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H&r block taxcut free file Internal Revenue Bulletin:  2011-12  March 21, 2011  Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2011-21 Table of Contents SECTION 1. H&r block taxcut free file PURPOSE SECTION 2. H&r block taxcut free file BACKGROUND SECTION 3. H&r block taxcut free file SCOPE SECTION 4. H&r block taxcut free file APPLICATION SECTION 5. H&r block taxcut free file EFFECTIVE DATE SECTION 6. H&r block taxcut free file EFFECT ON OTHER DOCUMENTS SECTION 7. H&r block taxcut free file DRAFTING INFORMATION SECTION 1. H&r block taxcut free file PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2011, including separate tables of limitations on depreciation deductions for trucks and vans; (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2011, including a separate table of inclusion amounts for lessees of trucks and vans; and (3) revised tables of depreciation limitations and lessee inclusion amounts for passenger automobiles that were first placed in service or first leased by the taxpayer, respectively, during 2010 and to which the 50 percent additional first year depreciation deduction under § 168(k)(1)(A) of the Internal Revenue Code or the 100 percent additional first year depreciation deduction under § 168(k)(5) applies. H&r block taxcut free file The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7). H&r block taxcut free file SECTION 2. H&r block taxcut free file BACKGROUND . H&r block taxcut free file 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. H&r block taxcut free file For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. H&r block taxcut free file The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. H&r block taxcut free file This change reflects the higher rate of price inflation for trucks and vans since 1988. H&r block taxcut free file . H&r block taxcut free file 02 Section 2022(a) of the Small Business Jobs Act of 2010, Pub. H&r block taxcut free file L. H&r block taxcut free file No. H&r block taxcut free file 111-240, 124 Stat. H&r block taxcut free file 2504 (September 27, 2010), extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property (as defined in § 168(k)(2)) acquired by the taxpayer after December 31, 2007, and before January 1, 2011, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2011. H&r block taxcut free file Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. H&r block taxcut free file L. H&r block taxcut free file No. H&r block taxcut free file 111-312, 124 Stat. H&r block taxcut free file 3296 (Dec. H&r block taxcut free file 17, 2010) (the “Act”) further extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2013, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2013. H&r block taxcut free file Section 401(b) of the Act further amended § 168(k) by adding § 168(k)(5). H&r block taxcut free file It allows a 100 percent additional first year depreciation deduction for qualified property acquired by a taxpayer after September 8, 2010, and before January 1, 2012, if the taxpayer places the property in service generally before January 1, 2012. H&r block taxcut free file Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. H&r block taxcut free file . H&r block taxcut free file 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). H&r block taxcut free file Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. H&r block taxcut free file Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2010, that is round 2 extension property (as defined in § 168(k)(4)(I)(iv). H&r block taxcut free file Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. H&r block taxcut free file This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2011 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. H&r block taxcut free file . H&r block taxcut free file 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. H&r block taxcut free file The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. H&r block taxcut free file Under § 1. H&r block taxcut free file 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. H&r block taxcut free file One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. H&r block taxcut free file Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. H&r block taxcut free file SECTION 3. H&r block taxcut free file SCOPE . H&r block taxcut free file 01 The limitations on depreciation deductions in section 4. H&r block taxcut free file 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2011, and continue to apply for each taxable year that the passenger automobile remains in service. H&r block taxcut free file . H&r block taxcut free file 02 The tables in section 4. H&r block taxcut free file 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2011. H&r block taxcut free file Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. H&r block taxcut free file See Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2006-18, 2006-1 C. H&r block taxcut free file B. H&r block taxcut free file 645, for passenger automobiles first leased during calendar year 2006; Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2007-30, 2007-1 C. H&r block taxcut free file B. H&r block taxcut free file 1104, for passenger automobiles first leased during calendar year 2007; Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2008-22, 2008-1 C. H&r block taxcut