SECTION 1. PURPOSE

This revenue procedure updates Rev. Proc. 2005–75, 2005–50 I.R.B. 1137, 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 disregard provisions of the section 6662 accuracy-related penalty, which are subject to an exception for adequate disclosure).

This revenue procedure applies to any return filed on 2006 tax forms for a taxable year beginning in 2006, and to any return filed on 2006 tax forms in 2007 for short taxable years beginning in 2007.