FAQs for Form 8886

Requirements for Filing Form 8886 Questions and Answers | Internal Revenue Service

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Requirements for Filing Form 8886 Questions and Answers
#

1.

Questions

Who must file a Form
8886, Reportable
Transaction Disclosure
Statement?

Answers

Any taxpayer, including an individual, trust,
estate, partnership, S corporation, or other
corporation, that participates in a reportable
transaction and is required to file a federal tax
return or information return must file Form 8886
disclosing the transaction.  The filing
requirement applies whether or not another
party, related or otherwise, has filed a disclosure
for that transaction.

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2.

How does a taxpayer
disclose its participation
in a reportable
transaction?

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The taxpayer must attach a Form 8886
disclosure statement to each tax return
reflecting participation in the reportable
transaction. The taxpayer must also send a copy
of the Form 8886 to the Office of Tax Shelter
Analysis (OTSA).  See Treasury Regulation §
1.6011-4(e)(1) and Form 8886 instructions.  
In addition, the taxpayer must file a disclosure
statement if a transaction becomes a listed
transaction or transaction of interest (TOI) after
the filing of  the taxpayer’s tax return (including
an amended return), if the period of limitation
for assessment on the tax return has not
expired.  The Form 8886 must reflect either tax
consequences or a tax strategy described in the
published guidance listing the transaction or
designating the transaction as a TOI.  If a
taxpayer entered into a transaction after August
2, 2007, and it later becomes a listed or TOI
transaction, the taxpayer must file a disclosure
with OTSA within 90 days after the date the
transaction became a listed transaction or TOI.
 If a taxpayer entered into a transaction before
August 3, 2007, and it later becomes a listed or
TOI transaction, the taxpayer must attach a
Form 8886 to its next filed tax return after the
date the transaction became a listed transaction
or TOI.  See Treasury Regulation § 1.6011-4(e)(2)
(i) and Form 8886 instructions. 

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3.

What are the
consequences for not
filing a disclosure
statement or for filing an
incomplete disclosure
statement?

If a taxpayer participated in a reportable
transaction and filed an incomplete disclosure
statement, or didn’t file a disclosure statement
with its return, and/or didn’t file a complete
disclosure statement with OTSA (if required), the
IRS may assess a penalty under Internal
Revenue Code (IRC) § 6707A.  Where the
taxpayer participated in a listed transaction, the
period of assessment with respect to that
transaction will remain open until the taxpayer
or a material advisor properly discloses the
participation in that transaction.  See IRC § 6501
(c)(10) for more information.  In addition, where
a reportable transaction is not properly
disclosed, any IRC 6662A reportable transaction
understatement penalty will apply at the 30%
rate rather than the 20% rate for reportable
transactions that are properly disclosed.

4.

What would be
considered a complete

A Form 8886 must be completed according to
the instructions for the Form as well as the
requirements of Treas. Reg. § 1.6011-4(d).  The
information provided on the Form must
describe the expected tax treatment and all
potential tax benefits expected from the
transaction, describe any tax result protection
with respect to the transaction, and identify and
describe the transaction in sufficient detail for
the IRS to be able to understand the tax
structure of the reportable transaction and
identify all parties involved in the transaction.

disclosure?

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5.

Would a Form 8886 filed
with no checked box on
Line 7 (expected tax
benefit criteria) and no
description on Line 7b be
considered complete?

No, the disclosure isn’t complete because it
didn’t identify the tax benefits expected from
the transaction or describe the transaction. 

6.

Would the Form 8886
disclosure be considered
complete if a taxpayer
checked Box 2c for a
transaction with
contractual protection,
but didn’t describe the
tax result protection with
respect to the transaction
in Line 7b of the form or
in an attached statement
to the form?

No, the disclosure isn’t complete because it
didn’t describe the tax result protection with
respect to the transaction

7.

Would a Form 8886 filed
with a checked box on
Line 5a, indicating
participation through a
related entity, but
providing no related
entity information on
Lines 5b or 5c, be
considered complete

If Line 5a has a checked box, Line 5b and/or 5c
must be completed.  The disclosure is
incomplete.

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8.

Is a statement that
information will be
provided upon request
sufficient to be
considered a complete
disclosure?

A Form 8886 containing a statement that
information will be provided upon request isn’t
a complete disclosure statement. 

9.

Do these completeness
requirements apply to
protective disclosures as
well?

Yes, filing a protective, but incomplete
disclosure when a taxpayer has participated in a
reportable transaction provides no protection
from a potential IRC § 6707A penalty.

10.

