February 4, 2010

New Federal Developments The IRS Announces Intention To Require Disclosure Of Uncertain Tax Provisions On Tax Returns

Contributor Jennifer Brittelli, Supervisor, Tax & Business Services

New Federal Developments The IRS Announces Intention To Require Disclosure Of Uncertain Tax Provisions On Tax Returns Tax & Business

On January 26, 2010, the IRS released Announcement 2010-9, which discusses the IRS plan to develop a new schedule that would require Form 1120 filers and other business taxpayers to report uncertain tax positions on their tax returns, beginning with the 2010 tax year.

Under the proposal, annual reporting of uncertain tax positions would be required for C corporations and other business taxpayers with total assets in excess of $10 million and subject to FASB Interpretation No. 48 (“Fin 48”) or other accounting standards. The disclosure would be in the form of a concise description of those positions and the maximum amount of US income tax exposure if the taxpayer’s position is not sustained. The IRS Commissioner stated, within the agency website at www.irs.gov, that by concise, they mean a few sentences that would inform the IRS of the nature of the issue as opposed to pages of factual description or legal analysis.

In addition, taxpayers would be required to disclose any position related to the determination of any United States federal income tax liability for which a taxpayer (or a related entity) has not recorded a tax reserve because:

  1. The taxpayer expects to litigate the position, or
  2. The taxpayer has determined that the IRS has a general administrative practice not to examine the position

The Commissioner’s statement indicates that the description should also include the rationale for the position. To be sufficient, the description would need to contain:

  1. The Internal Revenue Code Sections implicated by the position;
  2. A description of the taxable year or years to which the position relates;
  3. A statement that the position involves an item of income, gain, loss, deduction, or credit against tax;
  4. A statement that the position involves a permanent inclusion or exclusion of any item, the timing of that item, or both;
  5. A statement whether the position involves a determination of the value of any property or right; and
  6. A statement whether the position involves a computation of basis.

The proposal does not require the taxpayer to disclose the taxpayer’s risk assessment or tax reserve amounts. The purpose of the proposed disclosure is to provide the IRS with a list of issues that the taxpayer has already prepared for financial reporting purposes, in order to improve the efficiency and effectiveness of tax examinations. The IRS plans to utilize the reports in order to allocate exam resources appropriately and to assess materiality and exam resources.

The Service announced that it intends to publish the new schedule as quickly as possible and will be inviting the public to submit comments to the IRS National Office on the proposal through March 29, 2010.

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