Form 8886 (2012): Reportable Transaction Disclosure Guide Checklist

Form 8886 (Rev. December 2012) – 2012 Tax Year Checklist

What This Form Does

Form 8886 discloses participation in reportable transactions for the tax year 2012. You must file this form if you participated in any transaction categorized as listed, confidential, contractual protection, loss, or transaction of interest. The form requires detailed information about the transaction structure, tax benefits, and all parties involved in promoting or implementing the arrangement.

Reportable Transaction Categories

Listed Transactions

You participated in a listed transaction if your tax return reflects tax consequences described in published IRS guidance that identifies the transaction as a tax avoidance arrangement. You must also file if you know or have reason to know that tax benefits on your return derive directly or indirectly from such consequences. The IRS publishes these transactions through notices, regulations, or announcements available in the Internal Revenue Bulletin.

Confidential Transactions

A confidential transaction requires disclosure if an advisor placed limitations on your disclosure of the tax treatment or tax structure, and you paid minimum fees.

• For corporations excluding S corporations, the minimum fee threshold equals $250,000.
• For all other taxpayers, including individuals, partnerships, trusts, and S corporations, the minimum fee equals $50,000.

Transactions With Contractual Protection

You must disclose transactions where you have the right to a full or partial refund of fees if intended tax consequences fail to materialize. Disclosure also applies when fees are contingent on your realization of tax benefits from the transaction. All facts and circumstances relating to the transaction determine whether fees qualify as refundable or contingent.

This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.

Loss Transactions

Loss transactions require disclosure when Section 165 losses equal or exceed specific threshold amounts.

• For individuals and trusts, the threshold equals $2 million in any single tax year or $4 million in any combination of tax years.
• For corporations excluding S corporations, the threshold equals $10 million in any single tax year or $20 million in any combination of tax years.
• Partnerships with only corporate partners apply the same thresholds as corporations.
• All other partnerships and S corporations apply the individual thresholds.

Transactions of Interest

Transactions of interest represent arrangements that the Internal Revenue Service and the Treasury Department believe have potential for tax avoidance or evasion. These transactions lack sufficient information for the IRS to determine whether they should become listed transactions. You participated if you belong to a type or class of individuals or entities identified as participants in the published guidance describing the transaction.

Required Preparation Steps

You must complete the following steps to prepare Form 8886 accurately:

1. Review definitions and published IRS guidance current to December 2012 to determine which reportable transaction category applies to your situation.
2. Obtain the published guidance number from IRS notices or announcements if your transaction qualifies as a listed transaction or transaction of interest.
3. Line 1b requires the first tax year you participated in the reportable transaction, which may differ from the current filing year.
4. Section B requires the form number of your 2012 tax return, the tax year 2012, and an indication of whether the return is original or amended.
5. Section 7a requires checking all applicable tax benefit types, including deductions, exclusions, credits, capital loss, ordinary loss, nonrecognition, deferral, basis adjustments, or other benefits.
6. Line 7b requires the aggregate dollar amount of tax benefits generated by the transaction for all affected tax years.
7. Section 6 requires complete information for all promoters and tax advisors, including names, identifying numbers if known, fees paid to each party, and complete addresses.
8. Section 8 requires identification of all tax-exempt organizations, foreign entities, or related persons involved in the transaction, including names, identifying numbers, addresses, countries of incorporation for foreign entities, role descriptions, and relationship explanations.

This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.

Filing Requirements and Procedures

You must attach Form 8886 to your income tax return for each tax year in which you participated in a reportable transaction. A separate exact copy must also go to the Office of Tax Shelter Analysis at the Internal Revenue Service, OTSA Mail Stop 4915, 1973 Rulon White Blvd., Ogden, UT 84201. If you file your tax return electronically, the copy sent to OTSA must contain the same information as the electronically filed version.

Special Timing Rules

Special filing timing rules apply in certain circumstances:

• Taxpayers who receive a Schedule K-1 from a partnership, S corporation, or trust less than 10 calendar days before their return due date, including extensions, may file Form 8886 with OTSA within 60 days after the return due date.
• Transactions that become listed after filing require Form 8886 attachment to the first return filed after the designation date.
• Transactions designated as listed after August 2, 2007, require Form 8886 filing with OTSA within 90 days after the designation date.

Penalties for Noncompliance

Section 6707A imposes penalties for failing to include required information about reportable transactions. The penalty equals 75 percent of the decrease in tax shown on the return resulting from the transaction.

• Minimum penalties equal $5,000 for individuals and $10,000 for all other taxpayers.
• Maximum annual penalties for reportable transactions other than listed transactions equal $10,000 for individuals and $50,000 for other taxpayers.
• Maximum annual penalties for listed transactions equal $100,000 for individuals and $200,000 for other taxpayers.

This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.

Verification and Recordkeeping

You must complete Form 8886 in its entirety with all required attachments to satisfy disclosure requirements. The description of expected tax treatment and all potential tax benefits must provide sufficient detail to allow the IRS to understand the tax structure and identify all parties involved. Copies of all documents and records related to the reportable transaction must be retained as required by Treasury regulations.

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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.