On January 26, 2010, the IRS announced that it is developing a schedule that will require business taxpayers to report uncertain tax positions on their tax returns. The IRS believes that information similar to that gathered in connection with identifying and quantifying uncertain tax positions for FIN 48 and other reporting standards is “highly relevant to understanding the taxpayer’s tax positions and assessing how those positions affect the taxpayer’s tax liability.” According to the IRS, this information would allow the IRS to focus its examination resources on items of particular interest or of significant magnitude, and allow exam teams to identify issues more quickly and efficiently.
What the Schedule Will Do:
As currently contemplated, the IRS will require business taxpayers with total assets in excess of $10 million to file a schedule with their tax return disclosing any uncertain tax positions. Generally, the schedule will require a concise description of each uncertain tax position and the maximum amount of potential federal tax liability attributable to each such position.
The “concise” description must allow the IRS to “determine the nature of the issue,” and the IRS states that the sufficiency of the description will depend on the particular facts and the nature of the underlying transaction. However, the description is expected to require the following information:
- The Code sections potentially involved.
- The taxable year(s) impacted.
- Whether the item is an item of income, gain, loss, deduction, or credit.
- Whether the item is permanent or a timing item.
- Whether a determination of the value of any property or right is involved.
- Whether the position involves a computation of basis.
- The entire amount of U.S. federal income tax that would be due if the position were disallowed in its entirety on audit.
What the Schedule Won’t Do:
The current proposal would not require a taxpayer to disclose its risk assessment or tax reserve amounts, though the IRS may be able to compel such information through a summons. The announcement states that the IRS otherwise intends to maintain its existing policy of restraint for requesting tax accrual work-papers during the course of examinations, but notes that they will continue to review this policy.
The IRS is requesting public comments about this proposal. Comments are due by March 29, 2010. The announcement states that the IRS plans to issue proposed regulations to require the filing of the contemplated schedule, and that it intends to publish the new schedule “as quickly as possible.” The IRS is also evaluating options for penalties or sanctions when a taxpayer fails to make adequate disclosures. The proposed schedule could be required for tax returns filed in 2010 and later years.
Contact Parker Poe if you’d like to submit a public comment on the IRS proposal, or if you wish to discuss how the requirement of this new schedule will impact your recordkeeping and tax compliance obligations.
Contact Information: If you have questions or need additional information please contact:
Jennifer S. Felts