IRS Scales Back Uncertain Tax Position Requirements

From WebCPA.com:

Internal Revenue Service Commissioner Doug Shulman said Friday that the IRS has been listening to complaints about its plans to require companies to disclose their uncertain tax positions and is relaxing some of the original proposals while phasing in the schedule over five years.

In addition to the five-year phase-in period, there will be no reporting of a maximum tax adjustment, no reporting of the rationale and nature of uncertainty in the concise description of the position, and no reporting of administrative practice tax positions.

Starting with the 2010 tax year certain corporate taxpayers under the jurisdiction of the IRS’s Large Business and International Division will be required to file a Schedule UTP with their Form 1120. Schedule UTP requires the disclosure of a taxpayer’s uncertain tax positions and is intended to reduce the time it takes to find issues; ensure that the IRS and taxpayers spend more time discussing the law as it applies to their facts, rather than looking for information; identify areas of uncertainty requiring guidance; and help prioritize selection of issues and taxpayers for examination.

After receiving comments from worried companies, their accountants and attorneys, along with various industry groups, the IRS announced Friday that it is expanding its policy of restraint in connection with its decision to require certain corporations to file Schedule UTP and will forgo seeking particular documents that relate to uncertain tax positions and the workpapers that document the completion of Schedule UTP.

In addition, the IRS released the guidance it is providing to the examiners and other personnel in its Large Business and International Division who will be working with corporate taxpayers on compliance, along with a final version of Schedule UTP and revised instructions for filling it out.

ABA Asks IRS to Withdraw Proposal Requiring Taxpayers to Report Uncertain Tax Positions

Last Friday, the American Bar Association (ABA) sent a letter to the IRS expressing opposition to a new proposal requiring taxpayers to disclose “uncertain tax positions” to the IRS. You can find a snippet of the letter below courtesy of the Tax Professor, or download a PDF of the full letter at ABAnet.org.

The ABA Tax Section on Friday sent this letter to the IRS expressing its opposition to the proposals to require taxpayers to disclose uncertain tax positions to the IRS:

On behalf of the ABA, I write to express our concerns regarding the proposals contained in IRS Announcement 2010-9, 2010-7 I.R.B. 408, Announcement 2010-17, 2010-13 I.R.B. 515, and Announcement 2010-30, 2010-19 I.R.B. 668 (collectively, the Announcements). The Announcements would require disclosure of uncertain tax positions through the required filing of Schedule UTP by certain business taxpayers...

We are concerned that the disclosure proposals set forth in the Announcements, requiring identification of specific uncertain tax positions and elaboration of the taxpayer’s views and assessments of those positions, will undermine the protections afforded by the attorney-client privilege and attorney work product doctrine, as well as the related § 7525 tax practitioner’s privilege. ...

[T]he ABA urges the Service to withdraw the disclosure proposals in the Announcements and instead rely on existing methods of obtaining information.