Form 8275-R - Regulation Disclosure Statement

Instructions for
Form 8275-R

Department of the Treasury
Internal Revenue Service

(Rev. February 2011)

(Use with the August 2008 revision of Form 8275-R.)
Regulation Disclosure Statement
Section references are to the Internal
Revenue Code unless otherwise noted.

What’s New
An underpayment attributable to a
transaction lacking economic
substance, as defined under section
7701(o), or failing to meet the
requirements of any similar rule of
law is subject to a 20%
accuracy-related penalty. The penalty
increases to 40% if the transaction is
not adequately disclosed. See
Accuracy-Related Penalty on this
page.

General Instructions
Purpose of Form
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 and the economic
substance penalty.
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.
• Any claim of tax benefits from a
transaction lacking economic

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substance (within the meaning of
section 7701(o)) or failing to meet the
requirements of any similar rule of
law.
• Any otherwise undisclosed foreign
financial asset understatement.
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
can 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.

Who Should File
Form 8275-R is filed by individuals,
corporations, pass-through entities,
and 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.) can 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)(1) 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
Cat. No. 14317I

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.
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 as indicated in
Regulations section 1.6011-4(d). See
Form 8886, Reportable Transaction
Disclosure Statement, its instructions,
Notice 2006-6, 2006-5 I.R.B. 385,
available at http://www.irs.gov/irb/
2006-05_IRB/ar10.html, and Notice
2010-62, 2010-40 I.R.B. 411,
available at www.irs.gov/irb/
2010-40_IRB/ar09.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,
5. Any substantial estate or gift tax
valuation understatement, or

6. Any claim of tax benefits from a
transaction lacking economic
substance, as defined by section
7701(o), or failing to meet the
requirements of any similar rule of
law.

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.

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. The
penalty also increases to 40% for
failing to adequately disclose a
transaction that lacks economic
substance in (6) above. See
Economic Substance on this page.
The penalty is 40% of any portion of
an underpayment that is attributable
to any undisclosed foreign financial
asset understatement.
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
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.

An understatement of a
corporation (other than an S
corporation or a personal holding
company, as defined in section 542)
is substantial if it exceeds in any year
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.

The reasonable cause and
good faith exception does not
CAUTION
apply to any portion of an
underpayment attributable to a
transaction that lacks economic
substance under section 7701(o).
If you failed to keep proper books
and records or failed to substantiate
items properly, you cannot avoid the
penalty by disclosure.

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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

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
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credit that is directly or indirectly
attributable to the principal or
significant purpose of the tax shelter
to avoid or evade federal income tax.
Economic substance. To satisfy
the disclosure requirements under
section 6662(i), you may adequately
disclose with a timely filed original
return (determined with regard to
extensions) or a qualified amended
return (as defined under Regulations
section 1.6664-2(c)(3)) the relevant
facts affecting the tax treatment of the
transaction.
Note. If you filed a Schedule UTP,
you may not need to file Form 8275-R
to satisfy the disclosure requirements
of section 6662(i). See the
Instructions for Schedule UTP.

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.
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 sections 6662,
6664, and 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

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 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, and
2. A statement explaining why you
believe this regulation to be invalid.
Unless provided otherwise in
the General Instructions
CAUTION
above, your disclosure will not
be considered adequate unless (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
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.

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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.

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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
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.