Form 8886 2023 Tax Year Checklist
Form 8886 discloses reportable transactions to the IRS, including listed transactions, confidential transactions, transactions with contractual protection, loss transactions, and transactions of interest. This checklist applies to the October 2022 instructions, which remain current for 2023 filings. Verify all disclosure deadlines and ensure timely submission to avoid penalties.
Step-by-Step Filing Checklist
Step 1: Determine Transaction Category Eligibility
Verify whether your transaction qualifies as reportable under one or more of the following categories:
● Listed Transaction: A transaction the IRS has identified as a tax avoidance transaction in published guidance. Review Notice 2009-59 and subsequent updates on the IRS Abusive Tax Shelters and Transactions webpage for the current list.
● Confidential Transaction: A transaction offered under conditions of confidentiality for which you or a related party paid minimum fees of $250,000 (for corporations or partnerships/trusts with all-corporate owners) or $50,000 (for all other taxpayers, including individuals).
● Transaction with Contractual Protection: A transaction where you or a related party has the right to a full or partial refund of fees, or fees are contingent on realizing tax benefits.
● Loss Transaction: A transaction generating section 165 losses meeting minimum thresholds based on your entity type.
● Transaction of Interest: A transaction the IRS has identified as having potential for tax avoidance but lacks sufficient information to list. Must have been entered into after November 1, 2006.
Step 2: Calculate Loss Transaction Thresholds
If claiming section 165 losses, verify your losses meet the applicable threshold:
● Individuals and Trusts: At least $2 million in a single tax year or $4 million in any combination of the current year plus the five preceding tax years. For section 988 foreign currency losses, at least $50,000 in a single tax year.
● C Corporations: At least $10 million in a single tax year or $20 million in any combination of years.
● Partnerships (all-corporate partners): At least $10 million in a single tax year or $20 million in any combination of years.
● All Other Partnerships and S Corporations: At least $2 million in a single tax year or $4 million in any combination of years.
● Do not include offsetting gains, other income, or carryback/carryover limitations in your calculation. Calculate losses based on the full amount sustained in each year, regardless of net operating loss treatment.
Step 3: Identify Your Filing Status
● Initial Year Filer: If this is the first time you are filing Form 8886 for this specific transaction, you must file an exact copy with the Office of Tax Shelter Analysis (OTSA) in addition to attaching the form to your tax return.
● Subsequent Year Filer: If you previously disclosed this transaction, attach Form 8886 only to your current year return. No OTSA copy is required unless you are amending the disclosure or providing new information.
Step 4: Prepare OTSA Submission (Initial Filers Only)
If you are an initial-year filer, prepare to send an exact copy to OTSA via mail or fax:
Mail Address:
Internal Revenue Service
OTSA Mail Stop 4915
1973 Rulon White Blvd.
Ogden, UT 84201
Fax Number: 844-253-2553 (maximum 100 pages per transmission)
Include a fax cover sheet with the subject line “Form 8886,” sender’s name and contact information, taxpayer’s name, date, and total page count. Do not include EIN or SSN on the cover sheet. Retain your fax transmission log as proof of filing.
Step 5: Complete Item C Checkboxes
● Initial Year Filer: Check this box if this is your first Form 8886 filing for this transaction.
● Protective Disclosure: Check this box if you are filing on a protective basis according to Regulations section 1.6011-4(f). You may check both boxes simultaneously if applicable. A protective disclosure allows you to file a complete Form 8886 without waiving legal defenses while preserving statute of limitations rights.
Step 6: Complete Lines 1a Through 1c
● Line 1a: Enter the transaction name or a short identifying description that distinguishes it from other reportable transactions.
● Line 1b: Enter the first year you participated in this transaction using the YYYY format. This may differ from the year you are currently disclosing.
● Line 1c: Enter all reportable transaction numbers (9-digit or 11-digit numbers, which may begin with “MA”). These numbers are issued by the IRS to material advisors. Include all applicable numbers and attach an additional list if necessary.
Step 7: Check All Applicable Category Boxes on Line 2
Select one or more categories that apply to your transaction:
● 2a: Listed Transaction
● 2b: Confidential Transaction
● 2c: Transaction with Contractual Protection
● 2d: Loss Transaction
● 2e: Transaction of Interest
If your transaction qualifies under multiple categories, check all applicable boxes. Note that the brief asset holding period category was eliminated for transactions entered into on or after August 3, 2007, and is no longer included on current forms.
Step 8: Complete Line 3 (If Applicable)
If you checked box 2a (Listed Transaction) or 2e (Transaction of Interest), identify the published guidance number that designated the transaction—reference Notice 2009-59 or later IRS guidance for the correct citation.
Step 9: Complete Lines 5 Through 6 Identifying Parties
● Line 5: List each pass-through entity through which you participated (partnerships, S corporations, trusts). Provide the entity name, EIN if known, date you received Schedule K-1, and check the foreign entity box if applicable.
● Line 6: Identify each individual or entity to whom you paid fees if they promoted, solicited, recommended your participation, or provided tax advice. Include names, identifying numbers, addresses, and approximate fees paid. Fees include all payments for tax strategy, advice, implementation, documentation, and unreasonable return preparation fees.
