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File 2007 Taxes Online

File 2007 taxes online Index A Accident benefits, Accident and Health Benefits Achievement awards, Achievement Awards Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. File 2007 taxes online Adoption assistance, Adoption Assistance Annual lease value, Annual Lease Value Assistance (see Tax help) Athletic facilities, Athletic Facilities Automobile (see Vehicles) Awards, achievement, Achievement Awards B Bicycle commuting reimbursement, qualified, Qualified bicycle commuting reimbursement. File 2007 taxes online C Cafeteria plans, Cafeteria Plans Cents-per-mile rule, What's New, Cents-Per-Mile Rule COBRA premiums, COBRA premiums. File 2007 taxes online Comments on publication, Comments and suggestions. File 2007 taxes online Commuter highway vehicle, Commuter highway vehicle. File 2007 taxes online Commuting rule, Commuting Rule Copying machine use, De Minimis (Minimal) Benefits D Daily lease value, Daily Lease Value De minimis (minimal) benefits In general, De Minimis (Minimal) Benefits Meals, De Minimis Meals Transportation, De Minimis Transportation Benefits Demonstrator cars, Demonstrator cars. File 2007 taxes online Dependent care assistance, Dependent Care Assistance Deposit rules, 4. File 2007 taxes online Rules for Withholding, Depositing, and Reporting Discounts for employees, Employee Discounts E Educational assistance, Educational Assistance Employee benefit programs Accident and health benefits, Accident and Health Benefits Cafeteria plans, Cafeteria Plans Dependent care assistance, Dependent Care Assistance Educational assistance, Educational Assistance Group-term life insurance, Group-Term Life Insurance Coverage Employee discounts, Employee Discounts Employee stock options, Employee Stock Options Employer-operated eating facility, Employer-operated eating facility for employees. File 2007 taxes online Employer-provided cell phones, Employer-Provided Cell Phones Exclusion rules, 2. File 2007 taxes online Fringe Benefit Exclusion Rules F Fair market value, Fair market value. File 2007 taxes online Fringe benefit overview, 1. File 2007 taxes online Fringe Benefit Overview Fringe benefits Special accounting rule, Special accounting rule. File 2007 taxes online Valuation rules, 3. File 2007 taxes online Fringe Benefit Valuation Rules G General valuation rule, General Valuation Rule Group-term life insurance, Group-Term Life Insurance Coverage H Health benefits, Accident and Health Benefits Health Savings Accounts, Health Savings Accounts Holiday gifts, De Minimis (Minimal) Benefits I Insurance Accident and health, Accident and Health Benefits Group-term life, Group-Term Life Insurance Coverage Long-term care, Exception for certain long-term care benefits. File 2007 taxes online L Lease value rule, Lease Value Rule Length of service awards, Achievement Awards Life insurance Group-term, Group-Term Life Insurance Coverage Spouse or dependent, De Minimis (Minimal) Benefits Lodging, Lodging on Your Business Premises Long-term care insurance, Exception for certain long-term care benefits. File 2007 taxes online M Meals De minimis, De Minimis Meals On your business premises, Meals on Your Business Premises Medical reimbursement plans, Accident and Health Benefits Minimal benefits, De Minimis (Minimal) Benefits Moving expense reimbursements, Moving Expense Reimbursements N No-additional-cost services, No-Additional-Cost Services Nonpersonal use vehicles, qualified, Qualified nonpersonal use vehicles. File 2007 taxes online O Options on stock, Employee Stock Options Outplacement services, Outplacement services. File 2007 taxes online P Parking, qualified, Qualified parking. File 2007 taxes online Parties, De Minimis (Minimal) Benefits Performance of services, Performance of services. File 2007 taxes online Pickup trucks, Pickup trucks. File 2007 taxes online Picnics, De Minimis (Minimal) Benefits Prorated annual lease value, Prorated Annual Lease Value Provider defined, Provider of benefit. File 2007 taxes online Publications (see Tax help) Q Qualified transportation benefits, Qualified Transportation Benefits R Recipient defined, Recipient of benefit. File 2007 taxes online Reimbursements, moving expense, Moving Expense Reimbursements Reporting rules, 4. File 2007 taxes online Rules for Withholding, Depositing, and Reporting Retirement planning services, Retirement Planning Services S Safety achievement awards, Achievement Awards Self insurance (medical reimbursement plans), Accident and Health Benefits Services, no-additional-cost, No-Additional-Cost Services Simple Cafeteria Plans, Simple Cafeteria Plans Special accounting rule, Special accounting rule. File 2007 taxes online Stock options, employee, Employee Stock Options Suggestions for publication, Comments and suggestions. File 2007 taxes online T Tax help, How To Get Tax Help Taxable benefits, Are Fringe Benefits Taxable? Tickets for theater or sporting events, De Minimis (Minimal) Benefits Transit pass, Transit pass. File 2007 taxes online Transportation benefits De minimis, De Minimis Transportation Benefits Qualified, Qualified Transportation Benefits TTY/TDD information, How To Get Tax Help Tuition reduction, Tuition Reduction U Unsafe conditions commuting rule, Unsafe Conditions Commuting Rule V Valuation rules, 3. File 2007 taxes online Fringe Benefit Valuation Rules Vans, Vans. File 2007 taxes online Vehicles Business use of (see Working condition benefits) Commuter highway, Commuter highway vehicle. File 2007 taxes online Qualified nonpersonal use, Qualified nonpersonal use vehicles. File 2007 taxes online Valuation of, Employer-provided vehicles. File 2007 taxes online W Withholding rules, 4. File 2007 taxes online Rules for Withholding, Depositing, and Reporting Working condition benefits, Working Condition Benefits Prev  Up     Home   More Online Publications
