Form 8275, Disclosure Statement, allows a taxpayer or tax return preparer to explain a tax item or return position that isn’t otherwise adequately disclosed on the tax return.
The form gives the Internal Revenue Service details about the item, the tax treatment claimed, and the facts supporting that treatment. When the return position has a reasonable basis, adequate disclosure may help protect the taxpayer from certain parts of the accuracy-related penalty or help a tax preparer avoid certain preparer penalties.
Filing Form 8275, Disclosure Statement doesn’t mean the taxpayer has done anything wrong. It’s a way to be transparent when the tax treatment of an item may not be clear from the return alone.
When is Form 8275 used?
Form 8275, Disclosure Statement may be used when:
- A tax item or return position isn’t adequately explained elsewhere on the return.
- The position isn’t contrary to a Treasury regulation.
- The position has at least a reasonable basis.
- The taxpayer wants to disclose relevant facts that could affect the tax treatment of an item.
- A tax return preparer needs to disclose a position that could otherwise be considered unreasonable.
- A disclosure relates to the economic substance penalty, although disclosure alone doesn’t prevent that penalty from applying.
Some items are already considered adequately disclosed when the taxpayer completes the appropriate tax form or schedule and supplies all required information. The Internal Revenue Service publishes annual guidance identifying circumstances in which a separate Form 8275 isn’t required.
Program Entry
To enter a disclosure statement:
- Select Federal.
- Select Miscellaneous Forms.
- Select Other Miscellaneous Forms.
- Select Disclosure Statement/Regulation Disclosure Statement.
- Choose the appropriate disclosure type and enter a full description of the tax item, relevant facts, supporting authority, form or schedule, line number, and amount.
If the position is contrary to a Treasury regulation, select the option for a regulation disclosure statement so the information is reported on Form 8275-R, Regulation Disclosure Statement instead of Form 8275.
What does “reasonable basis” mean?
A reasonable basis is a recognized tax-reporting standard. It’s higher than merely having an argument that isn’t frivolous or obviously improper.
A position may meet this standard when it’s reasonably supported by relevant tax authorities, such as the Internal Revenue Code, Treasury regulations, court decisions, revenue rulings, or other applicable guidance. The strength and relevance of those authorities matter. A position that’s only debatable doesn’t automatically have a reasonable basis.
Disclosure also doesn’t replace proper documentation. A taxpayer generally can’t avoid a penalty by filing Form 8275 if they didn’t maintain the required records or couldn’t substantiate the item reported on the return.
What is the difference between Form 8275 and Form 8275-R?
Use Form 8275, Disclosure Statement to disclose a position that isn’t adequately shown on the tax return but isn’t contrary to a Treasury regulation.
Use Form 8275-R, Regulation Disclosure Statement when the return position is contrary to a Treasury regulation.
Choosing the correct form matters. A Form 8275 disclosure generally won’t be adequate if the position should have been reported on Form 8275-R.
Can Form 8275 prevent an accuracy-related penalty?
An accuracy-related penalty is generally 20% of the portion of a tax underpayment caused by certain errors or reporting positions. Adequate disclosure on Form 8275, Disclosure Statement may help avoid the parts of the penalty related to:
- Disregard of certain rules
- A substantial understatement of income tax involving a non-tax-shelter item
The return position must generally have a reasonable basis. Disclosure by itself doesn’t guarantee penalty protection, and it doesn’t determine whether the tax treatment on the return is correct.
For an individual, an understatement is generally considered substantial when it exceeds the greater of:
- 10% of the tax required to be shown on the return, or
- $5,000
Which penalties can’t be avoided by filing Form 8275?
Disclosure on Form 8275, Disclosure Statement can’t prevent the portion of an accuracy-related penalty caused by:
- Negligence
- Disregard of Treasury regulations
- A substantial understatement involving a tax-shelter item
- A substantial or gross valuation misstatement
- A substantial overstatement of pension liabilities
- Certain estate or gift tax valuation understatements
- A transaction that lacks economic substance
- An undisclosed foreign financial asset understatement
- An inconsistent estate basis
- Certain overstatements or disallowances involving charitable contribution deductions
Depending on the issue, another disclosure form may also be required. For example, a reportable transaction may require Form 8886, Reportable Transaction Disclosure Statement.
What information is reported on Form 8275?
A complete disclosure generally identifies:
- The tax rule, revenue ruling, revenue procedure, or other authority related to the position
- The item or group of items being disclosed
- A detailed description of the item
- The tax form or schedule on which the item appears
- The applicable line number
- The amount reported
- The relevant facts affecting the item’s tax treatment
- The nature of the actual or potential tax issue
The disclosure should give the Internal Revenue Service enough information to understand the identity of the item, its amount, the tax treatment claimed, and the issue that could be disputed. Simply attaching contracts, agreements, or a general written statement usually won’t substitute for properly completing Form 8275.
How are pass-through items disclosed?
A pass-through item may come from a partnership, S corporation, estate, trust, regulated investment company, real estate investment trust, or real estate mortgage investment conduit.
The disclosure should generally be made on the pass-through entity’s return. If the entity doesn’t make the disclosure, a partner, shareholder, beneficiary, or other recipient may make the disclosure on their own return. A separate Form 8275 is generally required for items from each pass-through entity.
Do carryovers and recurring items need a new disclosure each year?
Carryover and carryback items are generally disclosed for the tax year in which they originated. Another Form 8275 usually isn’t required solely because the item is later carried forward or carried back.
Recurring items work differently. An item that occurs again in a later year, such as a recurring depreciation expense, generally requires a new Form 8275 for each tax year in which the item occurs.
When is Form 8275 filed?
Attach Form 8275, Disclosure Statement to the original federal income tax return and keep a copy with the taxpayer’s records. In some circumstances, the form may also be filed with a qualified amended return.
A separate Form 8275 is generally required for:
- Items reported by each separate pass-through entity
- Positions related to each separate foreign entity