The Internal Revenue Service is considering requiring some business taxpayers to report uncertain tax positions on their tax returns, according to Commissioner of Internal Revenue Douglas Shulman.
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Speaking at the New York State Bar Association Taxation Section Annual Meeting in New York, Shulman said that Announcement 2010-9 would require the reporting of uncertain tax positions at the time a return is filed by business taxpayers that have over $10 million in assets, and that have a financial statement prepared under FIN 48 or other similar accounting standard.
These taxpayers would be required to annually disclose uncertain tax positions in the form of a concise description of those positions and the maximum amount of U.S. income tax exposure if the taxpayers position is not sustained. By concise, we mean a few sentences that inform us of the nature of the issue, and not pages of factual description or legal analysis, he said.
The goals of the proposal are to cut down the time it takes to find issues and complete an audit, ensure that both the IRS and taxpayer spend time discussing the law as it applies to the facts, rather than looking for information, and to help the IRS prioritize the selection of issues and taxpayers for examination, according to Shulman.
Today, we spend up to 25 percent of our time in a large corporate audit searching for issues rather than having a straightforward discussion with the taxpayer about the issues. It would add efficiency to the process if we had access to more complete information earlier in the process regarding the nature and materiality of a taxpayers uncertain tax positions, he explained.
Since affected taxpayers are already required to establish tax reserves for uncertain tax positions in determining their financial statement income under U.S. or foreign accounting standards, the proposal will not be an added burden on taxpayers, Shulman noted.
Just to be clear again, this proposal would not require that taxpayers disclose how strong or weak they regard their tax positions or report to us the amounts they reserved on the books regarding those positions. And, as a very important part of this proposal, the IRS would otherwise retain its longstanding policy of restraint as it applies to tax accrual workpapers, he said.
I think this is a sound proposal that will significantly advance the ball in the transparency area. We understand this proposal will generate a good deal of discussion and debate, and we welcome that, he added. We look forward to public comments and the upcoming dialogue regarding this important announcement.