Step 10: Complete Line 7 Tax Benefits and Transaction Description
● Line 7a: Check all tax benefit types the transaction generates: deductions, exclusions from gross income, nonrecognition of gain, tax credits, capital loss, ordinary loss, adjustments to basis, absence of adjustments to basis, deferral, or other.
● Line 7b: Enter the total anticipated dollar amount of all tax benefits over the transaction’s entire life.
● Line 7c: Enter the number of years you anticipate claiming these benefits.
● Line 7d: Enter your total investment or basis in the transaction.
● Line 7e: Provide a complete narrative describing each step of the transaction, including all parties involved, dates, amounts, economic and business reasons, and relevance to the reportable category. If you checked box 2b (confidential), explain disclosure limitations. If you checked box 2c (contractual protection), describe refund or contingency terms. If you checked box 2d (loss), explain your basis calculation method. Attach additional sheets if necessary.
Step 11: Complete Line 8 Identifying Related Parties
List all tax-exempt, foreign, or related individuals and entities involved in the transaction. For each, check the applicable boxes and provide name, identifying number, address, and a brief description of involvement. For foreign entities, identify the country of incorporation or the country in which they exist. For related parties, describe the relationship under section 267(b) or 707(b).
Step 12: Attach Form 8886 to Your Tax Return
Attach the completed Form 8886 to your income tax return or information return for each tax year in which you participated in the reportable transaction. This includes original returns, amended returns, and applications for tentative refund if the transaction results in a loss or credit carried back to a prior year.
Step 13: File OTSA Copy Within Required Timeframe
Initial-year filers must send the exact OTSA copy simultaneously with their tax return filing. Ensure both the return attachment and OTSA submission contain identical information.
Special filing deadlines apply to transactions listed or of interest after you file your return. Consult the instructions for specific timeframes based on when the transaction was entered into and when it was designated.
Step 14: Verify Completeness Before Submission
Review your Form 8886 to ensure it includes all required information. An incomplete form that states “information provided upon request” or similar language will not satisfy disclosure requirements and may result in penalties.
Verify that you have:
● Completed all applicable line items
● Attached additional sheets where necessary
● Included all reportable transaction numbers
● Provided detailed narrative descriptions
● Identified all relevant parties and entities
Step 15: Retain Documentation and Transmission Records
Keep copies of all documents and records related to the reportable transaction as required by Regulations section 1.6011-4(g). If you faxed your OTSA copy, retain the fax transmission log as your proof of filing, as the IRS does not provide separate confirmation of receipt.
Important Reminders
● Participation Versus Entry: You must file Form 8886 for each tax year in which you participated in and claimed benefits from a reportable transaction, not just the year you entered into it. The initial year refers to the year you first attended, but you may need to file in subsequent years if you continue to claim benefits.
● Multiple Disclosures: File a separate Form 8886 for each dissimilar reportable transaction. However, you may report various transactions on one form if they are the same or substantially similar in nature.
● Substantially Similar Transactions: A transaction is substantially similar to another if it is expected to obtain the same or similar tax consequences and is either factually similar or based on the same tax strategy. This term must be broadly construed in favor of disclosure.
● Listed Transactions Require Both Boxes: If your transaction qualifies as both a listed transaction and another category, you must check both the listed transaction box and any other applicable category boxes on Line 2.
● No Electronic Filing for OTSA Copy: Initial-year filers are not permitted to submit the OTSA copy electronically. If you file your tax return electronically, the OTSA copy must still be sent via mail or fax and must exactly match the electronically filed version.
Special Considerations
● Penalties for Nondisclosure: Failure to file Form 8886, failure to file with OTSA when required, or filing an incomplete form results in penalties under section 6707A. For listed transactions, penalties range from $10,000 to $200,000, depending on the taxpayer type. For non-listed reportable transactions, penalties range from $5,000 to $50,000. Additional accuracy-related penalties under section 6662A may also apply.
● Previously Undisclosed Listed Transactions: If you failed to disclose a listed transaction in prior years, special procedures under section 6501 and Revenue Procedure 2005-26 apply. The assessment period extends until one year after proper disclosure. File Form 8886 with a cover letter to the service center where your original return was filed, clearly marking it as “Section 6501 Disclosure.”
● Pass-Through Entity Participation: If you participated through a partnership, S corporation, or trust, your disclosure obligations depend on whether the entity or you individually meet the reportable transaction criteria. Special rules apply for confidential transactions and contractual protection transactions when only the entity has the confidentiality limitation or contractual protection arrangement.
● Foreign Corporation Shareholders: Reporting shareholders of foreign corporations (U.S. shareholders in controlled foreign corporations or 10% shareholders of qualified electing funds) have special participation rules. The foreign corporation’s activities determine whether you participated in most categories of reportable transactions.
● Protective Disclosure Strategy: If you are uncertain whether a transaction qualifies as reportable, filing on a protective basis under Item C allows you to satisfy disclosure requirements without conceding that the transaction is actually reportable. You must still complete the form in its entirety with all required information.
● Subsequent Loss Transactions: If a transaction becomes a loss transaction because accumulated losses reach the threshold amounts in a later year, you must file Form 8886 for the first year the threshold is met and for any subsequent year reflecting section 165 losses from the transaction.
Need Help With Your Tax Filing?
Need Help With Your Tax Filing?
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
We offer:
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Call now before filing: (888) 260-9441
Fast transcript pull available
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.
