voluntary reporting requirements

Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and claims for refund, credit or abatement;
determination of correct tax liability.
(Also: Part 1, §§ 6662, 6694, 1.6662-4, 1.6694-2)

Rev. Proc. 2011-13

SECTION 1. PURPOSE

This revenue procedure updates Rev. Proc. 2010-15, 2010-7 I.R.B. 404, and
identifies circumstances under which the disclosure on a taxpayer's income tax return
with respect to an item or a position is adequate for the purpose of reducing the
understatement of income tax under section 6662(d) of the Internal Revenue Code
(relating to the substantial understatement aspect of the accuracy-related penalty), and
for the purpose of avoiding the tax return preparer penalty under section 6694(a)
(relating to understatements due to unreasonable positions) with respect to income tax
returns. This revenue procedure does not apply with respect to any other penalty
provisions (including the disregard provisions of the section 6662(b)(1) accuracy-related 2
penalty, the section 6662(i) increased accuracy-related penalty in the case of
nondisclosed noneconomic substance transactions, and the section 6662(j) increased
accuracy-related penalty in the case of undisclosed foreign financial asset
understatements).
This revenue procedure applies to any income tax return filed on 2010 tax
forms for a taxable year beginning in 2010, and to any income tax return filed on
2010 tax forms in 2011 for short taxable years beginning in 2011.
SECTION 2. CHANGES FROM REV. PROC. 2010-15
01 This revenue procedure has been updated to include reference to: (i) the.
section 6662(i) increased accuracy-related penalty in the case of nondisclosed
noneconomic substance transactions; (ii) the section 6662(j) increased accuracy-related
penalty in the case of undisclosed foreign financial asset understatements; and (iii) the
Schedule UTP, Uncertain Tax Position Statement, a new schedule required of certain
corporations.

01 If SECTION 3. BACKGROUND
01 If section 6662 applies to any portion of an underpayment of tax required to.
be shown on a return, an amount equal to 20 percent of the portion of the
underpayment to which the section applies is added to the tax (the penalty rate is 40
percent in the case of gross valuation misstatements under section 6662(h),
nondisclosed noneconomic substance transactions under section 6662(i), or
undisclosed foreign financial asset understatements under section 6662(j)). Section
6662(b)(2) applies to the portion of an underpayment of tax that is attributable to a 3
substantial understatement of income tax.
02 Section 6662(d)(1) provides that there is a substantial understatement of.
income tax if the amount of the understatement exceeds the greater of 10 percent of the
amount of tax required to be shown on the return for the taxable year or $5,000.
Section 6662(d)(1)(B) provides special rules for corporations. A corporation (other than
an S corporation or personal holding company) has a substantial understatement of
income tax if the amount of the understatement exceeds the lesser of 10 percent of the
tax required to be shown on the return for a taxable year (or, if greater, $10,000) or
$10,000,000. Section 6662(d)(2) defines an understatement as the excess of the
amount of tax required to be shown on the return for the taxable year over the amount
of the tax that is shown on the return reduced by any rebate (within the meaning of
section 6211(b)(2)).
03 In the case of an item not attributable to a tax shelter, section.
6662(d)(2)(B)(ii) provides that the amount of the understatement is reduced by the
portion of the understatement attributable to the item if the relevant facts affecting the
item’s tax treatment are adequately disclosed in the return or in a statement attached to
the return, and there is a reasonable basis for the tax treatment of the item by the
taxpayer..
04 Section 6694(a) imposes a penalty on a tax return preparer who prepares a.
return or claim for refund reflecting an understatement of liability due to an
“unreasonable position” if the tax return preparer knew (or reasonably should have
known) of the position. A position (other than a position with respect to a tax shelter or 4
a reportable transaction to which section 6662A applies) is generally treated as
unreasonable unless (i) there is or was substantial authority for the position, or (ii) the
position was properly disclosed in accordance with section 6662(d)(2)(B)(ii)(I) and had a
reasonable basis. If the position is with respect to a tax shelter (as defined in section
6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the
position is treated as unreasonable unless it is reasonable to believe that the position
would more likely than not be sustained on the merits. See Notice 2009-5, 2009-3
I.R.B. 309 (January 21, 2009) for interim penalty compliance rules for tax shelter
transactions.

