Listed Transaction

[Randy Watson]

A 412(i) plan filed a Form 8886 with the partnership's information return. Does one have to be filed with the individual's 1040 as well? The instructions say that an 8886 should be attached to "your income tax return or information return", but an IRS agent I spoke with suggested that it should be filed with both in order to avoid that nasty penalty. Doesn't make sense to me at all.

[J Simmons]

Well, that's raising two audit-potential flags rather than just one. If you have reason to be confident that you'd pass an audit with flying colors, then I'd do as the agent suggested. If not, I'd explain to the individual partners and let them make the choice individually of whether to add the second flag to their Forms 1040 in addition to your adding one to the Form 1065.

[Randy Watson]

Well, that's raising two audit-potential flags rather than just one. If you have reason to be confident that you'd pass an audit with flying colors, then I'd do as the agent suggested. If not, I'd explain to the individual partners and let them make the choice individually of whether to add the second flag to their Forms 1040 in addition to your adding one to the Form 1065.

The plan was audited. At this point we're trying to figure out liability with regard to the 6707A penalty.

[GBurns]

Shouldn't the result of the audit trigger a Notice of Deficiency or otherwise detailing and allocating the liability and responsible party ?

[Randy Watson]

Shouldn't the result of the audit trigger a Notice of Deficiency or otherwise detailing and allocating the liability and responsible party ?

Apparently the IRS unit responsible for the audit is completely separate from the unit responsible for listed transactions. We have not heard from the listed transactions unit at this point. Right now we're just trying to get a handle on what the listed transactions unit is going to tell us when they do get involved.