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substantial underpayments of income tax, and valuation misstatements; or substantial overstatement of pension liability. In the context of section 6662, generally if the taxpayer does not have “substantial authority” for a position, to avoid the accuracy-related penalty, the position would have to be adequately disclosed on the return, such as on Form 8275 or 8275-R. On the other hand, the “more likely than not” (MLTN) standard (discussed immediately below) reflects a greater than 50 percent likelihood of prevailing on the merits of a tax position recorded on a tax return. Section 6694 sets forth similar requirements for tax return preparers.

Announcement 2010-9 would require taxpayers to disclose uncertain tax positions on a new schedule regarding positions that are considered reportable under FIN 48 for financial accounting purposes or other generally accepted accounting principles (including IFRS and country-specific generally accepted accounting standards). Under FIN 48, the taxpayer is required to assess whether an income tax return position would more likely than not (MLTN) withstand challenge by the IRS; if the tax position does not (in the judgment of the business) have a MLTN potential of withstanding such an IRS challenge, the company is required to disclose the position as an uncertain tax position on its financial statements. Thus, assuming we are not referring to a reportable transaction, the IRS’ proposed uncertain tax positions disclosure regime would impose a higher reporting standard than is required under the Internal Revenue Code (which requires a reporting standard of substantial authority for items not associated with tax shelters).

While the announcement states that the proposal only requires the disclosure of uncertain tax positions on the tax return, it also strongly emphasizes the Service’s right to compel the production of the taxpayer’s risk assessments or tax reserve amounts (through the release of the tax accrual work papers) by issuance of a summons as authorized by the case of , 465 U.S. 805 (1984).

In describing the impact of the Commissioner Larry Gibbs stated: 1

case at a 2007 tax conference, former

My recollection of what happened after was that many companies began to explore the possibility of using lawyers to deal with tax reserves. And I think that the concern that arose over that caused the SEC to contact the IRS. And I think it was something that [Commissioner] Roscoe Egger understood very well, and it is what led to the current policy of restraint on tax accrual work papers.

If we get to the point where the legal profession and the accounting profession start squabbling with one another again, then it’s going to be most interesting…And the tensions that puts on having more disclosure, more transparency with respect to things, for example, in the tax reserve…and I think it’s in everybody’s best interest to kind of back off, take a deep breath, and look at where we are, before we start getting into things that I think can lead all of us to a much more difficult planet.

1 2007 Tax Analysts Conference, Key Issues in Tax Policy: Effective Tax Administration and Transparency: What Lessons Can Be Learned From Changes Made in the IRS Large and Midsize Business Division and What Improvements Can Be Made?, Tax Analysts, Washington, DC, April 13, 2007, page 22.


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