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File 2007 taxes online 2. File 2007 taxes online   Tax Shelters and Other Reportable Transactions Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Abusive Tax SheltersRules To Curb Abusive Tax Shelters Investor Reporting Penalties Whether To Invest Introduction Investments that yield tax benefits are sometimes called “tax shelters. File 2007 taxes online ” In some cases, Congress has concluded that the loss of revenue is an acceptable side effect of special tax provisions designed to encourage taxpayers to make certain types of investments. File 2007 taxes online In many cases, however, losses from tax shelters produce little or no benefit to society, or the tax benefits are exaggerated beyond those intended. File 2007 taxes online Those cases are called “abusive tax shelters. File 2007 taxes online ” An investment that is considered a tax shelter is subject to restrictions, including the requirement that it be disclosed, as discussed later. File 2007 taxes online Topics - This chapter discusses: Abusive Tax Shelters , Rules To Curb Abusive Tax Shelters , Investor Reporting , Penalties , and Whether To Invest . File 2007 taxes online Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 556 Examination of Returns, Appeal Rights, and Claims for Refund 561 Determining the Value of Donated Property 925 Passive Activity and At-Risk Rules Form (and Instructions) 8275 Disclosure Statement 8275-R Regulation Disclosure Statement 8283 Noncash Charitable Contributions 8886 Reportable Transaction Disclosure Statement See chapter 5, How To Get Tax Help , for information about getting these publications and forms. File 2007 taxes online Abusive Tax Shelters Abusive tax shelters are marketing schemes involving artificial transactions with little or no economic reality. File 2007 taxes online They often make use of unrealistic allocations, inflated appraisals, losses in connection with nonrecourse loans, mismatching of income and deductions, financing techniques that do not conform to standard commercial business practices, or mischaracterization of the substance of the transaction. File 2007 taxes online Despite appearances to the contrary, the taxpayer generally risks little. File 2007 taxes online Abusive tax shelters commonly involve package deals designed from the start to generate losses, deductions, or credits that will be far more than present or future investment. File 2007 taxes online Or, they may promise investors from the start that future inflated appraisals will enable them, for example, to reap charitable contribution deductions based on those appraisals. File 2007 taxes online (But see the appraisal requirements discussed under Rules To Curb Abusive Tax Shelters , later. File 2007 taxes online ) They are commonly marketed in terms of the ratio of tax deductions allegedly available to each dollar invested. File 2007 taxes online This ratio (or “write-off”) is frequently said to be several times greater than one-to-one. File 2007 taxes online Because there are many abusive tax shelters, it is not possible to list all the factors you should consider in determining whether an offering is an abusive tax shelter. File 2007 taxes online However, you should ask the following questions, which might provide a clue to the abusive nature of the plan. File 2007 taxes online Do the tax benefits far outweigh the economic benefits? Is this a transaction you would seriously consider, apart from the tax benefits, if you hoped to make a profit? Do shelter assets really exist and, if so, are they insured for less than their purchase price? Is there a nontax justification for the way profits and losses are allocated to partners? Do the facts and supporting documents make economic sense? In that connection, are there sales and resales of the tax shelter property at ever increasing prices? Does the investment plan involve a gimmick, device, or sham to hide the economic reality of the transaction? Does the promoter offer to backdate documents after the close of the year? Are you instructed to backdate checks covering your investment? Is your debt a real debt or are you assured by the promoter that you will never have to pay it? Does this transaction involve laundering United States source income through foreign corporations incorporated in a tax haven and owned by United States shareholders? Rules To Curb Abusive Tax Shelters Congress has enacted a series of income tax laws designed to halt the growth of abusive tax shelters. File 2007 taxes online These provisions