SECTION 1. PURPOSE

This revenue procedure updates Rev. Proc. 2002–66, 2002–2 C.B. 724, and

identifies circumstances under which the disclosure on a taxpayer’s return with respect to an item or a position is adequate for the purpose of reducing the understatement of income tax under § 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 preparer penalty under § 6694(a) (relating to understatements due to unrealistic positions). This revenue procedure does not apply with respect to any other penalty provisions (including the negligence or disregard provisions of the § 6662 accuracy-related penalty).

This revenue procedure applies to any return filed on 2003 tax forms for a taxable year beginning in 2003, and to any return filed on 2003 tax forms in 2004 for short taxable years beginning in 2004.