Do taxpayers have to use the official forms published by the IRS? In May v. United States, No. 15-16599 (9th Cir. 2017), the court considered whether a taxpayer is subject to the listed transaction penalty if he fails to file the IRS’s reportable transaction form, but the IRS is otherwise furnished with all of the information that would have been included on the form.
The Obligation to Use IRS Forms
Section 6011 says that taxpayers who are liable for a tax must “make a return or statement according to the forms and regulations prescribed by” the IRS. It goes on to say that the “return or statement shall include therein the information requested by such forms and regulations.”
This language does not explicitly say that taxpayers have to use the IRS forms. It does not make it entirely clear whether the IRS’s act of publishing a form obligates taxpayers to use the form or if some other form that contains the same information is sufficient.
There are some tax laws and administrative guidance that allows taxpayers to provide the information requested to the IRS without using the actual IRS form in some circumstances. The reportable transactions form isn’t one of them.
The Reportable Transactions Form
Treasury Regulation 1.6011-4 addresses reportable transactions, saying that the Form 8886, Reportable Transaction Disclosure Statement, must be filed by taxpayers who engage in reportable transactions.
A listed transaction is one type of reportable transactions. Listed transactions are those the IRS identifies in its published notices and guidance as being similar to a transaction the IRS has found to be a tax avoidance transaction.
Section 6707 authorizes the IRS to impose a civil tax penalty if the taxpayer files false or incomplete information for the reportable transaction. Section 6501(c)(10)(A) provides that the IRS must assess a penalty against a taxpayer who fails to disclose a listed transaction within one year of the date that “the Secretary is furnished the information so required.” This brings us to the May case.
Trial Court Says Form Not Required, Appeals Court Disagrees
In May, the question was whether the reportable transaction penalty applies where the taxpayer furnished the IRS with the information required to assess the penalty within the one-year statutory period, but a Form 8886 was not filed and the IRS did not assess the penalty within the one year period.
The taxpayer prevailed at the trial court. The trial court concluded that the IRS could not assess the penalty after the one-year statutory period had expired when it was furnished with sufficient information regarding the listed transaction.
The majority of the appeals court did not agree with the trial court’s decision. It concluded that the taxpayer had to file the Form 8886 to trigger the running of the one-year limitations period. The sole dissenting opinion in the appeals case noted that the law does not require taxpayers to use the actual IRS form. It merely requires the IRS to have the information required by the form.
While the May case deals with listed transactions, it is not necessarily limited to listed transactions. This same logic could be applied to other situations.
It is not hard to imagine scenarios where the taxpayer would lose out on a tax benefit by filing the wrong or incomplete forms.
But this may not always be bad news for taxpayers. It is also not hard to imagine scenarios where the taxpayer benefits by not filing the proper forms or by filing incomplete forms.