free file B. H&r block taxcut free file 658, for passenger automobiles first leased during calendar year 2008; Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2009-24, 2009-1 C. H&r block taxcut free file B. H&r block taxcut free file 885, for passenger automobiles first leased during calendar year 2009; and Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2010-18, 2010-1 C. H&r block taxcut free file B. H&r block taxcut free file 427, as amplified and modified by section 4. H&r block taxcut free file 03 of this revenue procedure, for passenger automobiles first leased during calendar year 2010. H&r block taxcut free file SECTION 4. H&r block taxcut free file APPLICATION . H&r block taxcut free file 01 Limitations on Depreciation Deductions for Certain Automobiles. H&r block taxcut free file (1) Amount of the inflation adjustment. H&r block taxcut free file (a) Passenger automobiles (other than trucks or vans). H&r block taxcut free file Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. H&r block taxcut free file Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. H&r block taxcut free file The new car component of the CPI was 115. H&r block taxcut free file 2 for October 1987 and 137. H&r block taxcut free file 880 for October 2010. H&r block taxcut free file The October 2010 index exceeded the October 1987 index by 22. H&r block taxcut free file 680. H&r block taxcut free file Therefore, the automobile price inflation adjustment for 2011 for passenger automobiles (other than trucks and vans) is 19. H&r block taxcut free file 69 percent (22. H&r block taxcut free file 680/115. H&r block taxcut free file 2 x 100%). H&r block taxcut free file The dollar limitations in § 280F(a) are multiplied by a factor of 0. H&r block taxcut free file 1969, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2011. H&r block taxcut free file This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2011. H&r block taxcut free file (b) Trucks and vans. H&r block taxcut free file To determine the dollar limitations for trucks and vans first placed in service during calendar year 2011, the Service uses the new truck component of the CPI instead of the new car component. H&r block taxcut free file The new truck component of the CPI was 112. H&r block taxcut free file 4 for October 1987 and 142. H&r block taxcut free file 556 for October 2010. H&r block taxcut free file The October 2010 index exceeded the October 1987 index by 30. H&r block taxcut free file 156. H&r block taxcut free file Therefore, the automobile price inflation adjustment for 2011 for trucks and vans is 26. H&r block taxcut free file 83 percent (30. H&r block taxcut free file 156/112. H&r block taxcut free file 4 x 100%). H&r block taxcut free file The dollar limitations in § 280F(a) are multiplied by a factor of 0. H&r block taxcut free file 2683, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. H&r block taxcut free file This adjustment applies to all trucks and vans that are first placed in service in calendar year 2011. H&r block taxcut free file (2) Amount of the limitation. H&r block taxcut free file Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2011. H&r block taxcut free file Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2011 for which the § 168(k) additional first year depreciation deduction applies. H&r block taxcut free file Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2011 for which the § 168(k) additional first year depreciation deduction does not apply. H&r block taxcut free file The Service intends to issue additional guidance addressing the interaction between the 100 percent additional first year depreciation deduction and § 280F(a) for the taxable years subsequent to the first taxable year. H&r block taxcut free file REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,260 2nd Tax Year $5,200 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,260 2nd Tax Year $5,200 3rd Tax Year $3,150 Each Succeeding Year $1,875 . H&r block taxcut free file 02 Inclusions in Income of Lessees of Passenger Automobiles. H&r block taxcut free file A taxpayer must follow the procedures in § 1. H&r block taxcut free file 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2011. H&r block taxcut free file In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. H&r block taxcut free file REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2011 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $18,500 $19,000 3 8 11 13 16 19,000 19,500 4 9 13 15 18 19,500 20,000 4 10 15 17 20 20,000 20,500 5 11 16 19 23 20,500 21,000 5 12 18 21 25 21,000 21,500 6 13 19 24 26 21,500 22,000 6 14 21 26 29 22,000 23,000 7 16 23 29 32 23,000 24,000 8 18 27 32 37 24,000 25,000 9 20 30 36 42 25,000 26,000 10 23 33 40 46 26,000 27,000 11 25 36 44 51 27,000 28,000 12 27 40 48 55 28,000 29,000 13 29 43 52 60 29,000 30,000 14 31 47 55 65 30,000 31,000 15 34 49 60 69 31,000 32,000 16 36 53 63 73 32,000 33,000 17 38 56 68 77 33,000 34,000 18 40 60 71 82 34,000 35,000 19 42 63 75 87 35,000 36,000 20 45 66 79 91 36,000 37,000 21 47 69 83 96 37,000 38,000 22 49 73 87 100 38,000 39,000 23 51 76 91 105 39,000 40,000 24 53 80 94 110 40,000 41,000 25 56 82 99 114 41,000 42,000 26 58 86 102 119 42,000 43,000 27 60 89 107 123 43,000 44,000 28 62 93 110 128 44,000 45,000 29 64 96 114 133 45,000 46,000 30 67 98 119 137 46,000 