Instructions For Form 8275-Department Of The Treasury-Internal Revenue Service (Page 2 of 4) in pdf

AccuracyRelated Penalty

The reasonable cause and

1. 10% of the tax required to be

good faith exception does not

shown on the return for the tax year

Generally, the accuracy-related

apply to any portion of an

(or, if greater, $10,000), or

penalty is 20% of any portion of a tax

CAUTION

underpayment attributable to a

2. $10,000,000.

underpayment attributable to:

transaction that lacks economic

1. Negligence or disregard of rules

substance under section 7701(o).

Reduction of understatement. The

or regulations,

amount of the understatement will be

Adequate disclosure. Generally,

2. Any substantial understatement

reduced by the part that is attributable

you can avoid the disregard of rules

of income tax,

to the following items.

and substantial understatement

3. Any substantial valuation

An item (other than a tax shelter

portions of the accuracy-related

misstatement under chapter 1 of the

item) for which there was substantial

penalty if the position is adequately

authority for the treatment claimed at

Internal Revenue Code,

disclosed and the position has at least

the time the return was filed or on the

4. Any substantial overstatement

a reasonable basis.

last day of the tax year to which the

of pension liabilities,

return relates.

Reasonable basis. Reasonable

5. Any substantial estate or gift tax

An item (other than a tax shelter

basis is a relatively high standard of

valuation understatement, or

item) that is adequately disclosed on

tax reporting that is significantly higher

6. Any claim of tax benefits from a

this form if there is a reasonable basis

than not frivolous or not patently

transaction lacking economic

for the tax treatment of the item. (In no

improper. The reasonable basis

substance, as defined by section

event will a corporation be treated as

standard is not satisfied by a return

7701(o), or failing to meet the

having a reasonable basis for its tax

position that is merely arguable.

requirements of any similar rule of

treatment of an item attributable to a

If the return position is reasonably

law.

multi-party financing transaction

based on one of the authorities set

entered into after August 5, 1997, if

The penalty is 40% of any portion

forth in Regulations section

the treatment does not clearly reflect

of a tax underpayment attributable to

1.6662-4(d)(3)(iii) (taking into account

the income of the corporation.)

one or more gross valuation

the relevance and persuasiveness of

For corporate tax shelter

misstatements in (3), (4), or (5) above

the authorities, and subsequent

transactions (and for tax shelter items

if the applicable dollar limitation under

developments), the return position will

section 6662(h)(2) is met. The penalty

of other taxpayers for tax years

generally satisfy the reasonable basis

also increases to 40% for failing to

ending after October 22, 2004), the

standard even though it may not

adequately disclose a transaction that

only exception to the substantial

satisfy the substantial authority

understatement portion of the

lacks economic substance in (6)

standard as defined in Regulations

accuracy-related penalty is the

above. See Economic substance,

section 1.6662-4(d)(2). For details,

reasonable cause exception. For

below. The penalty is 40% of any

see Regulations section 1.6662–4(d).

more details, see Reasonable cause

portion of an underpayment that is

If you failed to keep proper books

exception (earlier), section 6662(d)

attributable to any undisclosed foreign

and records or failed to substantiate

and Regulations section 1.6664-4.

financial asset understatement.

items properly, you cannot avoid the

penalty by disclosure.

Economic substance. To satisfy the

Tax shelter items. A tax shelter,

disclosure requirements under section

for purposes of the substantial

Substantial Understatement

6662(i), you may adequately disclose

understatement portion of the

An understatement is the excess of:

with a timely filed original return

accuracy-related penalty, is a

(determined with regard to

1. The amount of tax required to

partnership or other entity, plan, or

extensions) or a qualified amended

be shown on the return for the tax

arrangement, with a significant

return (as defined under Regulations

year, over

purpose to avoid or evade federal

section 1.6664-2(c)(3)) the relevant

income tax. For transactions on or

2. The amount of tax shown on the

facts affecting the tax treatment of the

before August 5, 1997, a tax shelter is

return for the tax year, reduced by any

transaction.

a partnership or other entity, plan, or

rebates.

arrangement, whose principal

Note. If you filed a Schedule UTP,

There is a substantial

purpose is to avoid or evade federal

you may not need to file Form 8275 to

understatement of income tax if the

income tax.

satisfy the disclosure requirements of

amount of the understatement for any

A tax shelter item is any item of

section 6662(i). See the Instructions

tax year exceeds the greater of:

income, gain, loss, deduction, or

for Schedule UTP.

1. 10% of the tax required to be

credit that is directly or indirectly

shown on the return for the tax year,

Reasonable cause exception.

attributable to the principal or

Generally, no accuracy-related

significant purpose of the tax shelter

penalty will be imposed on any portion

to avoid or evade federal income tax.

2. $5,000.

of an underpayment if you show that

Tax Return Preparer Penalties

An understatement of a corporation

there was reasonable cause for that

(other than an S corporation or a

A preparer who files a return or claim

portion and that you acted in good

personal holding company, as defined

for refund is subject to a penalty in an

faith with respect to that portion.

in section 542) is substantial if it

amount equal to the greater of $1,000

exceeds in any year the lesser of:

or 50 percent of the income derived

Instructions For Form 8275-Department Of The Treasury-Internal Revenue Service Page 2

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