If you participate in a “Listed Transaction” the penalties can be startling. Apparently, the IRS has no discretion to consider intent, culpability or negligence in assessing the penalties as it does in most other cases. A taxpayer must disclose his participation in a listed transaction on Form 8886 or be subject to these special penalties. The maximum annual penalty for failure to include information with respect to a listed transaction is $100,000 in the case of an individual and $200,000 in any other case. This penalty is in addition to any other penalty that may be imposed.

A listed transaction is a transaction that is the same as or substantially like one of the types of transactions that the IRS has determined to be a tax avoidance transaction.

Thus, if a taxpayer’s company has not disclosed on its tax return a listed transaction and if owner of the company is also culpable, a $300,000 penalty is likely if found by the IRS. The IRS apparently does not have the discretion to abate.

See the instructions to Form 8886 to obtain a list of these transactions, but you will have to go through several notices to get a complete list. Note a transaction is listed if it is substantially similar to a listed item.