05 In general, this revenue procedure provides guidance for determining when.
disclosure by return is adequate for purposes of section 6662(d)(2)(B)(ii) and section
6694(a)(2)(B). For purposes of this revenue procedure, the taxpayer must furnish all
required information in accordance with the applicable forms and instructions, and the
money amounts entered on these forms must be verifiable..
06 Fiscal and short tax year returns. (a) In general. This revenue procedure.
may apply to a return for a fiscal tax year that begins in 2010 and ends in 2011. This
revenue procedure may also apply to a short year return for a period beginning in 2011
if the return is to be filed before the 2011 forms are available. (Note that individuals are
generally not put in this position as a decedent's final return for a fractional part of a
year is due the fifteenth day of the fourth month following the close of the 12-month
period which began with the first day of such fractional part of the year. See Treas.
Reg. § 1.6072-1(b).) In the case of fiscal year and short year returns, the taxpayer must 5
take into account any tax law changes that are effective for tax years beginning after
December 31, 2010, even though these changes are not reflected on the form.
(b) Tax law changes effective after December 31, 2010. This document does not
take into account the effect of tax law changes effective for tax years beginning after
December 31, 2010. If a line referenced in this revenue procedure is affected by such a
change and requires additional reporting, a taxpayer may have to file Form 8275,
Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, until the
Service prescribes criteria for complying with the requirement.
07 A complete and accurate disclosure of a tax position on the appropriate.
year’s Schedule UTP, Uncertain Tax Position Statement, will be treated as if the
corporation filed a Form 8275 or Form 8275-R regarding the tax position. The filing of a
Form 8275 or Form 8275-R, however, will not be treated as if the corporation filed a
Schedule UTP.
SECTION 4. PROCEDURE
01 General.
(1) Additional disclosure of facts relevant to, or positions taken with respect to,
issues involving any of the items set forth below is unnecessary for purposes of
reducing any understatement of income tax under section 6662(d) (except as otherwise
provided in section 4.02(3) concerning Schedules M-1 and M-3), provided that the forms
and attachments are completed in a clear manner and in accordance with their
instructions.
(2) The money amounts entered on the forms must be verifiable, and the 6
information on the return must be disclosed in the manner described below. For
purposes of this revenue procedure, a number is verifiable if, on audit, the taxpayer can
prove the origin of the amount (even if that number is not ultimately accepted by the
Internal Revenue Service) and the taxpayer can show good faith in entering that
number on the applicable form.

(3) The disclosure of an amount as provided in section 4.02 below is not
adequate when the understatement arises from a transaction between related parties.
If an entry may present a legal issue or controversy because of a related-party
transaction, then that transaction and the relationship must be disclosed on a Form
8275 or Form 8275-R.
(4) When the amount of an item is shown on a line that does not have a
preprinted description identifying that item (such as on an unnamed line under an “Other
Expense” category) the taxpayer must clearly identify the item by including the
description on that line. For example, to disclose a bad debt for a sole proprietorship,
the words “bad debt” must be written or typed on the line of Schedule C that shows the
amount of the bad debt. Also, for Schedule M-3 (Form 1120), Part II, line 25, Other
income (loss) items with differences, or Part III, line 35, Other expense/deduction items
with differences, the entry must provide descriptive language; for example, "Cost of noncompete agreement deductible not capitalizable.” If space limitations on a form do not
allow for an adequate description, the description must be continued on an attachment.

(5) Although a taxpayer may literally meet the disclosure requirements of this
revenue procedure, the disclosure will have no effect for purposes of the section 6662 7
accuracy-related penalty if the item or position on the return: (1) Does not have a
reasonable basis as defined in Treas. Reg. § 1.6662-3(b)(3); (2) Is attributable to a tax
shelter item as defined in section 6662(d)(2); or (3) Is not properly substantiated or the
taxpayer failed to keep adequate books and records with respect to the item or position.
(6) Disclosure also will have no effect for purposes of the section 6694(a) penalty
as applicable to tax return preparers if the position is with respect to a tax shelter (as
defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A
applies.