include the following. File 2007 taxes online Disclosure of reportable transactions. File 2007 taxes online   You must disclose information for each reportable transaction in which you participate. File 2007 taxes online See Reportable Transaction Disclosure Statement , later. File 2007 taxes online   Material advisors with respect to any reportable transaction must disclose information about the transaction on Form 8918, Material Advisor Disclosure Statement. File 2007 taxes online To determine whether you are a material advisor to a transaction, see the Instructions for Form 8918. File 2007 taxes online   Material advisors will receive a reportable transaction number for the disclosed reportable transaction. File 2007 taxes online They must provide this number to all persons to whom they acted as a material advisor. File 2007 taxes online They must provide the number at the time the transaction is entered into. File 2007 taxes online If they do not have the number at that time, they must provide it within 60 days from the date the number is mailed to them. File 2007 taxes online For information on penalties for failure to disclose and failure to maintain lists, see Internal Revenue Code sections 6707, 6707A, and 6708. File 2007 taxes online Requirement to maintain list. File 2007 taxes online   Material advisors must maintain a list of persons to whom they provide material aid, assistance, or advice on any reportable transaction. File 2007 taxes online The list must be available for inspection by the IRS, and the information required to be included on the list generally must be kept for 7 years. File 2007 taxes online See Regulations section 301. File 2007 taxes online 6112-1 for more information (including what information is required to be included on the list). File 2007 taxes online Confidentiality privilege. File 2007 taxes online   The confidentiality privilege between you and a federally authorized tax practitioner does not apply to written communications made after October 21, 2004, regarding the promotion of your direct or indirect participation in any tax shelter. File 2007 taxes online Appraisal requirement for donated property. File 2007 taxes online   If you claim a deduction of more than $5,000 for an item or group of similar items of donated property, you generally must get a qualified appraisal from a qualified appraiser and complete and attach section B of Form 8283 to your return. File 2007 taxes online If you claim a deduction of more than $500,000 for the donated property, you generally must attach the qualified appraisal to your return. File 2007 taxes online If you file electronically, see Form 8453, U. File 2007 taxes online S. File 2007 taxes online Individual Income Tax Transmittal for an IRS e-file Return, and its instructions. File 2007 taxes online For more information about appraisals, including exceptions, see Publication 561. File 2007 taxes online Passive activity loss and credit limits. File 2007 taxes online   The passive activity loss and credit rules limit the amount of losses and credits that can be claimed from passive activities and limit the amount that can offset nonpassive income, such as certain portfolio income from investments. File 2007 taxes online For more detailed information about determining and reporting income, losses, and credits from passive activities, see Publication 925. File 2007 taxes online Interest on penalties. File 2007 taxes online   If you are assessed an accuracy-related or civil fraud penalty (as discussed under Penalties , later), interest will be imposed on the amount of the penalty from the due date of the return (including any extensions) to the date you pay the penalty. File 2007 taxes online Accounting method restriction. File 2007 taxes online   Tax shelters generally cannot use the cash method of accounting. File 2007 taxes online Uniform capitalization rules. File 2007 taxes online   The uniform capitalization rules generally apply to producing property or acquiring it for resale. File 2007 taxes online Under those rules, the direct cost and part of the indirect cost of the property must be capitalized or included in inventory. File 2007 taxes online For more information, see Publication 538. File 2007 taxes online Denial of deduction for interest on an underpayment due to a reportable transaction. File 2007 taxes online   You cannot deduct any interest you paid or accrued on any part of an underpayment of tax due to an understatement arising from a reportable transaction (discussed later) if the relevant facts affecting the tax treatment of the item are not adequately disclosed. File 2007 taxes online This rule applies to reportable transactions entered into in tax years beginning after October 22, 2004. File 2007 taxes online Authority for Disallowance of Tax Benefits The IRS has published guidance concluding that the claimed tax benefits of various abusive tax shelters should be disallowed. File 2007 taxes online The guidance is the conclusion of the IRS on how the law is applied to a particular set of facts. File 2007 taxes online Guidance is published in the Internal Revenue Bulletin for taxpayers' information and also for use by IRS officials. File 2007 taxes