What Is IRS Form 8275: Disclosure Statement?

IRS Form 8275, Disclosure Statement, is a document taxpayers and their preparers can file with a tax return. Its primary function is to disclose a position taken on a return that might be open to challenge by the Internal Revenue Service (IRS). By formally explaining the basis for a particular tax treatment, the filer seeks protection from certain accuracy-related penalties that the IRS can impose if it disagrees with the position and determines additional tax is owed.

Filing this form signals to the IRS that a taxpayer is aware of the potential ambiguity surrounding an item on their return but believes their treatment is appropriate. It is a tool for transparency, intended to provide a defense against specific penalties by proactively detailing the nature of the uncertain item and the justification for how it was reported. The disclosure itself does not guarantee that the IRS will agree with the position, but it fulfills a requirement that can be a shield against financial penalties.

Determining the Need for Disclosure

A common 20% penalty can apply when a taxpayer understates their tax liability due to a substantial understatement of income tax, disregard of tax rules, or negligence. Filing Form 8275 can be a safeguard against the penalty for a substantial understatement or for the disregard of rules, provided the tax position has a reasonable basis. However, disclosure with this form does not protect a taxpayer from the penalty if the underpayment is due to negligence. For an individual, an understatement is considered “substantial” if it exceeds the greater of $5,000 or 10% of the tax required to be shown on the return.

A “tax position” is the treatment of any item on a tax return that could affect the final tax liability, such as a deduction, credit, or the exclusion of income. The need for disclosure hinges on the level of legal support for that position. Tax law recognizes different confidence levels for a position, primarily the “reasonable basis” and “substantial authority” standards. Substantial authority is an objective standard met when the weight of legal sources supporting a position is substantial compared to the sources opposing it; this is often interpreted as having around a 40% or greater chance of success if challenged.

Reasonable basis is a lower standard, though still significantly higher than a position that is merely arguable. It requires that the position be reasonably based on one or more recognized authorities, such as the Internal Revenue Code, Treasury Regulations, court cases, or official IRS rulings. A taxpayer might need to file Form 8275 when they believe their position has a reasonable basis but may not meet the higher substantial authority standard. For example, a business owner might deduct a new type of technology expense that is not explicitly addressed in existing tax law, basing the deduction on a well-reasoned interpretation of broader business expense principles.

This situation presents a classic case for disclosure. The taxpayer has a defensible argument, but because there is no direct legal precedent, the position lacks substantial authority. This act of adequate disclosure, provided the position has a reasonable basis, protects the taxpayer from the substantial understatement penalty even if the IRS later disallows the deduction.

Information Required for Form 8275

Part I of Form 8275 requires precise identification of the disclosed item. This includes the tax year in question and a reference to the specific item. The filer must state the line number, schedule, or form where the item is reported on the tax return. For instance, if disclosing an unconventional business expense, the taxpayer would reference the line on their Schedule C. The form also requires the dollar amount of the item or a detailed formula explaining how the amount was calculated.

Part II is the narrative heart of the disclosure and demands a thorough explanation. The filer must provide a complete and clear description of all relevant facts that affect the tax treatment of the item. This means presenting the context and circumstances surrounding the transaction or event. Following the factual summary, the taxpayer must explain the legal basis for the position. This involves citing the specific authorities relied upon, which can include statutes like the Internal Revenue Code, Treasury Regulations, published IRS Revenue Rulings, or relevant court case decisions.

To ensure compliance, taxpayers should always use the most current version of Form 8275. The official form and its accompanying instructions are available for download on the IRS website, irs.gov. Reviewing the latest instructions is important, as they provide specific guidance and definitions that can help in preparing a complete and effective disclosure statement.

Completing and Filing the Disclosure Statement

Once all the necessary information has been gathered, the final step is to accurately transcribe it onto Form 8275 and submit it with the tax return. The process is straightforward but requires careful attention to ensure the form is correctly associated with the primary tax filing. The information prepared for Part I, such as the tax year, item name, form or schedule reference, and dollar amount, should be entered into the corresponding columns on the form.

The method of submission depends on how the tax return is filed. For those filing a paper return, the completed Form 8275 should be physically attached to the tax return, typically behind the main Form 1040 or other primary form. This ensures it is processed as part of the original filing.

For individuals and businesses that e-file, the process is handled through tax preparation software. Most professional tax programs allow for the attachment of PDF documents to an electronic return. The filer would upload the completed Form 8275 as a statement, often with a specific description identifying it as such. After submission, the disclosure effectively flags the position for the IRS, which is the intended purpose. This proactive communication provides the penalty protection sought, assuming the disclosure is adequate and the position has a reasonable basis.