02 Items.
(1) Form 1040, Schedule A, Itemized Deductions:
(a) Medical and Dental Expenses: Complete lines 1 through 4, supplying all
required information.
(b) Taxes: Complete lines 5 through 9, supplying all required information. Line 8
must list each type of tax and the amount paid.
(c) Interest Expenses: Complete lines 10 through 15, supplying all required
information. This section 4.02(1)(c) does not apply to (i) amounts disallowed under
section 163(d) unless Form 4952, Investment Interest Expense Deduction, is
completed, or (ii) amounts disallowed under section 265.
(d) Contributions: Complete lines 16 through 19, supplying all required
information. Enter the amount of the contribution reduced by the value of any
substantial benefit (goods or services) provided by the donee organization in
consideration, in whole or in part. Entering the value of the contribution unreduced by
the value of the benefit received will not constitute adequate disclosure. If a contribution
of $250 or more is made, this section will not apply unless a contemporaneous written
acknowledgment, as required by section 170(f)(8), is obtained from the donee
organization. If a contribution of cash of less than $250 is made, this section will not
apply unless a bank record or written communication from the donee, as required by
section 170(f)(17), is obtained from the donee organization. If a contribution of property
other than cash is made and the amount claimed as a deduction exceeds $500, attach
a properly completed Form 8283, Noncash Charitable Contributions, to the return. In
addition to the Form 8283, if a contribution of a qualified motor vehicle, boat, or airplane
has a value of more than $500, this section will not apply unless a contemporaneous
written acknowledgment, as required by section 170(f)(12), is obtained from the donee
organization and attached to the return. An acknowledgment under section 170(f)(8) is
not required if an acknowledgment under section 170(f)(12) is required.
(e) Casualty and Theft Losses: Complete Form 4684, Casualties and Thefts,
and attach to the return. Each item or article for which a casualty or theft loss is claimed
must be listed on Form 4684.
(2) Certain Trade or Business Expenses (including, for purposes of this section,
the following six expenses as they relate to the rental of property):
(a) Casualty and Theft Losses: The procedure outlined in section 4.02(1)(e)
must be followed.

(b) Legal Expenses: The amount claimed must be stated. This section does not
apply, however, to amounts properly characterized as capital expenditures, personal 9
expenses, or non-deductible lobbying or political expenditures, including amounts that
are required to be (or that are) amortized over a period of years.
(c) Specific Bad Debt Charge-off: The amount written off must be stated.
(d) Reasonableness of Officers' Compensation: Form 1120, Schedule E,
Compensation of Officers, must be completed when required by its instructions. The
time devoted to business must be expressed as a percentage as opposed to "part" or
"as needed." This section does not apply to "golden parachute" payments, as defined
under section 280G. This section will not apply to the extent that remuneration paid or
incurred exceeds the employee-remuneration deduction limitations under section
162(m), if applicable.
(e) Repair Expenses: The amount claimed must be stated. This section does
not apply, however, to any repair expenses properly characterized as capital
expenditures or personal expenses.
(f) Taxes (other than foreign taxes): The amount claimed must be stated.
(3) Differences in book and income tax reporting.
For Schedule M-1 and all Schedules M-3, including those listed in (a)-(f) below,
the information provided must reasonably apprise the Service of the potential
controversy concerning the tax treatment of the item. If the information provided does
not so apprise the Service, a Form 8275 or Form 8275-R must be used to adequately
disclose the item (see Part II of the instructions for those forms).
Note: An item reported on a line with a pre-printed description, shown on an
attached schedule or “itemized” on Schedule M-1, may represent the aggregate 10
amount of several transactions producing that item (i.e., a group of similar items,
such as amounts paid or incurred for supplies by a taxpayer engaged in
business). In some instances, a potentially controversial item may involve a
portion of the aggregate amount disclosed on the schedule. The Service will not
be reasonably apprised of a potential controversy by the aggregate amount
disclosed. In these instances, the taxpayer must use Form 8275 or Form 8275-R
regarding that portion of the item.

Combining unlike items, whether on Schedule M-1 or Schedule M-3 (or on an
attachment when directed by the instructions), will not constitute an adequate
disclosure.

Additionally, for taxpayers that file the Schedule M-3 (Form 1120), the new
Schedule B, Additional Information for Schedule M-3 Filers, must also be completed.
For taxpayers that file the Schedule M-3 (Form 1065), the new Schedule C, Additional
Information for Schedule M-3 Filers, must also be completed. When required, these
new Schedules are necessary to constitute adequate disclosure.