online So, if your return is examined and an abusive tax shelter is identified and challenged, published guidance dealing with that type of shelter, which disallows certain claimed tax shelter benefits, could serve as the basis for the examining official's challenge of the tax benefits you claimed. File 2007 taxes online In such a case, the examiner will not compromise even if you or your representative believes you have authority for the positions taken on your tax return. File 2007 taxes online The courts have generally been unsympathetic to taxpayers involved in abusive tax shelter schemes and have ruled in favor of the IRS in the majority of the cases in which these shelters have been challenged. File 2007 taxes online Investor Reporting You may be required to file a reportable transaction disclosure statement. File 2007 taxes online Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction (discussed later) in which you participated. File 2007 taxes online Generally, you must attach Form 8886 to your return for each tax year in which you participated in the transaction. File 2007 taxes online Under certain circumstances, a transaction must be disclosed within 90 days of the transaction being identified as a listed transaction or a transaction of interest (discussed later). File 2007 taxes online In addition, for the first year Form 8886 is attached to your return, you must send a copy of the form to: Internal Revenue Service OTSA Mail Stop 4915 1973 North Rulon White Blvd. File 2007 taxes online  Ogden, UT 84404 If you file your return electronically, the copy sent to OTSA must show exactly the same information, word for word, provided with the electronically filed return and it must be provided on the official IRS Form 8886 or an exact copy of the form. File 2007 taxes online If you use a computer-generated or substitute Form 8886, it must be an exact copy of the official IRS form. File 2007 taxes online If you fail to file Form 8886 as required or fail to include any required information on the form, you may have to pay a penalty. File 2007 taxes online See Penalty for failure to disclose a reportable transaction , later under Penalties. File 2007 taxes online The following discussion briefly describes reportable transactions. File 2007 taxes online For more details, see the Instructions for Form 8886. File 2007 taxes online Reportable transaction. File 2007 taxes online   A reportable transaction is any of the following. File 2007 taxes online A listed transaction. File 2007 taxes online A confidential transaction. File 2007 taxes online A transaction with contractual protection. File 2007 taxes online A loss transaction. File 2007 taxes online A transaction of interest entered into after November 1, 2006. File 2007 taxes online Note. File 2007 taxes online Transactions with a brief asset holding period were removed from the definition of reportable transaction for transactions entered into after August 2, 2007. File 2007 taxes online Listed transaction. File 2007 taxes online   A listed transaction is the same as, or substantially similar to, one of the types of transactions the IRS has determined to be a tax-avoidance transaction. File 2007 taxes online These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. File 2007 taxes online For a list of existing guidance, see Notice 2009-59 in Internal Revenue Bulletin 2009-31, available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2009-31_IRB/ar07. File 2007 taxes online html. File 2007 taxes online Confidential transaction. File 2007 taxes online   A confidential transaction is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. File 2007 taxes online A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on your disclosure of the tax treatment or tax structure of the transaction and the limit protects the confidentiality of the advisor's tax strategies. File 2007 taxes online The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. File 2007 taxes online Transaction with contractual protection. File 2007 taxes online   Generally, a transaction with contractual protection is one in which you or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences of the transaction are not sustained, or a transaction for which the fees are contingent on your realizing the tax benefits from the transaction. File 2007 taxes online For information on exceptions, see Revenue Procedure 2007-20 in Internal Revenue Bulletin 2007-7, available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2007-07_IRB/ar15. File 2007 taxes online html. File 2007 taxes online Loss transaction. File 2007 taxes online   For individuals, a loss transaction is one that results in a deductible loss if the gross amount of the loss is at least $2 million in a single tax year or $4 million in any combination of tax years. File 2007 taxes online A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership. File 2007 taxes online   Certain losses (such as losses from casualties, thefts, and condemnations) are excepted from this category and do not have to be reported on Form 8886. File 2007 taxes online For information on other exceptions, see Revenue Procedure 2004-66 in Internal Revenue Bulletin 2004-50, as modified and superseded