47,000 31 69 102 122 141 47,000 48,000 32 71 105 127 145 48,000 49,000 33 73 109 130 150 49,000 50,000 34 76 111 134 155 50,000 51,000 35 78 115 138 159 51,000 52,000 36 80 118 142 164 52,000 53,000 37 82 122 146 168 53,000 54,000 38 84 125 150 173 54,000 55,000 39 87 128 153 178 55,000 56,000 40 89 131 158 182 56,000 57,000 41 91 135 161 187 57,000 58,000 42 93 138 166 191 58,000 59,000 43 95 142 169 196 59,000 60,000 44 98 144 174 200 60,000 62,000 46 101 149 179 207 62,000 64,000 48 105 156 187 216 64,000 66,000 50 109 163 195 225 66,000 68,000 52 114 169 203 234 68,000 70,000 54 118 176 211 243 70,000 72,000 56 123 182 218 253 72,000 74,000 58 127 189 226 262 74,000 76,000 60 132 195 234 270 76,000 78,000 62 136 202 242 279 78,000 80,000 64 140 209 250 288 80,000 85,000 67 148 220 264 304 85,000 90,000 72 159 237 283 327 90,000 95,000 77 170 253 303 350 95,000 100,000 82 181 269 323 372 100,000 110,000 90 198 293 352 406 110,000 120,000 100 220 326 391 452 120,000 130,000 110 242 359 430 497 130,000 140,000 120 264 392 469 543 140,000 150,000 130 286 424 509 588 150,000 160,000 140 308 457 548 633 160,000 170,000 150 330 490 587 679 170,000 180,000 160 352 523 626 724 180,000 190,000 170 374 555 666 769 190,000 200,000 180 396 588 705 815 200,000 210,000 190 418 621 744 860 210,000 220,000 200 440 654 784 904 220,000 230,000 210 462 687 823 950 230,000 240,000 220 484 719 863 995 240,000 And up 230 506 752 902 1,040 REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2011 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $19,000 $19,500 3 7 9 12 13 19,500 20,000 3 8 11 14 15 20,000 20,500 4 9 13 15 18 20,500 21,000 4 10 15 17 20 21,000 21,500 5 11 16 20 22 21,500 22,000 5 12 18 22 24 22,000 23,000 6 14 20 24 29 23,000 24,000 7 16 24 28 32 24,000 25,000 8 18 27 32 37 25,000 26,000 9 20 31 36 41 26,000 27,000 10 23 33 40 46 27,000 28,000 11 25 37 43 51 28,000 29,000 12 27 40 48 55 29,000 30,000 13 29 43 52 60 30,000 31,000 14 31 47 56 64 31,000 32,000 15 34 49 60 69 32,000 33,000 16 36 53 63 74 33,000 34,000 17 38 56 68 78 34,000 35,000 18 40 60 71 83 35,000 36,000 19 43 62 76 87 36,000 37,000 20 45 66 79 92 37,000 38,000 21 47 69 83 97 38,000 39,000 22 49 73 87 101 39,000 40,000 23 51 76 91 105 40,000 41,000 24 54 79 95 109 41,000 42,000 25 56 82 99 114 42,000 43,000 26 58 86 103 118 43,000 44,000 27 60 89 107 123 44,000 45,000 28 62 93 110 128 45,000 46,000 29 65 95 115 132 46,000 47,000 30 67 99 118 137 47,000 48,000 31 69 102 123 141 48,000 49,000 32 71 106 126 146 49,000 50,000 33 73 109 130 151 50,000 51,000 34 76 112 134 155 51,000 52,000 35 78 115 138 160 52,000 53,000 36 80 118 143 164 53,000 54,000 37 82 122 146 169 54,000 55,000 38 84 125 150 173 55,000 56,000 39 87 128 154 177 56,000 57,000 40 89 131 158 182 57,000 58,000 41 91 135 162 186 58,000 59,000 42 93 138 166 191 59,000 60,000 43 95 142 169 196 60,000 62,000 45 99 146 175 203 62,000 64,000 47 103 153 183 212 64,000 66,000 49 107 160 191 221 66,000 68,000 51 112 166 199 229 68,000 70,000 53 116 173 206 239 70,000 72,000 55 121 179 214 248 72,000 74,000 57 125 186 222 257 74,000 76,000 59 129 192 231 266 76,000 78,000 61 134 198 239 275 78,000 80,000 63 138 205 246 285 80,000 85,000 66 146 217 260 300 85,000 90,000 71 157 233 280 322 90,000 95,000 76 168 250 299 345 95,000 100,000 81 179 266 319 368 100,000 110,000 89 196 290 348 402 110,000 120,000 99 218 323 387 447 120,000 130,000 109 240 355 427 493 130,000 140,000 119 262 388 466 538 140,000 150,000 129 284 421 505 583 150,000 160,000 139 306 454 544 629 160,000 170,000 149 328 487 583 674 170,000 180,000 159 350 519 623 719 180,000 190,000 169 372 552 662 765 190,000 200,000 179 394 585 701 810 200,000 210,000 189 416 618 740 856 210,000 220,000 199 438 651 779 901 220,000 230,000 209 460 683 819 946 230,000 240,000 219 482 716 858 992 240,000 And up 229 504 749 897 1,037 . H&r block taxcut free file 03 Revised Amounts for Passenger Automobiles Placed in Service During 2010. H&r block taxcut free file (1) Calculation of the Revised Amount. H&r block taxcut free file The revised depreciation limits provided in this section 4. H&r block taxcut free file 03 were calculated by increasing the existing limitations on the first year allowance in Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2010-18 by $8,000 as provided in § 168(k)(2)(F)(i). H&r block taxcut free file (2) Amount of the Revised Limitation. H&r block taxcut free file For passenger automobiles (that are not trucks or vans) placed in service by the taxpayer in calendar year 2010 for which the § 168(k) additional first year depreciation deduction applies, Table 7 of this revenue procedure contains the revised dollar amount of the depreciation limitations for each taxable year. H&r block taxcut free file For trucks or vans placed in service by the taxpayer in calendar year 2010 for which the § 168(k) additional first year depreciation deduction applies, Table 8 of this revenue procedure contains the revised dollar amount of the depreciation limitations for each taxable year. H&r block taxcut free file If the § 168(k) additional first year depreciation deduction does not apply to a passenger automobile placed in service by the taxpayer in calendar year 2010, the depreciation limitations for each taxable year in Tables 1 and 2 of Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2010-18 