Daily Tax Update - December 29, 2010: IRS Updates Revenue Procedure on Adequate Disclosure Requirements


IRS UPDATES REVENUE PROCEDURE ON ADEQUATE DISCLOSURE REQUIREMENTS FOR SECTION 6662(d) SUBSTANTIAL UNDERSTATEMENT PENALTY AND SECTION 6694(a) TAX PREPARER PENALTY: On December 28, the Internal Revenue Service (“IRS”) released Revenue Procedure 2011-13, which identifies circumstances under which a taxpayer is considered to have adequately disclosed an item or position for purposes of reducing the understatement of income tax under section 6662(d) (the substantial understatement aspect of the accuracy-related penalty) and avoiding the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions). The revenue procedure does not apply with respect to any other penalty provisions, including the new section 6662(i) increased accuracy-related penalty in the case of non-disclosed transactions determined to lack economic substance and the section 6662(j) increased accuracy-related penalty in the case of undisclosed foreign financial asset understatements

  • The revenue procedure provides a list of items with respect to which disclosure by return is adequate for purposes of section 6662(d)(2)(B)(ii) and section 6694(a)(2)(B) (i.e., when a Form 8275 or Form 8275-R is not required) if the return forms and attachments specified in the revenue procedure are “completed in a clear manner and in accordance with their instructions,” the money amounts entered on the forms are verifiable, and certain other requirements are met. These items include medical and dental expenses, taxes, charitable contributions, certain expenses, certain losses, book-tax differences, and treaty-based return positions.
  • The revenue procedure states that a “complete and accurate disclosure of a tax position” on Schedule UTP will be treated as if the corporation filed a Form 8275 or Form 8275-R regarding the position. The filing of a Form 8275 or Form 8275-R will not, however, be treated as if the corporation filed a Schedule UTP. In other words, Forms 8275 and 8275-R cannot be used as a substitute for the Schedule UTP.
  • Revenue Procedure 2011-13 applies to any income tax return filed on 2010 tax forms for a taxable year beginning in 2010 and to any income tax return filed on 2010 tax forms in 2011 for short taxable years beginning in 2011.
  • For additional information, contact: Matthew D. Lerner - mlerner@steptoe.com, J. Walker Johnson  - wjohnson@steptoe.com, or Mark J. Silverman - msilverman@steptoe.com.

Notice 2011-5 provides guidance on use of health FSA and HRA debit cards to purchase over-the-counter medicines or drugs that are prescribed. This document modifies Notice 2010-59, 2010-39 IRB 396 which did not allow the use of health FSA and HRA debit cards to purchase over-the-counter medicines or drugs after December 31, 2010. The current notice would allow the use of debit cards to purchase prescribed over the counter drugs when certain requirements are met. This notice will be in IRB 2011-3, dated Jan. 18, 2011.

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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