Both the American Institute of CPAs and the American Bar Association Tax Section have told the Internal Revenue Service it should withdraw its proposed rule that would require companies with more than $10 million in total assets to disclose uncertain tax positions on the new Schedule UTP, Uncertain Tax Position Statement.
While more than two dozen organizations and firms commented on the proposal, a letter from Senator Carl Levin, D.-Mich., was the only comment that not only supported the proposal but urged that the proposed approach be strengthened to cover more taxpayers.
The AICPA said its most significant concerns with the proposed UTP disclosure regime are that it:
Potentially undercuts the integrity of the financial statement process;
Imposes an increased burden and cost on taxpayers which will be substantially disproportionate to any actual benefit to the IRS;
Creates new tension among and between taxpayers, tax advisors, and the IRS, and alters the current self-assessment system;
Produces complexity and results in distortions that will impede the stated IRS goals;
Disproportionately impacts small businesses; and,
Calls for taxpayer reporting at a higher level than mandated by Congress.
We support the goal of increasing the transparency and efficiency of the process, said Edward Karl, vice president of taxation at the AICPA. We just think the best way to accomplish this is to focus on the disclosure mechanisms that already exist.
Large businesses can more easily cope with the increased burdens of the proposal, Karl observed. They are the ones that have large in-house staff to do calculations and tax analysis, he said. The IRS has said this is a natural evolution from FIN 48, but its not a simple evolution. Taxpayers have the responsibility to report the information. It will be more costly for smaller businesses to comply, which is one of the reasons we urge the IRS to raise the threshold if they do move forward.
The proposal applies to businesses with a $10 million asset threshold, while the AICPA recommends a conjunctive test, under which only taxpayers that have both total assets in excess of $50 million and annual gross receipts in excess of $100 million would be subject to the UTP reporting requirements.
The AICPA suggested a three-year trial period, or pilot program, before the program is finalized. They need to analyze whatever information theyre receiving, and determine how useful it is, said Karl. Is there really a benefit to the government vis-a-vis the burden it places on business?
Washington-based Miller & Chevalier likewise urged a delay in implementing the proposal.
Its extraordinarily unlikely that the IRS will pull back and withdraw, said Patricia Sweeney, tax practice chair at Miller & Chevalier. At best it may be deferred, or limited to certain groups of taxpayers. Were talking about tinkering around the edges and not getting rid of it altogether.
But there is a strong case to defer implementation for a year to give the IRS time to train and put systems in place, she said. They need to know what they are going to do with this information. And more important, they need to train and provide additional resources for the examination process. Otherwise there will be very inconsistent treatment of taxpayers.
There is no uniformity as to what should be recorded as a reserve, Sweeney observed. IRS management has said on more than one occasion that the exam teams will not question the decision to record a reserve or not. This mandate should be memorialized in the Internal Revenue Manual or some other vehicle so that taxpayers can know the bounds of legitimate inquiry and have something to point to if an exam teams inquiry ventures out of bounds, she commented.
In summary, we clearly support the overarching goals of certainty, consistency and efficiency, but believe the proposed disclosure regime has the distinct potential of injecting a quotient of burden, complexity and uncertainty which will outweigh the projected benefits. These proposed new disclosure requirements will fall heavily on a universe of taxpayers already challenged to timely meet the far-reaching demands of both the financial statement and tax return processes, the AICPA concluded. To that end, we respectfully encourage the IRS to, at the very least, recast its proposal to affect fewer taxpayers while fundamentally rethinking the most burdensome and onerous aspects of the current proposal.
