Form 8275-R

Form 8275-R

Form 8275-R: IRS Regulation Disclosure Statement 

Sometimes, a US Taxpayer will want to take a position on a tax issue that is contrary to a regulation. When Taxpayer wants to take a position contrary to the IRS, they submit the position on a Form 8275-R. The form allows the Tapayer to submit a summry of their position.

As provided by the IRS:

    • Form 8275-R is used by taxpayers and tax return preparers to disclose positions taken on a tax return that are contrary to Treasury regulations.

    • The form is filed to avoid the portions of the accuracy-related penalty due to disregard of regulations or to a substantial understatement of income tax for non-tax shelter items if the return position has a reasonable basis.

    • It can also be used for disclosures relating to the economic substance penalty and the preparer penalties for tax understatements due to positions taken contrary to regulations.”

IRS Regulation

Statues are commonly interpreted by a court of law, which then become “precedent” for other courts to follow. Sometimes, the legislative bodies that created the laws, may also provide some guidance and interpretation on what they meant by the law. While this can often be found in legislative history, there are also “regulations” that are promulgated to interpret certain statutes.

What is a IRS Regulation?

The journey from Proposed Rulemaking to Final Regulation/Treasury Decision is a long-one.

As provided by the IRS, here are some of the finer points on how the process works:

Advance Notice of Proposed Rulemaking

      • An Advance Notice of Proposed Rulemaking (ANPRM) describes a problem or situation, announces that the agency is considering regulatory action, describes the agency’s anticipated regulatory approach, and seeks input from the public about the issues, the need for regulation, and the adequacy of the agency’s proposed regulatory action. An ANPRM is issued, typically is issued early in the rulemaking process.

Notice of Proposed Rulemaking

      • A Notice of Proposed Rulemaking (NPRM) announces to the public that an agency is considering modifying regulations as published in the Code of Federal Regulations (CFR) or issuing rules on matters not addressed in existing regulations.

      • Taxpayers generally may not rely on proposed regulations for planning purposes, except if there are no applicable final or temporary regulations in force and there is an express statement in the preamble to the proposed regulations that taxpayers may rely on them currently.

      • If there are no final or temporary regulations currently in force addressing a particular matter, but there are proposed regulations on point, the Office of Chief Counsel generally should look to the proposed regulations to determine the office’s position on the issue.

      • The Office of Chief Counsel ordinarily should not take any position in litigation or advice that would yield a result that would be harsher to the taxpayer than what the taxpayer would be allowed under the proposed regulations.

Temporary Regulations

      • Temporary regulations are issued to provide immediate guidance to the public and IRS and Counsel employees prior to publishing final regulations.

      • Temporary regulations are effective when published by the Office of the Federal Register. See Exhibit 32.1.4-5 for a sample temporary regulation.

      • Section 7805(e) requires the IRS to publish a cross-referencing NPRM when it publishes a temporary regulation.

      • Section 7805(e) also provides that a temporary regulation expires (sunsets) within three years of issuance, which is the date the regulation is filed for public inspection with the Federal Register.

Final Regulations

      • Final regulations are issued after considering the public comments on the proposed regulations.

      • The preamble of a final rule also cites to the underlying NPRM and other rulemaking history (for example, an ANPRM), discusses and analyzes public comments received and explains the agency’s final decision.

      • A final regulation is almost always preceded by an NPRM. See Exhibit 32.1.4-6 for a sample final regulation.

Final Regulations Amended by Reference to Temporary Regulations

      • Existing final regulations may be amended by reference to temporary regulations issued in the same Treasury Decision (TD).

Treasury Decision (TD)

      • A Treasury Decision (TD) is a document that contains the text of a final or temporary regulation. The TD adds new text to or removes or revises text already published in the Code of Federal Regulations (CFR). It contains a preamble that explains the rule.

      • It must state the applicability for the regulation and effective date for the change made to the CFR. A TD is cited as legal authority and is binding on taxpayers as well as the IRS, unless invalidated.

Typical Situation Example

In a common situation – especially in offshore disclosure – an applicant may disagree with the proposed, temporary, or final regulation on issues such as income tax. Especially in situations in which the IRS Agent is following a proposed or temporary regulation (which is not established law), the applicant may disagree with the IRS position.

Can You Take a Position Against a Regulation?

Yes, you can – but you have to be careful, and you have to do it properly.  In other words, the IRS is machine. There is a bureaucracy in place, and while the IRS has never been labeled a “well-oiled machine,” there are still protocols and procedures Attorneys should follow.

Use a Licensed Attorney

Taking a position against the IRS is a big deal. Your representative should be an Attorney licensed in at least one state (even if all they practice is federal law).  Being an EA or CPA may provide practice rights before the IRS, but this does not make the practitioner an attorney, or provide a confidential attorney-client privilege. You may have significant confidentiality concerns, that are best protected under the attorney-client privilege.

Form 8275-R Instructions — Regulatory Disclosure Statement

IRS Form 8275-R is not technically complicated, but it is a very important form.

Form 8275-R – Part I General Information

The IRS requires a person (individual or entity) to be specific when talking a position against a regulation. Therefore, the Regulation Disclosure Statement requires specificity.

In completing this form, the applicant must complete the following information

      • (a) Regulation Section

      • (b) Item or Group of Items

      • (c) Detailed Description of Items

      • (d) Form or Schedule

      • (e) Line Number

      • (f) Amount

Form 8275-R – Part II Detailed Explanation

It is important to follow the reporting rules, especially for this form, and specifically as to Part II

Your disclosure must include:

      • A description of the relevant facts affecting the tax treatment of the item. To satisfy this requirement, you must include information that reasonably can be expected to apprise the IRS of the identity of the item, its amount, and the nature of the controversy or potential controversy.

      • Information concerning the nature of the controversy can include a description of the legal issues presented by the facts, and

      • A statement explaining why you believe this regulation to be invalid. Unless provided otherwise in the General Instructions above, your disclosure will not be considered adequate unless (1) and (2) above are provided using Form 8275-R.

      • For example, your disclosure will not be considered adequate if you attach a copy of an acquisition agreement to your tax return to disclose the issues involved in determining the basis of certain acquired assets.

      • If Form 8275-R is not completed and attached to the return, the disclosure will not be considered valid even if the information in (1) and (2) above is provided using another method, such as a different form or an attached letter.

Form 8275-R Part III About Pass-Through Entity

This section is only required to be completed by partners, shareholders, beneficiaries, or residual interest holders.

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