Form 8275 - Disclosure Statement

PAGER/SGML
Page 1 of 3

Userid: ________
DTD INSTR04
Leadpct: 0%
Fileid: D:\Users\0wxhb\documents\I8275\I8275.SGM

Pt. size: 10

Instructions for Form 8275

❏ Draft
(Init. & date)

❏

Ok to Print

11:05 - 31-JUL-2009

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Instructions for Form 8275

Department of the Treasury
Internal Revenue Service

(Rev. February 2009)
(Use with the August 2008 revision of Form 8275.)
Disclosure Statement
What’s New
Changes have been made to
penalties for tax return preparers as a
result of P.L. 110-343, section 506.
For more information, see Tax Return
Preparer Penalties on page 2.

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

Purpose of Form
Form 8275 is used by taxpayers and
tax return preparers to disclose items
or positions, except those taken
contrary to a regulation, that are not
otherwise adequately disclosed on a
tax return to avoid certain penalties.
The form is filed to avoid the portions
of the accuracy-related penalty due to
disregard of rules 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 preparer penalties for
understatements due to
unreasonable positions or disregard
of rules.
The portion of the
accuracy-related penalty
CAUTION attributable to the following
types of misconduct cannot be
avoided by disclosure on Form 8275.

!

• Negligence.
• Disregard of regulations.
• Any substantial understatement of

income tax on a tax shelter item.
• Any substantial valuation
misstatement under chapter 1.
• Any substantial overstatement of
pension liabilities.
• Any substantial estate or gift tax
valuation understatements.

Who Should File
Form 8275 is filed by individuals,
corporations, pass-through entities,
and tax return preparers. If you are
disclosing a position taken contrary to
a regulation, use Form 8275-R,

Regulation Disclosure Statement,
instead of Form 8275.
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.) can make
adequate disclosure of these items.
Exception to filing Form 8275.
Guidance is published annually in a
revenue procedure in the Internal
Revenue Bulletin. This can be found
on the Internet at www.irs.gov. The
revenue procedure identifies
circumstances when an item reported
on a return is considered adequate
disclosure for purposes of the
substantial understatement aspect of
the accuracy-related penalty and for
avoiding the preparer’s penalty
relating to understatements due to
unreasonable positions. See the
Example below. You do not have to
file Form 8275 for items that meet the
requirements listed in this revenue
procedure.
Example. Generally, you will
have met the requirements for
adequate disclosure of a charitable
contribution deduction if you complete
the contributions section of Schedule
A (Form 1040) and supply all the
required information. If you make a
contribution of property other than
cash that is over $500, the form
required by the Schedule A
instructions must be attached to your
return.

How To File
File Form 8275 with your original tax
return. Keep a copy for your records.
You may be able to file Form 8275
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 for items
reported by each entity.
Carrybacks, carryovers, and
recurring items. Carryover items
must be disclosed for the tax year in
Cat. No. 62063F

which they originated. You do not
have to file another Form 8275 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 for those items for
the tax years in which the carryback
is taken into account.
However, if you disclose items of a
recurring nature (such as
depreciation expense), you must file
Form 8275 for each tax year in which
the item occurs.
If you are disclosing a position that
is contrary to a rule, 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, 2004-31 I.R.B.
140, available at www.irs.gov/irb/
2004-31_IRB/ar19.html.

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 rules and

Page 2 of 3

Instructions for Form 8275

11:05 - 31-JUL-2009

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

substantial understatement portions
of the accuracy-related penalty if the
position is adequately disclosed and
the position has at least a reasonable
basis. Reasonable basis is a
relatively high standard of tax
reporting that is significantly higher
than not frivolous or not patently
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
tax 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).
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.)
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.
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.

Tax Return Preparer
Penalties
A preparer who files a return or claim
for refund is subject to a penalty in an
amount equal to the greater of $1,000
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 the
preparer knew or reasonably should
have known would understate any
part of the liability if:
• There is or was no substantial
authority for the position.
• The position is a tax shelter (as
defined in section 6662(d)(2)(C)(ii)) or
a reportable transaction to which
section 6662A applies and it was not
reasonable to believe that the
position would more likely than not be
sustained on its merits.
• The position was disclosed as
provided in section 6662(d)(2)(B)(ii),
is not a tax shelter or a reportable
transaction to which section 6662A
applies, and there was no reasonable
basis for the position.
-2-

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 has a
reasonable basis.
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.

Specific Instructions
Be sure to supply all the information
for Parts I, II, and, if applicable, Part
III. Your disclosure will be considered
adequate if you file Form 8275 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). If you are disclosing a
position contrary to a rule (such as a
statutory position or IRS revenue
ruling), you must identify the rule in
column (a).
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 for

Page 3 of 3

Instructions for Form 8275

11:05 - 31-JUL-2009

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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 entertainment
expenses were 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
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 statement must
include a description of the relevant
facts affecting the tax treatment of the
item. To satisfy this requirement you
must include information that
reasonably can 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 can
include a description of the legal
issues presented by the facts.
Your disclosure will not be
considered accurate unless
CAUTION the information described
above is provided using Form 8275.

!

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
is not completed and attached to the
return, the disclosure will not be
considered valid even if the
information described 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 rules, 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.

-3-

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
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 . . . . . . . . 3 hr., 35 min.
Learning about the law
or the form . . . . . . . . .
1 hr.
Preparing and sending
the form to the IRS . . .

1 hr., 6 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.