February 2010
IRS Proposes Taxpayer Reporting of Uncertain Tax Positions
Lisa Workman
On January 26, 2010, IRS Commissioner Douglas Shulman announced during a speech to the New York State Bar Association Taxation Section a plan to require the preparation of a new schedule by certain taxpayers to report their uncertain tax positions to the IRS. This would be part of their annual tax return filing and represents a major expansion of taxpayer self-reporting requirements.
As proposed, this new requirement would apply to any business taxpayer with total assets in excess of $10 million if the entity prepares financial statements that determine its federal income tax reserves under FIN 48 or other accounting standards relating to uncertain federal income tax positions. The announcement invites the public to submit comments on the proposal by March 29, 2010.
Specifically, the proposed schedule would require a taxpayer to report:
- A concise description of each uncertain position for which a tax reserve:
- Is recorded in the taxpayer’s financial statements
- Has not been recorded because either the taxpayer expects to litigate the position or the taxpayer has determined the IRS has a general administrative practice not to examine the position
- The entire amount of U.S. federal income tax that would be due if the position were disallowed in its entirety on audit
As proposed, the concise description of each uncertain tax position must contain:
- The Internal Revenue Code sections the position potentially implicates
- A description of the taxable year or years to which the position relates
- A statement that the position involves an item of income, gain, loss, deduction or credit against tax
- A statement that the position involves a permanent inclusion or exclusion of any item, the timing of that item or both
- A statement whether the position involves a determination of the value of any property or right
- A statement whether the position involves a computation of basis
The IRS also is looking at options for taxpayer penalties related to failure to make an adequate disclosure.
Commissioner Shulman believes the above will result in a “straightforward discussion with the taxpayer about the issues” and help the IRS “prioritize selection of issues and taxpayers for examination.” The new schedule will be required for tax returns filed after its release. Although in Announcement 2010-9, the IRS has said it intends to publish the new schedule as quickly as possible; unofficially, the IRS has stated this will not be effective for 2009 returns.
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