Nearly half the senior executives polled in a recent survey said they are most concerned about the prospect of providing a concise description of the uncertain tax positions of their companies to comply with the Internal Revenue Services new disclosure requirements.
A survey by KPMGs Tax Governance Institute of 1,100 business leaders in early October found that 44 percent of the respondents said their biggest concern was providing a concise description of a disclosed UTP.
The IRS defines an uncertain tax position as a federal income tax position for which a taxpayer or related party has recorded a reserve in an audited financial statement, or for which no reserve was recorded because of an expectation to litigate. Another major concern cited by 20 percent of the survey respondents centers on the IRSs ability to effectively administer the UTP program, while 15 percent of the respondents said they were most concerned about the scope of taxpayers required to file UTPs under the new rule.
The IRS announced a proposal last January to require large corporations to disclose their uncertain tax positions. In April, the IRS released a draft form and instructions to the taxpaying community while requesting comments on the overall proposal and the specifics of the draft. Last month, the IRS released its final Schedule UTP and related announcements and guidance on the disclosure of UTPs, and indicated it was scaling back the initial proposals after hearing comments from tax preparers (see
Under the final schedule, only businesses with $100 million or more in assets would be required, in the near term, to report the uncertain tax positions reflected in their financial statement income tax reserves as determined under the Financial Accounting Standards Boards Interpretation Number 48 (FIN 48) or other country-specific accounting standards. For these companies, Schedule UTP would be required for returns relating to the 2010 calendar year and fiscal years that begin in 2010. There would be a five-year phase-in for smaller companies with fewer assets.
While the IRS went to considerable lengths to ease corporate taxpayer concerns about specific elements of the original Schedule UTP proposal, and incorporated many of the suggestions offered in comments submitted during the public comment period, the implementation of this new disclosure regime will invariably produce practical questions and issues, said KPMG tax principal and Tax Governance Institute director Hank Gutman, a former chief of staff of the U.S. Congressional Joint Committee on Taxation. It is not too early to begin an analysis of the potential impact of the schedule.
When asked which elements need additional clarification in Schedule UTP, the survey respondents had mixed viewpoints. Twenty percent cited a concise description, 18 percent said multi-year positions, and 17 percent each pointed to ranking of reserves and expectation to litigate positions.
In the survey, 39 percent of the respondents said their company had already started the necessary analysis and documentation for complying with Schedule UTP, while 33 percent said their company had not. Twenty-seven percent said the topic has already been elevated to the attention of their board of directors.
The survey also revealed that 48 percent of those polled do not believe that any steps needed to be taken to reduce the uncertainties that will have to be reported on their 2010 Schedule UTP.
In addition, 29 percent of respondents said that Schedule UTP would increase their interest in pre-filing treatments to achieve certainty around their uncertain tax positions, such as pre-filing agreements, advanced pricing agreements, and the compliance assurance process. Some 40 percent said they were undecided whether Schedule UTP would increase their interest.
Some 28 percent of those surveyed feel that IRS examining agents will use the schedule to propose audit adjustments without discussion, while 25 percent feel there will be an increase in IRS audits. Based on the expanded policy of restraint included in IRS Announcement 2010-76, 45 percent of the respondents are uncertain about how UTPs might impact privilege, but are confident in their ability to resolve the issue with the appropriate IRS personnel. Forty-two percent said the announcement does not remove their concern that IRS agents will demand information that may impinge on privilege.
Forty-seven percent of respondents expect the UTP requirements to create tensions among or between their audit firm, tax advisors and tax department, while 22 percent said they did not expect this to occur and 30 percent were not certain. Audit standards, in any case, have not changed, KPMG noted.
It is clear from our survey responses that there are still some concerns and issues regarding Schedule UTP within the business community, Gutman said. Affected taxpayers should not hesitate to communicate their continuing concerns to the IRS.
