Adequate Disclosure Using the Form 8275-R in a Post-Loper Bright World
By Gabriel Nuñez-Lafontaine on July 18, 2024
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Gabriel Nuñez-Lafontaine
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With the recent Supreme Court case in Loper Bright,1 tax practitioners are starting to consider whether certain interpretive Treasury regulations are still valid in a world without Chevron2 deference. As practitioners weigh whether to advise clients to take reporting positions that are contrary to Treasury regulations, it is important to keep in mind potentially applicable statutory penalties and ethical rules such as Circular 230.
At a minimum, practitioners and taxpayers should be filing positions that are not “unreasonable positions” or, stated differently, the positions should have a “reasonable basis.” A return position that meets the reasonable basis standard provides the taxpayer with protection from a negligence penalty.3 Taxpayers can also avoid the substantial understatement penalty if the reasonable basis position is disclosed on the return.4 Likewise, tax return preparers—whether signing or nonsigning—benefit from preparer penalty protection in situations where the tax return position has a reasonable basis and is adequately disclosed on the taxpayer’s return.
In the case of a return position that has a reasonable basis but is nonetheless contrary to the regulations, adequate disclosure should be made on the Form 8275-R, Regulation Disclosure Statement. The more commonly used Form 8275, Disclosure Statement, is generally insufficient in situations where the return position is contrary to regulations.
The Form 8275-R can be used as an advocacy piece to outline the taxpayer’s position in the event that an IRS agent reviews the return. An attachment to the Form 8275-R permits the practitioner to provide a thoughtful and well-reasoned explanation for the taxpayer’s return position. A well drafted Form 8275-R may even forestall an examination prior to commencement.
If you have any questions about this blog post, need any assistance researching and analyzing the merits of a legal position, or just need help drafting a Form 8275 or 8275-R, feel free to contact me directly at (214) 749-2421 or gnunez@meadowscollier.com.
1 Loper Bright Enterprises v. Raimondo, No. 22-451 (U.S. June 28, 2024) (slip op.).
2 Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984).
3 Reg. § 1.6662-3(b)(3).
4 Reg. § 1.6662-3(a).
At a minimum, practitioners and taxpayers should be filing positions that are not “unreasonable positions” or, stated differently, the positions should have a “reasonable basis.” A return position that meets the reasonable basis standard provides the taxpayer with protection from a negligence penalty.3 Taxpayers can also avoid the substantial understatement penalty if the reasonable basis position is disclosed on the return.4 Likewise, tax return preparers—whether signing or nonsigning—benefit from preparer penalty protection in situations where the tax return position has a reasonable basis and is adequately disclosed on the taxpayer’s return.
In the case of a return position that has a reasonable basis but is nonetheless contrary to the regulations, adequate disclosure should be made on the Form 8275-R, Regulation Disclosure Statement. The more commonly used Form 8275, Disclosure Statement, is generally insufficient in situations where the return position is contrary to regulations.
The Form 8275-R can be used as an advocacy piece to outline the taxpayer’s position in the event that an IRS agent reviews the return. An attachment to the Form 8275-R permits the practitioner to provide a thoughtful and well-reasoned explanation for the taxpayer’s return position. A well drafted Form 8275-R may even forestall an examination prior to commencement.
If you have any questions about this blog post, need any assistance researching and analyzing the merits of a legal position, or just need help drafting a Form 8275 or 8275-R, feel free to contact me directly at (214) 749-2421 or gnunez@meadowscollier.com.
1 Loper Bright Enterprises v. Raimondo, No. 22-451 (U.S. June 28, 2024) (slip op.).
2 Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984).
3 Reg. § 1.6662-3(b)(3).
4 Reg. § 1.6662-3(a).
