What Is Form 8918, Material Advisor Disclosure Statement?
Learn about IRS Form 8918, the disclosure statement for advisors. Understand the reporting obligations and compliance process for specific transactions.
Form 8918, the Material Advisor Disclosure Statement, is a document filed with the Internal Revenue Service (IRS) by individuals and firms that provide specific types of tax-related advice. Its purpose is to provide the IRS with information about potentially aggressive tax planning strategies, known as reportable transactions. This disclosure allows the agency to review these transactions and determine if they comply with tax laws.
Who Must File Form 8918
An individual or firm must file Form 8918 if they meet the two-part definition of a “material advisor.” The first part of this test involves providing material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction.
The second part of the test is based on income derived from these advisory activities. A person becomes a material advisor if they receive gross income in excess of a specific threshold. For transactions where substantially all the tax benefits are for individuals, the income threshold is $50,000. For all other types of transactions, the threshold is $250,000.
A “reportable transaction” is a specific classification that includes several categories of financial arrangements:
- Listed Transaction: A transaction that is the same as or substantially similar to one the IRS has specifically identified as a tax avoidance transaction.
- Confidential Transaction: An arrangement offered to a taxpayer under conditions of confidentiality for which the taxpayer has paid the advisor a fee.
- Transaction with Contractual Protection: A transaction where the taxpayer has the right to a full or partial refund of fees if the intended tax consequences are not sustained.
- Loss Transaction: A transaction where a taxpayer claims a loss of at least $2 million in a single tax year or $4 million over a combination of years for individuals, or higher amounts for corporations.
- Transaction of Interest: A transaction that the IRS and Treasury Department believe has the potential for tax avoidance but for which they lack enough information to make a final determination.
Information Required for Form 8918
The form requires the material advisor’s full name, address, and Taxpayer Identification Number (TIN). If the advisor is an entity like a partnership or corporation, the name and title of a contact person must also be provided.
The form requires a detailed description of the reportable transaction. This narrative must explain the transaction’s structure, the purported tax benefits, and the advisor’s role in providing aid or advice. If the transaction is a Listed Transaction, the filer must include the specific reportable transaction number that the IRS has assigned to it.
The form also requires summary information about the taxpayers who were advised on the transaction. The date that must be reported is when the individual or firm officially became a material advisor for that specific transaction. This is the date when both the advisory services were provided and the income threshold was met.
Completing the form requires the advisor to identify the type of reportable transaction being disclosed by checking the appropriate box. All information must be typed, as handwritten forms are not accepted.
Filing Procedures and Deadlines
The filing deadline is precise and tied to when the advisory role began. The form must be filed by the last day of the month that follows the end of the calendar quarter in which the person or firm became a material advisor. For example, if an advisor meets the criteria on February 10th (the first quarter), the form is due by April 30th.
The completed form must be filed directly with the IRS Office of Tax Shelter Analysis (OTSA). Filers can submit the form by mail to: Internal Revenue Service, OTSA Mail Stop 4915, 1973 Rulon White Blvd., Ogden, UT 84404. Alternatively, the form can be sent via electronic fax to 844-253-5607.
Penalties for Non-Compliance
Failure to comply with Form 8918 filing requirements can lead to significant financial penalties. Internal Revenue Code Section 6707 imposes a penalty for failing to file the form on time or for submitting a form that is false or incomplete. The standard penalty for such a failure is $50,000.
The penalty amount increases substantially if the failure to file relates to a Listed Transaction. For these specific, pre-identified tax avoidance schemes, the penalty is the greater of $200,000 or 50 percent of the gross income the advisor derived from the activity.
A related compliance duty for material advisors is the requirement to maintain a list of all individuals and entities they advised on a reportable transaction. This list must be furnished to the IRS upon request. Under Internal Revenue Code Section 6708, a separate penalty applies for failing to maintain this list or for not providing it within 20 business days of an IRS request. The penalty is $10,000 for each day of the failure after the 20th business day, with no maximum limit.