Instructions For Form 8275-R - Regulation Disclosure Statement

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portions of the accuracy-related

last day of the tax year to which the

The preparer knew or reasonably

penalty if the position is adequately

return relates.

should have known of the position,

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disclosed and the position has at

An item (other than a tax shelter

and

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least a reasonable basis. To avoid

item) that is adequately disclosed on

The position is frivolous or not

the disregard of regulations portion of

this form if there is a reasonable

adequately disclosed on the return or

the accuracy-related penalty, the

basis for the tax treatment of the item.

on the appropriate disclosure

position taken must also represent a

(In no event will a corporation be

statement.

good-faith challenge to the validity of

treated as having a reasonable basis

The penalty will not apply if it can

the regulation. Reasonable basis is a

for its tax treatment of an item

be shown that there was reasonable

relatively high standard of tax

attributable to a multi-party financing

cause for the understatement and

reporting that is significantly higher

transaction entered into after August

that the preparer acted in good faith.

than not frivolous or not patently

5, 1997, if the treatment does not

In cases where any part of the

improper. The reasonable basis

clearly reflect the income of the

understatement of the liability is due

standard is not satisfied by a return

corporation.)

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to a willful attempt by the return

position that is merely arguable.

A tax shelter item (other than a

preparer to understate the liability, or

corporate tax shelter item), for tax

The penalty will not be imposed on

if the understatement is due to

years ending before October 23,

any part of an underpayment if there

reckless or intentional disregard of

2004, if (a) there was substantial

was reasonable cause for your

rules or regulations by the preparer,

authority for the treatment at the time

position and you acted in good faith

the preparer is subject to a $1,000

the return was filed or on the last day

in taking that position.

penalty.

of the tax year to which the return

If you failed to keep proper books

relates, and (b) you reasonably

For returns or claims for refund

and records or failed to substantiate

believed that the tax treatment of the

filed after May 25, 2007. A preparer

items properly, you cannot avoid the

item was more likely than not the

who files a return or claim for refund

penalty by disclosure.

is subject to a penalty in an amount

proper tax treatment.

equal to the greater of $1000 or 50

For corporate tax shelter

Substantial Understatement

percent of the income derived (or to

transactions (and for tax shelter items

An understatement is the excess of:

be derived) by the tax return

of other taxpayers for tax years

1. The amount of tax required to

preparer, with respect to the return or

ending after October 22, 2004), the

be shown on the return for the tax

claim, for taking a position which

only exception to the substantial

year, over

understates any part of the liability if:

understatement portion of the

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2. The amount of tax shown on

There is not a reasonable belief

accuracy-related penalty is the

the return for the tax year, reduced by

that the position would more likely

reasonable cause exception. For

any rebates.

than not be sustained on its merits,

more details, see section 1.6664-4(f).

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The preparer knew or reasonably

Tax shelter items. A tax shelter, for

There is a substantial

should have known of the position,

understatement of income tax if the

purposes of the substantial

and

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understatement portion of the

amount of the understatement for any

The position was not disclosed as

accuracy-related penalty, is a

year exceeds the greater of:

provided in section 6662(d)(2)(B)(ii);

partnership or other entity, plan, or

1. 10% of the tax required to be

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arrangement, with a significant

There was no reasonable basis for

shown on the return for the tax year,

purpose to avoid or evade federal

the position.

income tax. For transactions on or

2. $5,000 ($10,000 for a

The penalty will not apply if it can

before August 5, 1997, a tax shelter

corporation other than an S

be shown that there was reasonable

is a partnership or other entity, plan,

corporation or a personal holding

cause for the understatement and

or arrangement, whose principal

company as defined in section 542).

that the preparer acted in good faith.

purpose is to avoid or evade federal

In cases where any part of the

income tax.

For tax years beginning after

understatement of the liability is due

October 22, 2004, an understatement

A tax shelter item is any item of

to a willful attempt by the return

of a corporation (other than an S

income, gain, loss, deduction, or

preparer to understate the liability, or

corporation or a personal holding

credit that is directly or indirectly

if the understatement is due to

company) is substantial if it exceeds

attributable to the principal or

reckless or intentional disregard of

the lesser of:

significant purpose of the tax shelter

rules or regulations by the preparer,

1. 10% of the tax required to be

to avoid or evade federal income tax.

the preparer is subject to a penalty

shown on the return for the tax year

equal to the greater of $5,000 or 50

Tax Return Preparer

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

percent of the income derived, or to

2. $10,000,000.

Penalties

be derived, by the tax return preparer

with respect to the return or claim.

For purposes of the substantial

For income tax returns or claims

This penalty shall be reduced by the

understatement portion of the

for refund filed on or before May

amount of the penalty paid by such

accuracy-related penalty, the amount

25, 2007. A preparer who files an

person for taking an unreasonable

of the understatement will be reduced

income tax return or claim for refund

position, or a position with no

by the part that is attributable to the

is subject to a $250 penalty for taking

reasonable basis, as described

following items.

a position which understates any part

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immediately above.

An item (other than a tax shelter

of the liability if:

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item) for which there was substantial

The position has no realistic

A preparer is not considered to

authority for the treatment claimed at

possibility of being sustained on its

have recklessly or intentionally

the time the return was filed or on the

merits,

disregarded a rule if a position is

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Instructions For Form 8275-R - Regulation Disclosure Statement - 2007 Page 2

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