Form 8275 Disclosure Statements and Form 8886 Reportable Transactions: Divulging Transactions to the IRS

Tax practitioners continue to struggle with the need to disclose sticky transactions and the preparation of related Forms 8275, 8275-R, and 8886. Under Section 6662, a 20 percent underpayment penalty or 40 percent (for certain gross valuation misstatements) can be assessed when a taxpayer takes a position contrary to a rule or regulation.

There are two ways to avoid this substantial underpayment penalty. One is if the item's tax treatment is supported by "substantial authority." The second is if the transaction is adequately disclosed on Form 8275 or 8275-R, and there is “reasonable authority” for the position taken. Updated annually, Revenue Procedure 2020-54 identifies circumstances where disclosure on a taxpayer's return is considered adequate.

More recognizable, reportable transactions must be disclosed, and include listed transactions, transactions of interest (TOIs), confidential transactions, and certain loss transactions. The IRS specifically identifies listed transactions. Syndicated conservation easements, micro-captive transactions, and inflated partnership transactions (Son of Boss) are among those named. Taxpayers with these transactions are required to file Form 8886.

The IRS can impose a minimum penalty of $5,000 for individual taxpayers or a 75 percent penalty, based on the tax savings, under Section 6707A for failure to disclose reportable transactions properly. These penalties are cumulative and continue to run as long as the taxpayer participates in the transaction.

Listen as our panel of tax experts explains when these forms should be added to a taxpayer's return, the differences in the levels of authority, the IRS' response to receipt of these disclosure statements, and avoiding preparer penalties for unreasonable positions.

1. Disclosing transactions to the IRS
2. Forms 8275 and 8275-R, Disclosure Statement
3. Form 8886, Reportable Transaction Disclosure Statement
4. Levels of authority
5. Penalties
   1. Taxpayer
   2. Preparer
6. Amending returns for disclosures
7. Best practices

The panel will review these and other critical issues:

• Preparing Forms 8275-R and 8275 to meet the adequate disclosure threshold and avoid penalties
• Identifying specific transactions that are reportable on Form 8666, Reportable Transaction Disclosure Statement
• Does filing Forms 8275-R and 8275 increase a taxpayer's chance of audit?
• When and how should returns be amended to include disclosure statements?

Learning Objectives

After completing this course, you will be able to:

• Identify circumstances where Filing 8886 for Reportable Transactions is required
• Ascertain filing requirement differences between Forms 8275 and Form 8275-R
• Determine what constitutes substantial authority
• Decide when filing Form 8275 would be advisable

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of individual income taxation, including itemized deductions, individual income tax credits, net operating loss limitations including carrybacks and carryforwards.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).