IRS releases 2000 guidelines for "adequate disclosure".

• Author: Fiore, Nicholas J.
• Position: Tax underpayments

If Sec. 6662 applies to any portion of a tax underpayment that must be shown on a return, an amount equal to 20% of the portion of the underpayment to which the section applies is added to the tax. (The penalty rate is 40% for certain gross valuation misstatements.) Under Sec. 6662(b)(2), Sec. 6662 applies to the portion of an underpayment attributable to a substantial understatement of income tax.

Sec. 6662(d)(1) provides that there is a substantial understatement of income tax if the understatement exceeds the greater of 10% of the tax that must be shown on the return for the tax year or $5,000 ($10,000 for a corporation other than an S corporation or a personal holding company). Sec. 6662(d)(2) defines an understatement as the excess tax that must be shown on the return for the tax year over the amount of the tax shown on the return, reduced by any rebate (within the meaning of Sec. 6211(b)(2)).

For an item not attributable to a tax shelter, Sec. 6662(d)(2)(B)(ii) provides that the understatement must be reduced by the portion of the understatement attributable to any item for which the relevant facts affecting the item's tax treatment are adequately disclosed on the return or on a statement attached to the return, and there is a reasonable basis for the tax treatment of such item by the taxpayer.

In general, this revenue procedure provides guidance in determining when disclosure is adequate for Sec. 6662(d) purposes. The taxpayer must furnish all required information in accordance with the applicable forms and instructions, and the money amounts entered on these forms must be verifiable.

Procedure

Additional disclosure of facts relevant to (or positions taken on) issues involving any of the items set forth below is unnecessary for reducing any income tax understatement under Sec. 6662(d), provided that the forms and attachments are completed in a clear manner and in accordance with their instructions. The money amounts entered on the forms must be verifiable, and the information on the return must be disclosed in the manner described below. A number is verifiable if, on audit, the taxpayer can demonstrate its origin (even if the number is not ultimately accepted by the IRS) and can show good faith in entering that number on the applicable form.

1. Form 1040, Schedule A, Itemized Deductions:

   1. Medical and dental expenses: Complete lines 1 through 4, supplying all required information.

   2. Taxes: Complete lines 5 through 9, supplying all...