IRS releases 2001 guidelines for "adequate disclosure".

• Jurisdiction: United States
• Author: Fiore, Nicholas J.
• Date: 01 January 2002

If Sec. 6662 applies to any portion of an underpayment of tax required to 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 mis-statements.) 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 amount of the understatement exceeds the greater of 10% of the amount of tax required to be shown on the return for the tax year or $5,000 ($10,000 in the case of a corporation other than an S corporation or a personal holding company). Sec. 6662(d)(2) defines an understatement as the excess of the amount of tax required to 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 amount of the understatement is reduced by the portion of the understatement attributable to any item with respect to 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...