According to Reed Smith Update the IRS issued an announcement at the end of January that outlines their plan to require certain business taxpayers to disclose uncertain tax positions on their tax returns. It is expected that this disclosure will take the form of a schedule that includes a “concise description of such positions and information regarding the potential impact of such positions on the taxpayer's federal income tax liability.”
Taxpayers are not currently required to identify and explain uncertain tax positions on their federal income tax returns. In contrast, many business taxpayers are required by FASB Interpretation No. 48 (Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109) ("FIN 48") to identify and quantify uncertain tax positions for financial accounting purposes (and may be subject to other accounting standards with respect to uncertain tax positions). The IRS believes that the information developed in the course of complying with FIN 48 and other accounting standards would assist the IRS in focusing its audit resources toward tax returns containing uncertain tax positions of particular interest, or of sufficient magnitude, to warrant further inquiry. In furtherance of such goal, the IRS has issued the Announcement, which informs taxpayers of the proposed disclosure of uncertain tax positions on the Schedule and discusses, in general terms, the potential content of the Schedule.
Proposed Schedule
The Announcement provides that the IRS is currently developing the Schedule and that the Schedule will be required to be filed with the taxpayer's Form 1120 (U.S. Corporation Income Tax Return) or other business tax return. The Schedule will require:
- A concise description of each uncertain tax position for which; and the taxpayer or a related entity has recorded a reserve in its financial statements; and
- The maximum amount of potential federal tax liability attributable to each uncertain tax position (determined without regard to the taxpayer's assessment of its likelihood of prevailing on the merits with respect to such position).
The Schedule will not require the taxpayer's risk assessment or tax reserve amounts with respect to such positions.
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