apply. H&r block taxcut free file REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 7 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2010 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. H&r block taxcut free file PROC. H&r block taxcut free file 2011-21 TABLE 8 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2010 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 (3) Modification to lease inclusion amounts for 2010. H&r block taxcut free file The lease inclusion amounts in Tables 3 and 4 of Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2010-18 are modified by striking the first four lines of the inclusion amounts in each table. H&r block taxcut free file Consequently, Table 3 of Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2010-18 applies to passenger automobiles (other than trucks and vans) that are first leased by the taxpayer in calendar year 2010 with a fair market value over $18,500, and Table 4 of Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2010-18 applies to trucks and vans that are first leased by the taxpayer in calendar year 2010 with a fair market value over $19,000. H&r block taxcut free file SECTION 5. H&r block taxcut free file EFFECTIVE DATE This revenue procedure, with the exception of section 4. H&r block taxcut free file 03, applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2011. H&r block taxcut free file Section 4. H&r block taxcut free file 03 of this revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2010. H&r block taxcut free file SECTION 6. H&r block taxcut free file EFFECT ON OTHER DOCUMENTS Rev. H&r block taxcut free file Proc. H&r block taxcut free file 2010-18 is amplified and modified. H&r block taxcut free file SECTION 7. H&r block taxcut free file DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. H&r block taxcut free file Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). H&r block taxcut free file For further information regarding this revenue procedure, contact Mr. H&r block taxcut free file Harvey at (202) 622-4930 (not a toll-free call). H&r block taxcut free file Prev  Up  Next   Home   More Internal Revenue Bulletins
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The H&r Block Taxcut Free File

H&r block taxcut free file 2. H&r block taxcut free file   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. H&r block taxcut free file ” 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. H&r block taxcut free file In many cases, however, losses from tax shelters produce little or no benefit to society, or the tax benefits are exaggerated beyond those intended. H&r block taxcut free file Those cases are called “abusive tax shelters. H&r block taxcut free file ” An investment that is considered a tax shelter is subject to restrictions, including the requirement that it be disclosed, as discussed later. H&r block taxcut free file Topics - This chapter discusses: Abusive Tax Shelters , Rules To Curb Abusive Tax Shelters , Investor Reporting , Penalties , and Whether To Invest . H&r block taxcut free file 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. H&r block taxcut free file Abusive Tax Shelters Abusive tax shelters are marketing schemes involving artificial transactions with little or no economic reality. H&r block taxcut free file 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. H&r block taxcut free file Despite appearances to the contrary, the taxpayer generally risks little. H&r block taxcut free file 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. H&r block taxcut free file 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. H&r block taxcut free file (But see the appraisal requirements discussed under Rules To Curb Abusive Tax Shelters , later. H&r block taxcut free file ) They are commonly marketed in terms of the ratio of tax deductions allegedly available to each dollar invested. H&r block taxcut free file This ratio (or “write-off”) is frequently said to be several times greater than one-to-one. H&r block taxcut free file 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. H&r block taxcut free file However, you should ask the following questions, which might provide a clue to the abusive nature of the plan. H&r block taxcut free file 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. H&r block taxcut free file These provisions include the following. H&r block taxcut free file Disclosure of reportable transactions. H&r block taxcut free file   You must disclose information for each reportable transaction in which you participate. H&r block taxcut free file See Reportable Transaction Disclosure Statement , later. H&r block taxcut free file   Material advisors with respect to any reportable transaction must disclose information about the transaction on Form 8918, Material Advisor Disclosure Statement. H&r block taxcut free file To determine whether you are a material advisor to a transaction, see the Instructions for Form 8918. H&r block taxcut free file   Material advisors will receive a reportable transaction number for the disclosed reportable transaction. H&r block taxcut free file They must provide this number to all persons to whom they acted as a material advisor. H&r block taxcut free file They must provide the number at the time the transaction is entered into. H&r block taxcut free file 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. H&r