(a) Form 1065. Schedule M-3 (Form 1065), Net Income (Loss) Reconciliation for
Certain Partnerships: Column (a), Income (Loss) per Income Statement, of Part II
(reconciliation of income (loss) items) and Column (a), Expense per Income Statement,
of Part III (reconciliation of expense/deduction items); Column (b), Temporary
Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income
(loss) items) and Part III (reconciliation of expense/deduction items); and Column (d),
Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and 11
Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction
items).

(b) Form 1120. (i) Schedule M-1, Reconciliation of Income (Loss) per Books
With Income per Return.
(ii) Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for
Corporations with Total Assets of $10 Million or More: Column (a), Income (Loss) per
Income Statement, of Part II (reconciliation of income (loss) items) and Column (a),
Expense per Income Statement, of Part III (reconciliation of expense/deduction items);
Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II
(reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction
items) and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of
income (loss) items); and Column (d), Deduction per Tax Return, of Part III
(reconciliation of expense/deduction items).


(c) Form 1120-L. Schedule M-3 (Form 1120-L), Net Income (Loss)
Reconciliation for U.S. Life Insurance Companies With Total Assets of $10 Million or
More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of
income (loss) items) and Column (a), Expense per Income Statement, of Part III
(reconciliation of expense/deduction items); Column (b), Temporary Difference, and
Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and
Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per
Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction
per Tax Return, of Part III (reconciliation of expense/deduction items).

(d) Form 1120-PC. Schedule M-3 (Form 1120-PC), Net Income (Loss)
Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets
of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II
(reconciliation of income (loss) items) and Column (a), Expense per Income Statement,
of Part III (reconciliation of expense/deduction items); Column (b), Temporary
Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income
(loss) items) and Part III (reconciliation of expense/deduction items); and Column (d),
Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and
Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction
items).

(e) Form 1120S. Schedule M-3 (Form 1120S), Net Income (Loss) Reconciliation
for S Corporations With Total Assets of $10 Million or More: Column (a), Income (Loss)
per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a),
Expense per Income Statement, of Part III (reconciliation of expense/deduction items);
Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II
(reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction
items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of
income (loss) items) and Column (d), Deduction per Tax Return, of Part III
(reconciliation of expense/deduction items).
(f) Form 1120-F. Schedule M-3 (Form 1120-F), Net Income (Loss) Reconciliation
for Foreign Corporations With Total Assets of $10 Million or More: Column (b),
Temporary Difference, Column (c), Permanent Difference, and Column (d), Other 13
Permanent Differences for Allocations to Non-ECI and ECI, of Part II (reconciliation of
income (loss) items) and Part III (reconciliation of expense/deduction items).

(4) Foreign Tax Items:
(a) International Boycott Transactions: Transactions disclosed on Form 5713,
International Boycott Report; Schedule A, International Boycott Factor (Section
999(c)(1)); Schedule B, Specifically Attributable Taxes and Income (Section 999(c)(2));
and Schedule C, Tax Effect of the International Boycott Provisions, must be completed
when required by their instructions.
(b) Treaty-Based Return Position: Transactions and amounts under section
6114 or section 7701(b) as disclosed on Form 8833, Treaty-Based Return Position
Disclosure Under Section 6114 or 7701(b), must be completed when required by its
instructions.

(5) Other:
(a) Moving Expenses: Complete Form 3903, Moving Expenses, and attach to
the return.
(b) Employee Business Expenses: Complete Form 2106, Employee Business
Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, and attach
to the return. This section does not apply to club dues, or to travel expenses for any
non-employee accompanying the taxpayer on the trip.
(c) Fuels Credit: Complete Form 4136, Credit for Federal Tax Paid on Fuels, and
attach to the return.
(d) Investment Credit: Complete Form 3468, Investment Credit, and attach to the 14
return.

SECTION 5. EFFECTIVE DATE
This revenue procedure applies to any income tax return filed on a 2010 tax form
for a taxable year beginning in 2010, and to any income tax return filed on a 2010 tax
form in 2011 for a short taxable year beginning in 2011.
SECTION 6. DRAFTING INFORMATION
The principal author of this revenue procedure is Francis M. McCormick of the
Office of Associate Chief Counsel (Procedure & Administration). For further information
regarding this revenue procedure, contact Branch 2 of Procedure and Administration at
(202) 622-4940 (not a toll free cal