by Revenue Procedure 2013-11, (or future published guidance) available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2004-50_IRB/ar11. File 2007 taxes online html. File 2007 taxes online Transaction of interest. File 2007 taxes online   A transaction of interest is a transaction entered into after November 1, 2006, that is the same as, or substantially similar to, one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest. File 2007 taxes online The IRS has identified the following transactions of interest. File 2007 taxes online “Toggling” grantor trusts as described in Notice 2007-73, 2007-36 I. File 2007 taxes online R. File 2007 taxes online B. File 2007 taxes online 545, available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2007-36_IRB/ar20. File 2007 taxes online html. File 2007 taxes online Certain transactions involving contributions of a successor member interest in a limited liability company as described in Notice 2007-72, 2007-36 I. File 2007 taxes online R. File 2007 taxes online B. File 2007 taxes online 544, available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2007-36_IRB/ar19. File 2007 taxes online html. File 2007 taxes online Certain transactions involving the sale or other disposition of all interests in a charitable remainder trust and claiming little or no taxable gain as described in Notice 2008-99, 2008-47 I. File 2007 taxes online R. File 2007 taxes online B. File 2007 taxes online 1194, available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2008-47_IRB/ar11. File 2007 taxes online html. File 2007 taxes online Certain transactions involving a U. File 2007 taxes online S. File 2007 taxes online taxpayer owning controlled foreign corporations (CFCs) that hold stock of a lower-tier CFC through a domestic partnership to avoid reporting income as described in Notice 2009-7, 2009-3 I. File 2007 taxes online R. File 2007 taxes online B. File 2007 taxes online 312, available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2009-03_IRB/ar10. File 2007 taxes online html. File 2007 taxes online   For updates to this list, go to www. File 2007 taxes online irs. File 2007 taxes online gov/Businesses/Corporations/Abusive-Tax-Shelters-and-Transactions. File 2007 taxes online Penalties Investing in an abusive tax shelter may lead to substantial expenses. File 2007 taxes online First, the promoter generally charges a substantial fee. File 2007 taxes online If your return is examined by the IRS and a tax deficiency is determined, you will be faced with payment of more tax, interest on the underpayment, possibly a 20%, 30%, or even 40% accuracy-related penalty, or a 75% civil fraud penalty. File 2007 taxes online You may also be subject to the penalty for failure to pay tax. File 2007 taxes online These penalties are explained in the following paragraphs. File 2007 taxes online Accuracy-related penalties. File 2007 taxes online   An accuracy-related penalty of 20% can be imposed for underpayments of tax due to: Negligence or disregard of rules or regulations, Substantial understatement of tax, Substantial valuation misstatement (increased to 40% for gross valuation misstatement), Transaction lacking economic substance (increased to 40% for undisclosed transaction lacking economic substance), or Undisclosed foreign financial asset understatement (40% in all cases). File 2007 taxes online Except for a transaction lacking economic substance, this penalty will not be imposed if you can show you had reasonable cause for any understatement of tax and that you acted in good faith. File 2007 taxes online Your failure to disclose a reportable transaction is a strong indication that you failed to act in good faith. File 2007 taxes online   If you are charged an accuracy-related penalty, interest will be imposed on the amount of the penalty from the due date of the return (including extensions) to the date you pay the penalty. File 2007 taxes online   The 20% penalties do not apply to any underpayment attributable to a reportable transaction understatement subject to an accuracy-related penalty (discussed later). File 2007 taxes online Negligence or disregard of rules or regulations. File 2007 taxes online   The penalty for negligence or disregard of rules or regulations is imposed only on the part of the underpayment due to negligence or disregard of rules or regulations. File 2007 taxes online The penalty will not be charged if you can show you had reasonable cause for understating your tax and that you acted in good faith. File 2007 taxes online    Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code. File 2007 taxes online It also includes any failure to keep adequate books and records. File 2007 taxes online A return position that has a reasonable basis is not negligence. File 2007 taxes online   Disregard includes any careless, reckless, or intentional disregard of rules or regulations. File 2007 taxes online   The penalty for disregard of rules and regulations can be avoided if all the following are true. File 2007 taxes online You keep adequate books and records. File 2007 taxes online You have a reasonable basis for your position on the tax issue. File 2007 taxes online You make an adequate disclosure of