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the Service to gauge the “magnitude” of the tax position in order to determine where to focus its attention.

Neither the amount of the reserve nor the maximum potential federal tax adjustment is critical for determining the magnitude of the position. Under the proposal, taxpayers would list for each uncertain tax position (except for transfer pricing and valuation positions) the entire amount of U.S. federal income tax that would be due if the position were disallowed in its entirety on audit. The amount is further defined as the maximum tax adjustment for the position reflecting all changes to items of income, gain, loss, deduction, or credit if the position is not sustained. As the purpose for the amount is to obtain information about the magnitude of the issue, identifying the range of the federal income tax benefit of the tax position should be sufficient for the Service to identify and prioritize where to focus its attention. The form could specify predetermined dollar ranges. These ranges could be as few or as many as the Service determines it needs to allocate resources. To illustrate, taxpayers could be asked to identify if the tax position is: (1) $1 million or below, (2) greater than $1 million and less than or equal to $10 million, (3) greater than $10 million and less than or equal to $100 million, and (4) greater than $100 million.

If one of the purposes of disclosure is to assess the magnitude of the position, taxpayers could identify for each uncertain tax position the applicable range that the tax benefit of the position

falls within. determination

We recommend of the estimated

that the amount be “bucketed” tax benefit of the position. For

based on a relatively simple many positions, this will be a

straightforward computation.

For some tax positions where

outcomes, there could be very low probability extremes



there are multiple possible taxpayer may not have even

considered in assessing its financial statement risk.

In order to mitigate the burden of the disclosure statement on taxpayers, the Service should allow taxpayers to use a reasonable estimate of the benefit of the tax position in determining the applicable range and not require taxpayers to perform additional studies or calculations to identify the worst case (i.e., maximum amount) solely for purposes of the disclosure statement.

The Service should clarify whether taxpayers are required to disclose uncertain tax positions in connection with returns filed with other tax jurisdictions that could have an effect on U.S. federal

tax liability (e.g., credit benefit).

a non-U.S. withholding tax exposure may result We recommend that the Service only require

in a future U.S. foreign disclosure of uncertain

tax tax

positions on federal income tax returns. Disclosure of would not facilitate the stated objective of determining

tax positions related to other jurisdictions where the Service should focus its efforts.

There are a number of alternative methods that the Service could consider for determining the relative importance of the uncertain tax positions. In addition to the concerns about maximum tax adjustment discussed under Question 1, another issue is that the maximum tax adjustment does not consider the level of risk associated with the tax position. Hence, the maximum tax adjustment could lead the IRS to focus on tax positions where there is the potential for a large


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