Form 8886 is a form used to disclose information for each reportable transaction in which you participated.
Purpose of Form 8886
The primary purpose of Form 8886, issued by the Internal Revenue Service (IRS), is to provide detailed information about potentially abusive tax avoidance transactions. This helps the IRS monitor and identify transactions that might be designed to improperly reduce a taxpayer's tax liability. It's crucial for transparency and compliance within the tax system.
Who Needs to File Form 8886?
Taxpayers, including individuals, corporations, partnerships, and trusts, are required to file Form 8886 if they participated in a "reportable transaction." Participation means that the taxpayer's tax return reflects or will reflect tax consequences from the transaction.
What is a Reportable Transaction?
A reportable transaction is any transaction identified by the IRS as having a potential for tax avoidance or evasion. These transactions are broadly categorized and are usually described in IRS notices or regulations. Common categories of reportable transactions include:
- Listed Transactions: Transactions specifically identified by the IRS as tax avoidance schemes.
- Confidential Transactions: Transactions offered to taxpayers under conditions of confidentiality.
- Transactions with Contractual Protection: Transactions where the taxpayer is protected from a loss of tax benefits if the IRS challenges the transaction.
- Loss Transactions: Transactions resulting in a loss exceeding certain thresholds.
- Transactions of Interest: Transactions that the IRS believes warrant further scrutiny.
What Information is Required on Form 8886?
Form 8886 requires detailed information about the reportable transaction, including:
- Identifying information of the taxpayer and other parties involved.
- A description of the transaction and its expected tax benefits.
- Relevant legal authority supporting the transaction.
- Any fees paid in connection with the transaction.
- Copies of relevant documents related to the transaction.
Where to Find More Information
For the most up-to-date information and specific instructions on completing Form 8886, refer to the official IRS website or consult with a qualified tax professional. The IRS provides detailed instructions with Form 8886.
