Instructions for Filing Form 8275-R

Form 8275-R, the Regulation Disclosure Statement, is a tool taxpayers use to inform the Internal Revenue Service (IRS) about a position on a tax return that is contrary to a Treasury Department regulation. The primary purpose of this disclosure is to seek protection from certain accuracy-related penalties that can be imposed when a taxpayer disregards tax regulations. By detailing the contrary position, the taxpayer demonstrates they are not attempting to hide the action. This statement is a formal declaration that a taxpayer understands a regulation but has a supportable reason for not following it.

Determining the Need to File Form 8275-R

A Treasury Regulation is an official interpretation by the Treasury Department of a provision within the Internal Revenue Code. These regulations provide rules that taxpayers are expected to follow when preparing their tax returns. Taking a “contrary position” means adopting a stance on a tax return that is in conflict with one of these established regulations. For example, if a regulation specifies a particular method for calculating depreciation on an asset, and a taxpayer knowingly uses a different method, they are taking a position contrary to that regulation.

This action is formally disclosed using Form 8275-R. It is important to distinguish this form from the more general Form 8275, Disclosure Statement. While both are used for disclosure, Form 8275-R is exclusively for positions that contradict Treasury regulations. In contrast, Form 8275 is used to disclose positions that are not contrary to a regulation but for which the taxpayer wants to avoid certain accuracy-related penalties.

Filing Form 8275-R is a strategic step to mitigate financial risk, as it can help avoid the accuracy-related penalty for disregard of rules or for a substantial understatement of income tax. This protection applies if the position is taken in good faith and the taxpayer can show there is a “reasonable basis” for it. A reasonable basis is a standard that, while lower than “substantial authority,” must be more than merely arguable or a colorable claim; it must be based on one or more recognized legal sources. Failing to file when required can expose the taxpayer to these penalties.

Information and Documentation Required for Completion

Form 8275-R is divided into two main parts. Part I of the form is for general information, including the taxpayer’s name and identifying number, the tax year for which the disclosure is being made, and the specific tax return the form will be attached to. If the disclosure relates to an item from a pass-through entity, like a partnership or an S corporation, the name and identifying number of that entity must also be provided.

Part II is the core of the form, where the detailed disclosure is made. This section requires a thorough explanation of the contrary position. In column (a), the taxpayer must provide a full citation of the Treasury Regulation being challenged; for instance, “Reg. 1.162-2” is the correct format. Column (b) asks for the dollar amount of the item, or a description of the group of items, affected by the disclosure. Column (c) requires an identifying number for the item, if applicable.

The explanation section in Part II requires a complete narrative. This includes all relevant facts affecting the tax treatment of the item and the precise nature of the controversy. The taxpayer must also present the legal basis for their contrary position, explaining why they believe the regulation is invalid or should not apply to their specific situation. This could involve citing court cases, statutes, or other authorities that support their good-faith challenge.

Step-by-Step Filing and Submission Process

Form 8275-R does not stand alone; it must be attached to the tax return on which the contrary position is taken. For individual taxpayers, this means attaching it to their Form 1040. For corporations, it would be attached to Form 1120, and for partnerships, to Form 1065.

The method of attachment depends on how the primary tax return is filed. If filing a paper return, the completed Form 8275-R should be physically attached to the front of the return. For those filing electronically, tax preparation software should provide a mechanism to attach the form as a PDF or include it within the electronic submission packet. It is important to verify that the software properly incorporates the form into the final e-file transmission.

Special rules apply to disclosures related to pass-through entities. If a taxpayer’s contrary position originates from an item reported by a partnership or an S corporation, the taxpayer must file their own Form 8275-R with their individual return. A separate form must be filed for items from each distinct pass-through entity. For carryover items, such as net operating losses, disclosure is required for the tax year in which the item originated. It is not necessary to file another Form 8275-R in subsequent years when the carryover is utilized.

After filing, the taxpayer should understand that the disclosure flags the specific item for IRS review. This does not guarantee an audit will occur, but it does increase the likelihood that the IRS will examine the position. The form serves as a declaration that the taxpayer has a well-reasoned basis for their position, which can be a mitigating factor during an examination. A copy of the filed Form 8275-R and the entire tax return should be kept for the taxpayer’s records.