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IRSs Policy of Restraint – the Uncertain Tax Positions Disclosure
On 26 January 2010 the IRS issued Announcement 2010-09. This announcement stated that the IRS intended to retain its existing policy of restraint in asking for tax accrual workpapers but would require a new schedule documenting uncertain tax positions (UTP) to be filed by taxpayers recording reserves in financial statements. Taxand US examines the Uncertain Tax Positions disclosure Announcement and updates taxpayers on the comments being received by the IRS in response to the new policy.
In early March the IRS extended the comment period on Announcement 2010-9 until 1 June 2010, and more recently, on 19 April 2010, the IRS released for comment a draft UTP schedule and draft UTP instructions.
The UTP schedule will be due beginning with the 2010 tax year. The IRS has, to date, received many comments on the schedule and its instructions. Some of the most common comments include:
- The Schedule UTP might result in an unintended chilling effect on discussions about and disclosures of tax risk in financial statements
- The Schedule UTP might not be authorised by statute
- The IRS already has more information than it knows what to do with
- The IRS should road test the Schedule UTP and measure its effectiveness
- The IRS should permanently carve out pass-through entities from the requirement to file the Schedule UTP
- The need to disclose UTPs for litigation positions is routinely criticised
- Maybe $10 million in assets is too low of a threshold
- Compliance costs will exceed the benefits that the IRS perceives it will obtain from the disclosure: the IRS is going to require the Schedule UTP, it should eliminate the Schedule M-3
There is no policy of restraint. The IRS has, since devising the Schedule M-3, continually sought more and more disclosure of tax accrual workpapers and their contents. The IRS has required reportable transactions reporting, fought successfully against Textron and its privilege assertions over tax accrual workpapers and is now introducing the Schedule UTP. All of these actions show there is no policy of restraint. We can expect the IRS to continue to learn from the Schedule UTP. We can expect the IRS to learn from its fight with Switzerland (UBS private banking and claims of US tax evasion).
As to planning today, it is imperative that taxpayers continue to do their tax planning in conjunction with strategic commercial transactions. Taxpayers need to spend more and more time with subject matter experts within their organisations in non-tax functional areas (including treasury, finance, risk management, accounting, strategy, etc.), understanding the commercial realities of the transactions the company is engaging in.
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