Announcement 2010-9 has the potential to alter the relationship between external auditors and accountants and their clients by further imposing concerns about privilege to matters that should receive robust consideration in the context of financial statement disclosure, thereby having the potential of reducing transparency to investors and the financial markets. This impacts the delicate balance, struck by the deliberations over FIN 48, between the concern for accurate and transparent financial reporting and prejudicing the business affairs of a corporation.
While the AICPA has provided detailed responses to the questions raised by Announcements 2010-9 and 2010-17 (as found below), our comments in this section provide suggestions relating to alternative methods of disclosure to the procedures detailed in the announcement. In this context, we recognize that the stated rationale of Announcement 2010-9 is (1) to help the IRS focus its examination resources on returns with specific uncertain tax issues and issues of sufficient magnitude to warrant inquiry, and (2) to enable the Service’s examination teams to identify issues more quickly and efficiently.
We believe alternative disclosure regimes can provide the IRS much of the insight it seeks at a fraction of the cost associated with the proposal defined in Announcement 2010-9. First, IRC section 6662 currently requires disclosure for return positions not at the “substantial authority” level. Many tax professionals believe the Service has done little to evaluate the disclosures which it currently receives. At a minimum, it is premature to superimpose a significantly more comprehensive and cumbersome new system before the IRS has demonstrated any commitment to the systematic use of disclosures it already possesses - including those that come with the IRC section 6011 requirements and the Schedule M-3.
Because of the forgoing concerns, we recommend that the UTP proposal be postponed. However, if postponement is not granted, we encourage the IRS to at least pilot this new regime and reserve judgment about its expansion until it has the opportunity to thoroughly evaluate both the intended and unintended consequences of the new process on the larger taxpayer community.
Announcement 2010-9 requested comments on eight questions. Notwithstanding our policy concerns expressed above, we now turn our attention to those questions.
The Announcement indicates that the new schedule is intended to “aid the Service in focusing its examination resources on returns that contain specific uncertain tax positions that are of particular interest or of sufficient magnitude to warrant Service inquiry.” Hence, disclosure of the maximum amount of potential federal tax liability for each uncertain tax position is to enable