IRS Extends Comment Period for Uncertain Tax Positions Reporting Proposal; New Schedule Planned for Tax Year 2010

The IRS followed up Friday on its January announcement about plans to require certain business taxpayers to report uncertain tax positions on their returns. It extended an ongoing comment period on the plan and announced that it will start requiring the reporting for tax years beginning in 2010 (Announcement 2010-17).

In response to requests from a number of groups, including the AICPA, for more time to study the proposal, the IRS is extending the comment period until June 1; when the Service unveiled the proposal Jan. 26 in Announcement 2010-9 (see previous JofA coverage) the IRS set March 29 as the comment cutoff date.

The IRS also announced that it plans to release in early April a draft schedule and instructions for reporting uncertain tax positions. The IRS anticipates that the draft instructions will answer many of the questions it has received about the proposal, although it warned that they “may not completely resolve all questions about the proposal.” The schedule will not be implemented for the 2009 tax year but rather would be required for returns relating to calendar year 2010 and for fiscal years that begin in 2010.

The proposal would require businesses with more than $10 million in assets to disclose with their tax returns certain details about each uncertain tax position, defined as a position for which the taxpayer or a related entity has recorded a reserve in its financial statements under FASB Interpretation no. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, or other accounting standards. (The provisions of FIN 48 are now contained in FASB Accounting Standards Codification Topic 740.) In addition, the announcement said uncertain tax positions would include positions for which the taxpayer has not established a reserve because the taxpayer expects to litigate the position or the taxpayer has determined the IRS has a general practice not to examine the position. Affected taxpayers would also be required to disclose the maximum amount of potential federal tax liability attributable to each uncertain tax position (determined without regard to the taxpayer’s risk analysis regarding its likelihood of prevailing on the merits).

The Service invited comment on particular issues concerning the proposal:

1. Will the new schedule and its disclosures duplicate existing forms such as Form 8275, Disclosure Statement, and 8275-R, Regulation Disclosure Statement, and their disclosures?
2. What types of uncertain tax positions should be reported by pass-through and tax-exempt entities?
3. How should uncertain tax positions be reported by related entities such as members of a consolidated group for financial statement or tax return purposes or entities that are disregarded for federal tax purposes

Comments can be e-mailed to Announcement.Comments@irscounsel.treas.gov, with a subject line that reads “Announcement 2010-9.”