There are at least three questions when it comes to IRS tax disclosures: (1) Should a taxpayer disclose; (2) How should a taxpayer disclose; and (3) How much detail should be disclosed? Should a taxpayer simply append a statement or footnote to the return, or should the taxpayer utilize a Form 8275, Form 8275-R, or Form 8886? This article addresses these questions, drawing on experience with hundreds of tax return disclosures. We also explore outstanding questions in the context of IRS disclosures.
To Disclose or Not To Disclose, That is the Question
The Internal Revenue Code (IRC) imposes penalties for tax-reporting positions that result in an underpayment of tax or an understatement of liability and (1) lack the appropriate level of authority and/or (2) are not adequately disclosed. The Accuracy-Related Penalty imposed by Section 6662 (taxpayer) and Section 6694 (preparer) are two examples.