The IRS said on Jan. 26 (Announcement 2010-9) that it may require businesses to disclose with their tax returns any uncertain tax positions for which they must establish a reserve, as well as those for which they have not established a reserve because they expect to litigate the position or have determined “that the Service has a general administrative practice not to examine the position.”
The disclosure would be made on a schedule to be filed with Form 1120, U.S. Corporation Income Tax Return, “or other business tax returns.” The requirement would apply to taxpayers with total assets exceeding $10 million and related entities, but otherwise, the announcement did not distinguish the types of business entities affected, such as public and private corporations and pass-throughs.
IRS Commissioner Doug Shulman called the proposal reasonable and measured.
“We could have asked for more … a lot more … but chose not to,” Shulman said in a speech to the New York State Bar Association Tax Section. He underscored the announcement’s assurance that the Service’s “policy of restraint” toward summoning tax accrual and other financial audit workpapers, as stated in Announcement 2002-63, will remain intact.
Taxpayers will not be required to disclose their tax reserve amounts or risk assessments for uncertain tax positions. They would, however, be required to disclose the maximum amount of federal tax liability associated with each uncertain tax position.
“We are asking for more transparency” that will allow the IRS to use its examination resources more efficiently, Shulman said.
The new schedule would require a description of each uncertain tax position, along with:
- The tax year or years to which it pertains;
- IRC sections involved;
- Whether the position involves an item or items of income, gain, loss, deduction or credit;
- Whether the position involves permanent inclusion or exclusion of an item or its timing; and
- Whether the position involves a valuation determination or computation of basis.
IRS Announcement 2010-9