block taxcut free file For information on penalties for failure to disclose and failure to maintain lists, see Internal Revenue Code sections 6707, 6707A, and 6708. H&r block taxcut free file Requirement to maintain list. H&r block taxcut free file   Material advisors must maintain a list of persons to whom they provide material aid, assistance, or advice on any reportable transaction. H&r block taxcut free file 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. H&r block taxcut free file See Regulations section 301. H&r block taxcut free file 6112-1 for more information (including what information is required to be included on the list). H&r block taxcut free file Confidentiality privilege. H&r block taxcut free file   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. H&r block taxcut free file Appraisal requirement for donated property. H&r block taxcut free file   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. H&r block taxcut free file If you claim a deduction of more than $500,000 for the donated property, you generally must attach the qualified appraisal to your return. H&r block taxcut free file If you file electronically, see Form 8453, U. H&r block taxcut free file S. H&r block taxcut free file Individual Income Tax Transmittal for an IRS e-file Return, and its instructions. H&r block taxcut free file For more information about appraisals, including exceptions, see Publication 561. H&r block taxcut free file Passive activity loss and credit limits. H&r block taxcut free file   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. H&r block taxcut free file For more detailed information about determining and reporting income, losses, and credits from passive activities, see Publication 925. H&r block taxcut free file Interest on penalties. H&r block taxcut free file   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. H&r block taxcut free file Accounting method restriction. H&r block taxcut free file   Tax shelters generally cannot use the cash method of accounting. H&r block taxcut free file Uniform capitalization rules. H&r block taxcut free file   The uniform capitalization rules generally apply to producing property or acquiring it for resale. H&r block taxcut free file Under those rules, the direct cost and part of the indirect cost of the property must be capitalized or included in inventory. H&r block taxcut free file For more information, see Publication 538. H&r block taxcut free file Denial of deduction for interest on an underpayment due to a reportable transaction. H&r block taxcut free file   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. H&r block taxcut free file This rule applies to reportable transactions entered into in tax years beginning after October 22, 2004. H&r block taxcut free file 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. H&r block taxcut free file The guidance is the conclusion of the IRS on how the law is applied to a particular set of facts. H&r block taxcut free file Guidance is published in the Internal Revenue Bulletin for taxpayers' information and also for use by IRS officials. H&r block taxcut free file 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. H&r block taxcut free file 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. H&r block taxcut free file 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. H&r block taxcut free file Investor Reporting You may be required to file a reportable transaction disclosure statement. H&r block taxcut free file Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction (discussed later) in which you participated. H&r block taxcut free file Generally, you must attach Form 8886 to your return for each tax year in which you participated in the transaction. H&r block taxcut free file 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). H&r block taxcut free file 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. H&r block taxcut free file  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. H&r block taxcut free file If you use a computer-generated or substitute Form 8886, it must be an exact copy of the official IRS form. H&r block taxcut free file 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. H&r block taxcut free file See Penalty for failure to disclose a reportable transaction , later under Penalties. H&r block taxcut free file The following discussion briefly describes reportable transactions. H&r block taxcut free file For more details, see the Instructions for Form 8886. H&r block taxcut free file Reportable transaction. H&r block taxcut free file   A reportable transaction is any of the following. H&r block taxcut free file A listed transaction. H&r block taxcut free file A confidential transaction. H&r block taxcut free file A transaction with contractual protection. H&r block taxcut free file A loss transaction. H&r block taxcut free file A transaction of interest entered into after November 1, 2006. H&r block taxcut free file Note. H&r block taxcut free file Transactions with a brief asset holding period were removed from the definition of reportable transaction for transactions entered into after August 2, 2007. H&r block taxcut free file Listed transaction. H&r block taxcut free file   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. H&r block taxcut free file These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. H&r block taxcut free file For a list of existing guidance, see Notice 2009-59 in Internal Revenue Bulletin 2009-31, available at www. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2009-31_IRB/ar07. H&r block taxcut free file html. H&r block taxcut free file Confidential transaction. H&r block taxcut free file   A confidential transaction is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. H&r block taxcut free file 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. H&r block taxcut free file The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. H&r block taxcut free file Transaction with contractual protection. H&r block taxcut free file   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. H&r block taxcut free file For information on exceptions, see Revenue Procedure 2007-20 in Internal Revenue Bulletin 2007-7, available at www. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2007-07_IRB/ar15. H&r block taxcut free file html. H&r block taxcut free file Loss transaction. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2004-50_IRB/ar11. H&r block taxcut free file html. H&r block taxcut free file Transaction of interest. H&r block taxcut free file   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. H&r block taxcut free file The IRS has identified the following transactions of interest. H&r block taxcut free file “Toggling” grantor trusts as described in Notice 2007-73, 2007-36 I. H&r block taxcut free file R. H&r block taxcut free file B. H&r block taxcut free file 545, available at www. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2007-36_IRB/ar20. H&r block taxcut free file html. H&r block taxcut free file Certain transactions involving contributions of a successor member interest in a limited liability company as described in Notice 2007-72, 2007-36 I. H&r block taxcut free file R. H&r block taxcut free file B. H&r block taxcut free file 544, available at www. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2007-36_IRB/ar19. H&r block taxcut free file html. H&r block taxcut free file 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. H&r block taxcut free file R. H&r block taxcut free file B. H&r block taxcut free file 1194, available at www. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2008-47_IRB/ar11. H&r block taxcut free file html. H&r block taxcut free file Certain transactions involving a U. H&r block taxcut free file S. H&r block taxcut free file 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. H&r block taxcut free file R. H&r block taxcut free file B. H&r block taxcut free file 312, available at www. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2009-03_IRB/ar10. H&r block taxcut free file html. H&r block taxcut free file   For updates to this list, go to www. H&r block taxcut free file irs. H&r block taxcut free file gov/Businesses/Corporations/Abusive-Tax-Shelters-and-Transactions. H&r block taxcut free file Penalties Investing in an abusive tax shelter may lead to substantial expenses. H&r block taxcut free file First, the promoter generally charges a substantial fee. H&r block taxcut free file 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. H&r block taxcut free file You may also be subject to the penalty for failure to pay tax. H&r block taxcut free file These penalties are explained in the following paragraphs. H&r block taxcut free file Accuracy-related penalties. H&r block taxcut free file   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). H&r block taxcut free file 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. H&r block taxcut free file Your failure to disclose a reportable transaction is a strong indication that you failed to act in good faith. H&r block taxcut free file   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. H&r block taxcut free file   The 20% penalties do not apply to any underpayment attributable to a reportable transaction understatement subject to an accuracy-related penalty (discussed later). H&r block taxcut free file Negligence or disregard of rules or regulations. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file    Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code. H&r block taxcut free file It also includes any failure to keep adequate books and records. H&r block taxcut free file A return position that has a reasonable basis is not negligence. H&r block taxcut free file   Disregard includes any careless, reckless, or intentional disregard of rules or regulations. H&r block taxcut free file   The penalty for disregard of rules and regulations can be avoided if all the following are true. H&r block taxcut free file You keep adequate books and records. H&r block taxcut free file You have a reasonable basis for your position on the tax issue. H&r block taxcut free file You make an adequate disclosure of your position. H&r block taxcut free file Use Form 8275 to make your disclosure and attach it to your return. H&r block taxcut free file To disclose a position contrary to a regulation, use Form 8275-R. H&r block taxcut free file Use Form 8886 to disclose a reportable transaction (discussed earlier). H&r block taxcut free file Substantial understatement of tax. