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adjustment and yet a very low probability that the large adjustment will occur. This would not improve examination efficiency.

A number of alternative methods of disclosure should be considered. First, consideration should be given to requiring only a description of the issues, listed in order of magnitude, without amounts. The IRS could extend the concept adopted for transfer pricing and valuations and require taxpayers to list their uncertain tax positions in order of magnitude which would provide the Service with an indication of the relative materiality of the issues. A list of issues without amounts provides a basis for risk assessment based on the nature of the issue and will promote issue-driven audits.

Another alternative method would be to collect information about uncertain tax positions on Schedule M-3. In lieu of the proposed Schedule UTP, taxpayers could identify information reported on the Schedule M-3 that corresponds to an uncertain tax position and the form could be

expanded to collect the information that should be

other requested factored into the



audit selection

criteria (i.e.,

are already providing reportable transactions,

substantial understatements and book-tax difference detail). aligning this information and making one integrated request.






For taxpayers that are under continual audit, their returns are examined regardless of the information provided on the schedule. Hence, consideration should be given to exempting these taxpayers from providing the information with their returns as the data is not used for return selection. Rather, for taxpayers under continuous audit, collecting the description of issues at the opening conference for the year under examination could meet the Service’s objective.

Taxpayers that are part of the Compliance Assurance Program (CAP) have, by virtue of their acceptance into the program, agreed to a level of transparency with respect to potential tax return positions. Inasmuch as the program itself requires contemporaneous disclosure of all significant tax positions and a post-CAP affirmation that all material positions have been addressed, we urge the Service to exempt CAP taxpayers from the requirement to prepare the schedule.

It is important to balance the IRS’ need for information with the burden being placed on most taxpayers when providing that information. The stated purpose of the proposed schedule is to permit the IRS to determine the most effective and efficient deployment of audit resources. In order to accomplish this objective, the following alternative disclosure regimes should be considered:

1. Report the adjustment based on the highest applicable tax rate applied to the total of all adjustments included in taxable income for the year. Temporary differences should not be subject to reporting to permit focusing on permanent items representing potential leakage in the tax system.


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