Instructions For Form 8886 - Reportable Transaction Disclosure Statement (Page 2 of 7) in pdf

are not required to disclose the

above. If disclosure by a pass-through

single tax year or $20 million in any

transaction on Form 8886. For more

entity (partnership, S corporation, or

combination of tax years.

•

information, see Notice 2006-16,

trust) is limited, but disclosure by the

For partnerships with only

2006-9 I.R.B. 538, available at

partner, shareholder, or beneficiary is

corporations (excluding S corporations)

gov/pub/irs-irbs/irb06-09.pdf.

not limited, then the pass-through entity

as partners (looking through any

(but not the partner, shareholder, or

partners that are also partnerships), at

Confidential Transactions

beneficiary) has participated in the

least $10 million in any single tax year

confidential transaction.

or $20 million in any combination of tax

A confidential transaction is a

years, whether or not any losses flow

transaction that is offered to you or a

Transactions With

through to one or more partners.

related party (as described in section

•

For all other partnerships and S

267(b) or 707(b)) under conditions of

Contractual Protection

corporations, at least $2 million in any

confidentiality and for which you or a

A transaction with contractual

single tax year or $4 million in any

related party paid an advisor a

protection is a transaction for which you

combination of tax years, whether or

minimum fee (defined below). A

have, or a related party (as described in

not any losses flow through to one or

transaction is considered to be offered

sections 267(b) or 707(b)) has, the right

more partners or shareholders.

under conditions of confidentiality if the

to a full refund or partial refund of fees

•

For trusts, at least $2 million in any

advisor places a limitation on your

if all or part of the intended tax

single tax year or $4 million in any

disclosure of the tax treatment or tax

consequences from the transaction are

combination of tax years, whether or

structure of the transaction and the

not sustained. It also includes a

not any losses flow through to one or

limitation on disclosure protects the

transaction for which fees are

more beneficiaries. (At least $50,000

confidentiality of the advisor’s tax

contingent on your realization of tax

for a single tax year if the loss arose

strategies. The transaction is treated as

benefits from the transaction. For

from a section 988 transaction defined

confidential even if the conditions of

exceptions and other details, see

in section 988(c)(1) (relating to foreign

confidentiality are not legally binding on

Regulations section 1.6011-4(b)(4) and

currency transactions), whether or not

you. See Regulations section

Rev. Proc. 2007-20, 2007-7 I.R.B. 517,

the loss flows through from an S

1.6011-4(b)(3) for more information.

available at gov/pub/irs-irbs/

corporation or partnership).

Minimum fee. For a corporation

irb07-07.pdf.

Section 165 loss. For purposes of

(excluding S corporations), or a

You have participated in a

the above threshold amounts, a section

partnership or trust in which all of the

transaction with contractual protection if

165 loss is adjusted for any salvage

owners or beneficiaries are

your tax return reflects a tax benefit

value and for any insurance or other

corporations (excluding S corporations),

from the transaction and, as described

compensation received. However, a

the minimum fee is $250,000. For all

above, you have the right to a full or

section 165 loss does not take into

others, the minimum fee is $50,000.

partial refund of fees or the fees are

account offsetting gains, other income,

The minimum fee includes all fees

contingent. All facts and circumstances

or limitations. The full amount of a loss

for a tax strategy, for advice (whether

relating to the transaction will be

is taken into account in the year it was

or not tax advice), or for the

considered when determining whether

sustained, regardless of whether all or

implementation of a transaction. Fees

a fee is refundable or contingent,

part of the loss enters into the

include payment in whatever form paid,

including the right to reimbursements of

computation of a net operating loss

whether in cash or in kind, for services

amounts that the parties to the

under section 172 or a net capital loss

to analyze the transaction (whether or

transaction have not designated as

under section 1212 that is a carryback

not related to the tax consequences of

fees or any agreement to provide

or carryover to another year. A section

the transaction), for services to

services without compensation. If a

165 loss does not include any portion of

implement the transaction, for services

pass-through entity (partnership, S

a loss, attributable to a capital loss

to document the transaction, and for

corporation, or trust) has the right to a

carryback or carryover from another

services to prepare tax returns to the

full or partial refund of fees or has a

year, that is treated as a deemed

extent return preparation fees are

contingent fee arrangement, but the

capital loss under section 1212.

unreasonable. You are treated as

partner, shareholder, or beneficiary

In determining whether a transaction

paying fees to an advisor if you know or

individually does not, then the

results in a taxpayer claiming a loss

should know that the amount you pay

pass-through entity (but not the partner,

that meets the threshold amounts over

will be paid indirectly to the advisor,

shareholder, or beneficiary) has

a combination of tax years as described

such as through a referral fee or

participated in the transaction with

above, only losses claimed in the tax

fee-sharing arrangement. Fees do not

contractual protection.

year that the transaction is entered into

include amounts paid to a person,

and the 5 succeeding tax years are

including an advisor, in that person’s

Loss Transactions

combined.

capacity as a party to the transaction.

A loss transaction is a transaction that

The IRS will scrutinize all of the facts

The types of losses included in this

results in your claiming a loss under

and circumstances in determining

category are section 165 losses,

section 165 (described later) if the

whether consideration received in

including amounts deductible under a

amount of the section 165 loss is as

connection with a confidential

provision that treats a transaction as a

follows.

transaction constitutes fees. For

•

sale or other disposition or otherwise

For individuals, at least $2 million in

purposes of determining the minimum

results in a deduction under section

any single tax year or $4 million in any

fee, related parties (as described in

165. However, this category does not

combination of tax years. (At least

section 267(b) or 707(b)) will be treated

include losses described in Rev. Proc.

$50,000 for a single tax year if the loss

as the same individual or entity.

2004-66, 2004-50 I.R.B. 966, available

arose from a section 988 transaction

at gov/pub/irs-irbs/irb04-50.pdf

You have participated in a

defined in section 988(c)(1) (relating to

(or future published guidance).

confidential transaction if your tax

foreign currency transactions), whether

return reflects a tax benefit from the

or not the loss flows through from an S

You have participated in a loss

transaction and your disclosure of the

corporation or partnership).

transaction if your tax return reflects a

•

tax treatment or tax structure of the

For corporations (excluding S

section 165 loss that equals or exceeds

transaction is limited as described

corporations), at least $10 million in any

the applicable threshold amount. If you

-2-

Instructions for Form 8886 (Rev. 3-2010)

Instructions For Form 8886 - Reportable Transaction Disclosure Statement Page 2

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