Form 8886 – 2013 Tax Year Checklist
What This Checklist Covers
Taxpayers must file Form 8886 to disclose reportable transactions entered into during 2013, including listed transactions, confidential transactions with advisor fees meeting thresholds, transactions with contractual fee protection, and loss transactions meeting dollar limits. For 2013, loss transaction thresholds remain unchanged from prior years.
Individuals must report losses of at least $2 million in a single year or $4 million combined over specified years. Corporations excluding S corporations must report $10 million single or $20 million combined. Partnerships and S corporations must report $2 million single or $4 million combined unless composed entirely of corporate partners, in which case the $10 million and $20 million thresholds apply.
Filing Steps for 2013
Step 1: Determine Transaction Category Under 2013 Rules
Identify whether your 2013 transaction qualifies as listed per Notice 2009-59 or updated IRS Abusive Tax Shelters list, confidential with advisor fees of $50,000 minimum for individuals and trusts or $250,000 for corporate entities, or contractual protection with refundable or contingent fees. Transactions of interest entered after November 1, 2006, remain reportable. Confirm status through IRS published guidance current through 2013.
Step 2: Verify Loss Transaction Thresholds
For 2013 loss transactions, calculate section 165 losses under Regulations section 1.6011-4. Aggregate losses claimed in the tax year that the transaction is entered into and the five succeeding tax years to determine whether the individual threshold of $2 million single year or $4 million combined is met. Exclude losses arising from Rev. Proc. 2013-11 exceptions.
Step 3: Check Foreign Corporation Shareholder Status
If you are a reporting shareholder in a foreign corporation entering a 2013 reportable transaction, apply special participation rules. The foreign corporation would be treated as participating if it were domestic, except for transactions of interest that require express inclusion in the published 2013 guidance. Reporting shareholders include U.S. shareholders in controlled foreign corporations or 10 percent shareholders of qualified electing funds.
Step 4: Gather Advisor Fee Documentation
For confidential transactions, compile evidence of fees paid in 2013 to promoters, solicitors, or tax advisors. Ensure that the minimum fee thresholds of $50,000 for individuals or $250,000 for all-corporate partnerships or trusts are documented. Include fees for transaction analysis, implementation, documentation, and return preparation if unreasonable. Record indirect fee-sharing or referral arrangements.
Step 5: Confirm Protective Disclosure Election
If filing Form 8886 for a 2013 transaction on a protective basis under Regulations section 1.6011-4(f), check Item C and complete the entire form with all required information. Incomplete forms with statements such as “information provided upon request” do not qualify as protective disclosures under the 2013 standards.
Step 6: Assemble Reportable Transaction Number if Issued
If you received a nine-digit or eleven-digit registration number, possibly prefixed with “MA,” from a material advisor for this transaction, enter it on Line 1c. Material advisors filing under section 6111 must provide this number. Inclusion on Form 8886 demonstrates compliance with disclosure requirements for 2013.
Step 7: Complete Detailed Transaction Description
Provide a comprehensive narrative of all steps, parties, dates, and amounts involved in the 2013 transaction on Line 7e. Explain how each element relates to the reportable category.
Follow these requirements for specific transaction types:
- For confidential transactions, describe specific limitations on your disclosure of tax treatment or structure.
- For contractual protection transactions, detail refund or contingent fee terms.
Omit vague phrases such as “details available upon request” because incomplete descriptions trigger 2013 penalty exposure.
Step 8: File Exact Copy With OTSA and Original With Return
Attach the original Form 8886 to your 2013 tax return or amended return. File an exact duplicate copy with the Office of Tax Shelter Analysis by mail to Ogden, Utah 84201 or by fax to 844-253-2553 by the return due date, including extensions.
If you are a partner or shareholder receiving a timely 2013 Schedule K-1 less than 10 days before the return due date, the 60-day OTSA extension allows Form 8886 filing within 60 days after your return due date. Complete the fax cover sheet with subject, sender name, taxpayer name, date, and page count, and do not include a Social Security number or employer identification number on the cover sheet.
2013-Specific IRS Updates and Changes
Rev. Proc. 2013-11 Exception
Loss transactions arising from this procedure issued in early 2013 are excluded from the loss transaction reporting category. Ensure losses do not fall under this exception before applying the $2 million or $4 million thresholds.
Listed Transaction Notice Updates
Refer to Notice 2009-59, 2009-31 I.R.B. 170, and subsequent 2013 Internal Revenue Bulletin updates for the current listed transaction inventory. Transactions identified mid-year may trigger the 90-day reporting requirement from the designation date.
Penalties Under Section 6707A
Failure to file Form 8886 or incomplete disclosure incurs penalties equal to 75 percent of the tax reduction, subject to statutory minimums and maximums:
- The minimum penalty is $5,000 for individuals and $10,000 for other entities.
- Listed transaction penalties are capped at $100,000 for individuals and $200,000 for other entities annually.
- Non-listed reportable transaction penalties are capped at $10,000 for individuals and $50,000 for other entities annually.
Substantially Similar Standard
Broadly construe “substantially similar” under Regulations section 1.6011-4(c)(4) in favor of disclosure. Transactions sharing an identical tax strategy or expected tax consequences require a separate or consolidated Form 8886 filing based on material factual differences.
Recordkeeping Requirement
Retain all documents and records related to the 2013 reportable transaction. These records may become material in the IRS administration of any tax law and support the completeness and accuracy of Form 8886 disclosures.
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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.