A taxpayer files a Form
8886 disclosure
indicating it entered into
many transactions some
of which may have been
reportable transactions
and some may not be
reportable transactions

No, this wouldn’t be a complete disclosure.  A
Form 8886 disclosure must be filed for each
dissimilar reportable transaction in which the
taxpayer participated.  Each disclosure must
contain specific information regarding the
reportable transaction in which the taxpayer has
participated.  

under Rev. Proc. 2004-66
or other Angel List
exclusions.  Would this be
considered a complete
disclosure?

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11.

How does a taxpayer
know if it has participated
in a reportable
transaction?

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A taxpayer has participated in a reportable
transaction if any of the criteria below are met:
1. Its tax return reflects tax consequences or a
tax strategy described in the published guidance
that identifies a transaction as a listed
transaction.  A list of such transactions is
included in Notice 2009-59 (or successor
guidance).
2. Its tax return reflects tax benefits from a
transaction offered under conditions of
confidentiality and it paid an advisor a fee of at
least $250,000 if a corporation (or partnership or
trust in which all owners or beneficiaries are
corporations) or at least $50,000 for all other
filers.  Conditions of confidentiality exist where
the advisor places a limitation on a taxpayer’s
disclosure of the tax treatment or tax structure
of the transaction to protect the confidentiality
of the advisor’s tax strategies.
3. Its tax return reflects tax benefits from a
transaction for which the taxpayer has a right to
a full or partial refund of fees if all or part of the
intended consequences from the transaction
are not sustained, or the fees are contingent on
the taxpayer’s realization of tax benefits from
the transaction.
4. The taxpayer’s share of an IRC § 165 loss
reported on its tax return from the transaction
is: (a) if a C corporation or a partnership in which
all partners are C corporations, at least $10
million in a single year or $20 million in any
combination of taxable years; (b) if an individual
or trust, at least $2 million in a single taxable
year or $4 million in any combination of taxable
years, or at least $50,000 in a single taxable year
and the loss arose from an IRC § 988 (foreign

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currency) transaction; (c) if any other filer, at
least $2 million in a single taxable year or $4
million in any combination of taxable years.
5. The taxpayer is within a class of persons
identified as participants in a transaction of
interest by published guidance that identifies a
transaction as a transaction of interest.  A list of
such transactions is included in Notice 2009-55
(or successor guidance).

12.

What does the term “tax
benefits” mean?

The term “tax benefits” includes any tax
consequences that may reduce the taxpayer’s
federal income tax liability by affecting the
amount, timing, character, or source of any item
of income, gain, expense, loss, or credit. 
Examples of tax benefits include (but are not
limited to) deductions, exclusions from gross
income, non-recognition of gain, tax credits,
adjustments (or the lack of adjustments) to the
basis of property, and status as an entity exempt
from federal income tax.

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13.

A partnership has two
partners, a corporation
and an individual, with
80% of the partnership’s
losses allocated to the
corporate partner.  In the
current year, the
partnership entered into
a transaction and
incurred an IRC § 165 loss
of $12 million which it
reported on its tax
return.  The partnership
must disclose this
transaction because the
IRC §165 loss of $12
million is greater than $2
million.  Do the partners
also need to disclose this
transaction?

The corporate partner’s distributive share of the
partnership’s $12 million IRC § 165 loss is $9.6
million.  The corporation doesn’t have a
disclosure requirement as its share of the § 165
loss is less than the $10 million corporation
threshold.  The individual partner will have to
disclose its $2.4 million share of the loss since
it’s over the $2 million individual threshold.

14.

Does an individual with
an IRC § 165 loss in the
current year that arose
from a single IRC § 988
transaction of $50,000
have a Form 8886
disclosure requirement?

Yes, an individual or a trust with an IRC §165 loss
that arose from a single IRC § 988 transaction of
$50,000 or more in a single taxable year has a
disclosure requirement. 

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15.

An individual partner has
a distributive share of
partnership losses of 5%. 
In the current year, the
partnership entered into
one IRC § 988 transaction
and incurred an IRC § 165
loss of $1.5 million.  The
partnership doesn’t have
a disclosure requirement
because the IRC § 165
loss of $1.5 million isn’t
more than $2 million. 
Does the individual
partner need to disclose
this transaction?

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Yes, because the individual partner’s allocable
share of the partnership’s $1.5 million IRC §165
loss that arose from an IRC § 988 transaction is
$75,000, which is greater than the $50,000 IRC
§988 loss threshold for an individual or trust. 

Page Last Reviewed or Updated: 22-Aug-2018

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