To avoid the substantial understatement penalty by adequate disclosure, you must properly disclose the position on the tax return and there must at least be a reasonable basis for the position. To properly disclose the position, complete and attach IRS Form 8275 to your tax return and disclose all relevant facts.
What constitutes substantial authority for a position on a tax return?
Under IRS rules, the tax treatment of an item has “substantial authority” only if the weight of published cases, rules and other legal and administrative authorities is substantial in relation to the weight of opposing authorities.
Are IRS FAQs binding?
Ten years ago, in an AICPA Tax Insider article, this author asked and answered the question: “How Heavy Is an FAQ?” The answer — that FAQs are not binding guidance — remains true today despite hundreds of FAQs added to the IRS website since 2010.
What is an unreasonable position on a tax return?
Unreasonable Position. A position (taken on a tax return or tax refund claim) is generally unreasonable if the position does not have (or did not have) substantial authority in the tax law.
Does a tax position always have to meet at minimum the substantial authority standard?
In summary, under IRC section 6662(d), taxpayers must have substantial authority that is higher than a reasonable-basis threshold, but less than the more-likely-than-not threshold to take a position on a tax return without disclosure.
What is unreasonable position?
A position is unreasonable if there is no substantial authority for a position falling within the general category or there is no reasonable basis for a position adequately disclosed under IRC § 6662(d)(2)(B)(ii)(I) (IRC §§ 6694(a)(2)(A) and (B) ).
Should V more likely than not?
A “should” opinion” suggests a reasonably high level of confidence that the position will be sustained— significantly higher than “more likely than not”—but allows for a not insignificant risk of being wrong. Will Opinion. A “will” opinion is consistent with a conclusion that there is no material risk of being wrong.
What percentage is substantial authority?
1. 6694-2(b)(1) before amendment by T.D. 9436), a position with “substantial authority” has come to be understood as one having approximately a 40% chance of success based on its merits.
