IRS Wants a Roadmap: Proposes Broad Disclosure of Uncertain Tax Positions on Returns and Guts Restraint Policy on Tax Accrual Workpapers

Article by Gary B. Wilcox and Mark E. Matthews , William F. Colgin, Jr. and Barton W.S. Bassett

On January 26, the Internal Revenue Service (IRS) announced its intention to require corporate taxpayers to disclose all uncertain tax positions on a new schedule to be attached to the yearly tax return. Under the current proposal, corporate taxpayers would be required to state the maximum amounts of potential tax liabilities as well. Announcement 2010-9 (Announcement) sets forth the proposal and requests comments by March 29, 2010. The Announcement describes, but does not attach, a proposed schedule to be added to Form 1120 and other unspecified business tax returns. The full text of Announcement 2010-9 can be found at http://www.irs.gov/pub/irs-drop/a-10-09.pdf (www.irs.gov/pub/irs-drop/a-10-09.pdf).

The Announcement indicates that the IRS intends the schedule to be filed by business taxpayers with total assets in excess of $10 million. The requirement would extend to a taxpayer that prepares financial statements, or that is included in the financial statements of a related entity that prepares financial statements, if such taxpayer or related entity determines its U.S. federal income tax reserves under FIN 481 or other accounting standards2 relating to uncertain tax positions involving U.S. federal income tax. The IRS does not define the term "uncertain tax positions," but the Announcement provides instances where the requirements would apply even though no tax reserve exists, as discussed below. Thus, the IRS requirements go beyond FIN 48 or other reserve requirements.

The proposal is prospective in application, and would apply to all tax returns filed after the date the schedule is released in final. The Announcement indicates the IRS intends to finalize the new schedule "as quickly as possible" and requests comments to be submitted by March 29, 2010. While a due date on April 1st might be more appropriate, this timing indicates the IRS is serious about proceeding with this schedule on an expedited basis.

Maximum Amounts for Each Issue to Be Disclosed

Taxpayers would be required to state on the new schedule "the maximum amount of potential federal tax liability attributable to each uncertain tax position." Thus, even though the amount of a potential tax liability recorded in a reserve is less than the maximum amount due to risk adjustments under financial accounting rules, the IRS is requiring that taxpayers report the full potential...