Form 8275 - Disclosure Statement

Instructions for Form 8275
(Rev. August 2013)

Department of the Treasury
Internal Revenue Service

Disclosure Statement
Section references are to the Internal
Revenue Code unless otherwise noted.

Future Developments

For the latest information about
developments related to Form 8275
and its instructions, such as
legislation enacted after they were
published, go to www.irs.gov/
form8275.

What's New

In the filer identification section,
additional lines have been added to
request the name, employer
identification number (if any), and
reference ID number of any foreign
entity for which the taxpayer is making
a disclosure on Form 8275.

General Instructions
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 the economic substance penalty
and the preparer penalties for tax
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.

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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.
Sep 06, 2013

Any claim of tax benefits from a
transaction lacking economic
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.

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 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.

Cat. No. 62063F

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)(1)
and 1.6664-2(c)(3) for more
information.
To make adequate disclosure for
items reported by a pass-though
entity, you must complete and file a
separate Form 8275 for items
reported by each entity.
To make adequate disclosure for a
position or positions related to more
than one foreign entity, you must
complete and file a separate Form
8275 for each foreign entity.
Carryovers, carrybacks, and recur­
ring items. Carryover 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 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 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.

Accuracy­Related 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.
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,
below. The penalty is 40% of any
portion of an underpayment that is
attributable to any undisclosed foreign
financial asset understatement.

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 to
satisfy the disclosure requirements of
section 6662(i). See the Instructions
for Schedule UTP.
Reasonable cause exception.
Generally, no accuracy-related
penalty will be imposed on any portion
of an underpayment if you show that
there was reasonable cause for that
portion and that you acted in good
faith with respect to that portion.

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).

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Adequate disclosure. Generally,
you can avoid the disregard of rules
and 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. 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.
If the return position is reasonably
based on one of the authorities set
forth in Regulations section
1.6662-4(d)(3)(iii) (taking into account
the relevance and persuasiveness of
the authorities, and subsequent
developments), the return position will
generally satisfy the reasonable basis
standard even though it may not
satisfy the substantial authority
standard as defined in Regulations
section 1.6662-4(d)(2). For details,
see Regulations section 1.6662–4(d).
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.
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:
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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.
Reduction of understatement. 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 Reasonable cause
exception (earlier), 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 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 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.
Reference ID number. If you are
filing Form 8275 to disclose a position
related to a foreign entity for which an
information return (such as Form
5471) is filed, enter on Form 8275 the
same reference ID number for the
foreign entity that is entered on the
information return.
If you are filing Form 8275 to report
a position or positions related to
multiple foreign entities, file a
separate Form 8275 for each foreign
entity.

Part I
Column (a). If you are disclosing a
position contrary to a rule (such as a
statutory provision 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 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).

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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.
Unless provided otherwise in
the General Instructions
CAUTION
above, your disclosure will
not be considered accurate unless 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.

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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.
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.

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.

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Recordkeeping . . . . . . .
Learning about the law
or the form . . . . . . . .
Preparing and sending
the form to the IRS . .

3 hr., 35
min.
1 hr.
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.