Under IRS rules, the tax treatment of an item has “substantial authority” only
if the weight of published cases, rules and other legal and administrative authorities is substantial in relation to the weight of opposing authorities
.
Sec. 1. 6694-2(b)(1) before amendment by T.D. 9436), a position with “substantial authority” has come to be understood as one having approximately a
40% chance of success
based on its merits.
The substantial authority standard is less stringent than the more likely than not standard (the standard that is met when there is a
greater than 50-percent likelihood
of the position being upheld), but more stringent than the reasonable basis standard as defined in § 1.6662-3(b)(3).
What is a position with reasonable basis?
Reasonable basis is generally defined as a
position that has a greater than 20% possibility of success but does not have substantial authority
. Reasonable basis is the lowest standard for any position that can be taken on a tax return, and disclosures will not avoid penalties if this standard is not met.
In summary, under IRC section 6662(d), taxpayers must have
substantial authority that is higher than a reasonable-basis threshold
, but less than the more-likely-than-not threshold to take a position on a tax return without disclosure.
*A taxpayer may have
substantial authority
for a position that is supported only by a well-reasoned construction of the applicable statutory provision. – Notices, announcements and other administrative pronouncements published by the Service in the Internal Revenue Bulletin.
Under IRS rules, the tax treatment of an item has “substantial authority” only
if the weight of published cases, rules and other legal and administrative authorities is substantial in relation to the weight of opposing authorities
.
What is unreasonable position?
A position is
unreasonable if there is no substantial authority for a position falling within the general category or there is no reasonable basis for a position adequately disclosed under IRC
§ 6662(d)(2)(B)(ii)(I) (IRC §§ 6694(a)(2)(A) and (B) ).
The most impactful and binding types of authority are called primary sources. These primary sources are
tax law authorities
that must be followed and include: the Internal Revenue Code, U.S. Treasury Regulations, Revenue Rulings, and Revenue Procedures. … Final regulations have the effect of law.
What is FIN 48 called now?
ASC 740
, formerly known as FIN 48, offers guidance on uncertain tax positions. It is broad in scope and now applies to both nonprofit and for-profit entities. … In our experience, most nonprofits argue that they are exempt from paying income taxes.
What is the standard to determine if a position is unreasonable?
A position (taken on a tax return or tax refund claim) is generally unreasonable if the position does not have
(or did not have) substantial authority in the tax law
. If the return contains adequate disclosure of details about the position, it is unreasonable unless there is a reasonable basis for the position.
What is the penalty for due diligence?
The penalty for not meeting due diligence requirements is
$520* for each credit
(EITC, CTC/ACTC/ODC and AOTC), or HOH filing status claimed on a 2018 tax return. The penalty amount is going up to $530 for returns filed in 2020.
Can a tax preparer be liable?
Definition of tax preparer
As either a signing or non-signing preparer,
they can be held liable for any errors and responsible for any penalties from the IRS
. This can include enrolled agents, CPAs, tax attorneys, appraisers, and any other licensed professional.
Should versus more likely than not?
A
“should” opinion
” suggests a reasonably high level of confidence that the position will be sustained— significantly higher than “more likely than not”—but allows for a not insignificant risk of being wrong. Will Opinion. A “will” opinion is consistent with a conclusion that there is no material risk of being wrong.
Do you have to file Form 8886 every year?
Use Form 8886 to disclose information for each reportable transaction in which participation has occurred. Generally, Form 8886
must be attached to the tax return for each tax year in which participation in a reportable transaction has occurred
.
When can an entity recognize the benefit of a tax position?
Initially, an entity should recognize the financial statement effects of a tax position
when it is “more likely than not” that the position will be upheld if questioned (which includes the outcome of litigation) by the taxing authorities
. The term “more likely than not” means a likelihood of more than 50 percent.
