SECTION 1. PURPOSE

This revenue procedure updates Rev. Proc. 2003–77, 2003–2 C.B. 964, 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 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 preparer penalty under section 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 section 6662 accuracy-related penalty).

This revenue procedure applies to any return filed on 2004 tax forms for a taxable year beginning in 2004, and to any return filed on 2004 tax forms in 2005 for short taxable years beginning in 2005.