your position. File 2007 taxes online Use Form 8275 to make your disclosure and attach it to your return. File 2007 taxes online To disclose a position contrary to a regulation, use Form 8275-R. File 2007 taxes online Use Form 8886 to disclose a reportable transaction (discussed earlier). File 2007 taxes online Substantial understatement of tax. File 2007 taxes online   An understatement is considered to be substantial if it is more than the greater of: 10% of the tax required to be shown on the return, or $5,000. File 2007 taxes online An “understatement” is the amount of tax required to be shown on your return for a tax year minus the amount of tax shown on the return, reduced by any rebates. File 2007 taxes online The term “rebate” generally means a decrease in the tax shown on your original return as the result of your filing an amended return or claim for refund. File 2007 taxes online   For items other than tax shelters, you can file Form 8275 or Form 8275-R to disclose items that could cause a substantial understatement of income tax. File 2007 taxes online In that way, you can avoid the substantial understatement penalty if you have a reasonable basis for your position on the tax issue. File 2007 taxes online Disclosure of the tax shelter item on a tax return does not reduce the amount of the understatement. File 2007 taxes online   Also, the understatement penalty will not be imposed if you can show there was reasonable cause for the underpayment caused by the understatement and that you acted in good faith. File 2007 taxes online An important factor in establishing reasonable cause and good faith will be the extent of your effort to determine your proper tax liability under the law. File 2007 taxes online Substantial valuation misstatement. File 2007 taxes online   In general, you are liable for a 20% penalty for a substantial valuation misstatement if all the following are true. File 2007 taxes online The value or adjusted basis of any property claimed on the return is 150% or more of the correct amount. File 2007 taxes online You underpaid your tax by more than $5,000 because of the misstatement. File 2007 taxes online You cannot establish that you had reasonable cause for the underpayment and that you acted in good faith. File 2007 taxes online   You may be assessed a penalty of 40% for a gross valuation misstatement. File 2007 taxes online If you misstate the value or the adjusted basis of property by 200% or more of the amount determined to be correct, you will be assessed a penalty of 40%, instead of 20%, of the amount you underpaid because of the gross valuation misstatement. File 2007 taxes online The penalty rate is also 40% if the property's correct value or adjusted basis is zero. File 2007 taxes online Transaction lacking economic substance. File 2007 taxes online   The economic substance doctrine only applies to an individual that entered into a transaction in connection with a trade or business or an activity engaged in for the production of income. File 2007 taxes online For transactions entered into after March 30, 2010, a transaction has economic substance for you as an individual taxpayer only if: The transaction changes your economic position in a meaningful way (apart from federal income tax effects), or You have a substantial purpose (apart from federal income tax effects) for entering into the transaction. File 2007 taxes online   For purposes of determining whether economic substance exists, a transaction's profit potential will only be taken into account if the present value of the reasonably expected pre-tax profit from the transaction is substantial compared to the present value of the expected net tax benefits that would be allowed if the transaction were respected. File 2007 taxes online   If any part of your underpayment is due to any disallowance of claimed tax benefits by reason of a transaction lacking economic substance or failing to meet the requirements of any similar rule of law, that part of your underpayment will be subject to the 20% accuracy-related penalty even if you had a reasonable cause and acted in good faith concerning that part. File 2007 taxes online   Additionally, the penalty increases to 40% if you do not adequately disclose on your return or in a statement attached to your return the relevant facts affecting the tax treatment of a transaction that lacks economic substance. File 2007 taxes online Relevant facts include any facts affecting the tax treatment of the transaction. File 2007 taxes online    Any excessive amount of an erroneous claim for an income tax refund or credit (other than a refund or credit related to the earned income credit) that results from a transaction found to be lacking economic substance will not be treated as having a reasonable basis and could be subject to a 20% penalty. File 2007 taxes online Undisclosed foreign financial asset understatement. File 2007 taxes online   For tax years beginning after March 18, 2010, you may be liable for a 40% penalty for an understatement of your tax liability due to an undisclosed foreign financial asset. File 2007 taxes online An undisclosed foreign financial asset is any asset for which an information return, required to be