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file 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. H&r block taxcut free file   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. H&r block taxcut free file In that way, you can avoid the substantial understatement penalty if you have a reasonable basis for your position on the tax issue. H&r block taxcut free file Disclosure of the tax shelter item on a tax return does not reduce the amount of the understatement. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file Substantial valuation misstatement. H&r block taxcut free file   In general, you are liable for a 20% penalty for a substantial valuation misstatement if all the following are true. H&r block taxcut free file The value or adjusted basis of any property claimed on the return is 150% or more of the correct amount. H&r block taxcut free file You underpaid your tax by more than $5,000 because of the misstatement. H&r block taxcut free file You cannot establish that you had reasonable cause for the underpayment and that you acted in good faith. H&r block taxcut free file   You may be assessed a penalty of 40% for a gross valuation misstatement. H&r block taxcut free file 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. H&r block taxcut free file The penalty rate is also 40% if the property's correct value or adjusted basis is zero. H&r block taxcut free file Transaction lacking economic substance. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file   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. H&r block taxcut free file   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. H&r block taxcut free file   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. H&r block taxcut free file Relevant facts include any facts affecting the tax treatment of the transaction. H&r block taxcut free file    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. H&r block taxcut free file Undisclosed foreign financial asset understatement. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file The penalty applies to any part of an underpayment related to the following undisclosed foreign financial assets. H&r block taxcut free file Any foreign business you control, reportable on Form 5471, Information Return of U. H&r block taxcut free file S. H&r block taxcut free file Persons With Respect To Certain Foreign Corporations, or Form 8865, Return of U. H&r block taxcut free file S. H&r block taxcut free file Persons With Respect to Certain Foreign Partnerships. H&r block taxcut free file Certain transfers of property to a foreign corporation or partnership, reportable on Form 926, Return by a U. H&r block taxcut free file S. H&r block taxcut free file Transferor of Property to a Foreign Corporation, or certain distributions to a foreign person, reportable on Form 8865. H&r block taxcut free file Your ownership interest in certain foreign financial assets, temporarily reportable on Form 8275 or 8275-R. H&r block taxcut free file    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. H&r block taxcut free file See the Instructions for Form 8938 for details. H&r block taxcut free file    Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865. H&r block taxcut free file 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. H&r block taxcut free file Penalty for incorrect appraisals. H&r block taxcut free file   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. H&r block taxcut free file For details on the penalty amount and exceptions, see Publication 561. H&r block taxcut free file Penalty for failure to disclose a reportable transaction. H&r block taxcut free file   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). H&r block taxcut free file For an individual, the minimum penalty is $5,000 and the maximum is $10,000 (or $100,000 for a listed transaction). H&r block taxcut free file This penalty is in addition to any other penalty that may be imposed. H&r block taxcut free file   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. H&r block taxcut free file For information on rescission, see Revenue Procedure 2007-21 in Internal Revenue Bulletin 2007-9 available at www. H&r block taxcut free file irs. H&r block taxcut free file gov/irb/2007-09_IRB/ar12. H&r block taxcut free file html. H&r block taxcut free file Accuracy-related penalty for a reportable transaction understatement. H&r block taxcut free file   If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. H&r block taxcut free file 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. H&r block taxcut free file The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. H&r block taxcut free file You may not have to pay the 20% penalty if you meet the strengthened reasonable cause and good faith exception. H&r block taxcut free file 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. H&r block taxcut free file   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. H&r block taxcut free file Civil fraud penalty. H&r block taxcut free file   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. H&r block taxcut free file Joint return. H&r block taxcut free file   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. H&r block taxcut free file Failure to pay tax. H&r block taxcut free file   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. H&r block taxcut free file 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. H&r block taxcut free file Prev  Up  Next   Home   More Online Publications