax shelter, for
purposes of the substantial
understatement portion of the
accuracy-related penalty, is a
partnership or other entity, plan, or
arrangement, with a significant
purpose to avoid or evade federal
income tax. For transactions on or
before August 5, 1997, a tax shelter
is a partnership or other entity, plan,
or arrangement, whose principal
purpose is to avoid or evade federal
income tax.
A tax shelter item is any item of
income, gain, loss, deduction, or
credit that is directly or indirectly
attributable to the principal or
significant purpose of the tax shelter
to avoid or evade federal income tax.

Income Tax Return Preparer
Penalties
A preparer who files an income tax
return or claim for refund is subject to
a $250 penalty for taking a position
which understates any part of the
liability if:
• The position has no realistic
possibility of being sustained on its
merits,
• The preparer knew (or reasonably
should have known) of the position,
and
• The position is frivolous or not
adequately disclosed on the return or
on the appropriate disclosure
statement.
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
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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 $1,000
penalty.
A preparer is not considered to
have recklessly or intentionally
disregarded a regulation if the
position is adequately disclosed, is
not frivolous, and the position
represents a good faith challenge to
the validity of the regulation.
Note. For more information about
the accuracy-related penalty and
preparer penalties, and the means of
avoiding these penalties, see
Regulations sections 1.6662, 1.6664,
and 1.6694.

Specific Instructions
Be sure to supply all of the
information requested in Parts I and II
and, if applicable, Part III. Your
disclosure will be considered
adequate if you file Form 8275-R and
supply the information requested in
detail.
Use Part IV on page 2 if you need
more space for Part I or II. Indicate
the corresponding part and line
number from page 1. You can use a
continuation sheet(s) if you need
additional space. Be sure to put your
name and identifying number on each
sheet.

Part I
Column (a). Enter a detailed citation
for each regulation for which you
have taken a contrary position.
Column (b). Identify the item by
name.
If any item you disclose is from a
pass-through entity, you must identify
the item as such. If you disclose
items from more than one
pass-through entity, you must
complete a separate Form 8275-R for
each entity. Also, see How To File on
page 1.
Column (c). Enter a complete
description of the item(s) you are
disclosing.
Example. If an entertainment
expense was reported in column (b),
then list in column (c) “theater tickets,
catering expenses, and banquet hall
rentals.”
If you claim the same tax treatment
for a group of similar items in the
same tax year, enter a description
identifying the group of items you are

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Instructions for Form 8275-R

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disclosing rather than a separate
description of each item within the
group.
Columns (d) through (f). Enter the
location of the item(s) by identifying
the form number or schedule and the
line number in columns (d) and (e)
and the amount of the item(s) in
column (f).

Part II
Your disclosure must include:
1. A description of the relevant
facts affecting the tax treatment of the
item. To satisfy this requirement you
must include information that
reasonably may be expected to
apprise the IRS of the identity of the
item, its amount, and the nature of
the controversy or potential
controversy. Information concerning
the nature of the controversy may
include a description of the legal
issues presented by the facts, and
2. A statement explaining why you
believe this regulation to be invalid.
Disclosure will not be
considered adequate unless
CAUTION (1) and (2) above are provided
using Form 8275-R. For example,
your disclosure will not be considered
adequate if you attach a copy of an
acquisition agreement to your tax
return to disclose the issues involved
in determining the basis of certain
acquired assets. If Form 8275-R is
not completed and attached to the

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return, the disclosure will not be
considered valid even if the
information in (1) and (2) above is
provided using another method, such
as a different form or an attached
letter.

Part III
Line 4. Contact your pass-through
entity if you do not know where its
return was filed. However, for
partners and S corporation
shareholders, information for line 4
can be found on the Schedule K-1
that you received from the
partnership or S corporation.
If the pass-through entity filed its
return electronically using e-file, enter
“e-file” on line 4.
Paperwork Reduction Act Notice.
We ask for the information on this
form to carry out the Internal
Revenue laws of the United States.
You are required to give us the
information if you wish to use this
form to make adequate disclosure to
avoid the portion of the
accuracy-related penalty due to a
substantial understatement of income
tax or disregard of regulations, or to
avoid certain preparer penalties. We
need it to ensure that you are
complying with these laws and to
allow us to figure and collect the right
amount of tax.
You are not required to provide the
information requested on a form that

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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
1545-0074 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 and sending
the form to the IRS . .

3 hr., 35 min.
53 min.
59 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. See the instructions for the
tax return with which this form is filed.