Each year taxpayers are required to disclose their participation in a reportable transaction by filing a Form 8886 with the IRS. In recent years the IRS has added both Section 831(b) micro captives and syndicated conservation easements to the list of reportable transactions. As taxpayers eye the filing deadline for their 2019 disclosures, the IRS has revised the Form 8886 and instructions to request even more information about a taxpayer’s reportable transactions.
For those of you who have prepared or reviewed a Form 8886, you may be asking yourself: What else could the IRS possibly ask for? Well in the words of Oliver Twist, the IRS “wants some more” information about the tax benefits from the transaction –past, present and future. As the revised instructions point out, the IRS is requesting (i) total dollar amount of the taxpayer’s tax benefits, (ii) the number of years of anticipated benefit, and (iii) the taxpayer’s total investment or basis in the reportable transaction. While it is understandable that the IRS would want to this information, this author’s sense is that it places taxpayers in a Catch 22 especially as it relates to future tax benefits. Conservative estimates may give rise to IRS allegations of misleading, while more liberal estimates run the risk of undue IRS attention. After all, reportable transactions are those transactions that the IRS already perceives as “having a potential for tax avoidance or evasion.” I.R.C. Sec. 6707A(c).
Word to the wise: Deliberation is key. Give meaningful thought to responses regarding the duration and amount of anticipated tax benefits, and do not blindly accept the Form 8886 prepared by other professionals whose interests may not be directly aligned with the taxpayer or the taxpayer’s return preparer.
To review the revised Form 8886, click here.
To review the revised Instructions to Form 8886, click here.
If you have any questions about reportable transactions or any other tax-related matter, please do not hesitate to contact me at (214) 749-2464 or firstname.lastname@example.org.