IRS Would Increase Transparency of Uncertain FIN 48 Corporate Tax Positions
The IRS is developing a schedule requiring corporate filers to provide information about their FIN 48 and other uncertain tax positions that affect their federal income tax liability. The schedule would require a company to annually disclose a concise description of each uncertain tax position for which the company or a related entity has recorded a reserve in its financial statements and the maximum amount of potential federal tax exposure if the company’s position is not sustained. Announcement 2010-9.

In recent remarks, IRS Commissioner Douglas Schulman explained that concise description means a few sentences on the nature of the issue, and not pages of factual description or legal analysis. The sufficiency of a description will depend on the taxpayer’s particular facts and the nature of the underlying transaction. As currently contemplated, this concise description will include the rationale for the position and a concise general statement of the reasons for determining that the position is an uncertain tax position.

Reporting uncertain tax positions would be required at the time a return is filed by companies that have a financial statement prepared under FIN 48 or other similar accounting standards reflecting uncertain tax positions and assets over $10 million. The schedule would be filed with the Form 1120, U.S. Corporation Income Tax Return, or other business tax returns.

In addition to those positions for which a tax reserve must be established under FIN 48 or other accounting standards, uncertain tax positions will include any position related to the determination of any federal income tax liability for which a taxpayer or a related entity has not recorded a tax reserve because it expects to litigate the position and has determined that the IRS has a general administrative practice not to examine the position.

The IRS is evaluating additional options for penalties or sanctions to be imposed when a taxpayer fails to make adequate disclosure of the required information regarding its uncertain tax positions. One option being considered is to seek legislation imposing a penalty for failure to file the schedule or to make adequate disclosure.

In his remarks, Commissioner Shulman assured that the proposal would not require taxpayers to disclose how strong or weak they regard their tax positions or report the amounts they reserved on the books regarding those positions. And, with the Textron petition before the US Supreme Court, he said that the IRS would otherwise retain its longstanding policy of restraint as it applies to tax accrual work papers

The IRS is looking only for a brief description of the issue and the maximum amount of US income tax exposure, he noted, and there is no requirement that the taxpayer disclose its risk assessment or tax reserve amounts. He also pointed out that the IRS is asking for a list of issues that the company has already prepared for financial reporting purposes.

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