provided under Internal Revenue Code section 6038, 6038B, 6038D, 6046A, or 6048 for any taxable year, is not provided. File 2007 taxes online The penalty applies to any part of an underpayment related to the following undisclosed foreign financial assets. File 2007 taxes online Any foreign business you control, reportable on Form 5471, Information Return of U. File 2007 taxes online S. File 2007 taxes online Persons With Respect To Certain Foreign Corporations, or Form 8865, Return of U. File 2007 taxes online S. File 2007 taxes online Persons With Respect to Certain Foreign Partnerships. File 2007 taxes online Certain transfers of property to a foreign corporation or partnership, reportable on Form 926, Return by a U. File 2007 taxes online S. File 2007 taxes online Transferor of Property to a Foreign Corporation, or certain distributions to a foreign person, reportable on Form 8865. File 2007 taxes online Your ownership interest in certain foreign financial assets, temporarily reportable on Form 8275 or 8275-R. File 2007 taxes online    Instead of, or in addition to, Form 8275 or 8275-R, you may have to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return. File 2007 taxes online See the Instructions for Form 8938 for details. File 2007 taxes online    Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865. File 2007 taxes online Creation or transfer of money or property to certain foreign trusts, reportable on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. File 2007 taxes online Penalty for incorrect appraisals. File 2007 taxes online   The person who prepares an appraisal of the value of property may have to pay a penalty if: He or she knows, or reasonably should have known, that the appraisal would be used in connection with a return or claim for refund; and The claimed value of the property on a return or claim for refund based on that appraisal results in a substantial valuation misstatement or a gross valuation misstatement as discussed earlier. File 2007 taxes online For details on the penalty amount and exceptions, see Publication 561. File 2007 taxes online Penalty for failure to disclose a reportable transaction. File 2007 taxes online   If you fail to include any required information regarding a reportable transaction (discussed earlier) on a return or statement, you may have to pay a penalty of 75% of the decrease in tax shown on your return as a result of such transaction (or that would have resulted if the transaction were respected for federal tax purposes). File 2007 taxes online For an individual, the minimum penalty is $5,000 and the maximum is $10,000 (or $100,000 for a listed transaction). File 2007 taxes online This penalty is in addition to any other penalty that may be imposed. File 2007 taxes online   The IRS may rescind or abate the penalty for failing to disclose a reportable transaction under certain limited circumstances but cannot rescind the penalty for failing to disclose a listed transaction. File 2007 taxes online For information on rescission, see Revenue Procedure 2007-21 in Internal Revenue Bulletin 2007-9 available at www. File 2007 taxes online irs. File 2007 taxes online gov/irb/2007-09_IRB/ar12. File 2007 taxes online html. File 2007 taxes online Accuracy-related penalty for a reportable transaction understatement. File 2007 taxes online   If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. File 2007 taxes online This applies to any item due to a listed transaction or other reportable transaction with a significant purpose of avoiding or evading federal income tax. File 2007 taxes online The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. File 2007 taxes online You may not have to pay the 20% penalty if you meet the strengthened reasonable cause and good faith exception. File 2007 taxes online The reasonable cause and good faith exception does not apply to any part of a reportable transaction understatement attributable to one or more transactions that lack economic substance. File 2007 taxes online   This penalty does not apply to the part of an understatement on which the fraud penalty, gross valuation misstatement penalty, or penalty for nondisclosure of noneconomic substance transactions is imposed. File 2007 taxes online Civil fraud penalty. File 2007 taxes online   If any underpayment of tax on your return is due to fraud, a penalty of 75% of the underpayment will be added to your tax. File 2007 taxes online Joint return. File 2007 taxes online   The fraud penalty on a joint return applies to a spouse only if some part of the underpayment is due to the fraud of that spouse. File 2007 taxes online Failure to pay tax. File 2007 taxes online   If a deficiency is assessed and is not paid within 10 days of the demand for payment, an investor can be penalized with up to a 25% addition to tax if the failure to pay continues. File 2007 taxes online Whether To Invest In light of the adverse tax consequences and the substantial amount of penalties and interest that will result if the claimed tax benefits are disallowed, you should consider tax shelter investments carefully and seek competent legal and financial advice. File 2007 taxes online Prev  Up  Next   Home   More Online Publications