The concept of maximum tax exposure is addressed elsewhere in these comments and represents numerous inherent deficiencies. We urge the Service to allow taxpayers to report their total maximum tax adjustment either as an aggregate absolute number or as an aggregate number that falls within a range. If the government wants any additional information associated with the “maximum adjustment,” we recommend it have the taxpayer identify the types of positions included within the maximum adjustment, but only require specific per-position measurement data upon audit.
As currently proposed, the Schedule UTP would require “[t]he rationale for the position and a concise general statement of the reasons for determining that the position is an uncertain tax position.” We do not believe either of these statements should be required as part of the initial submission. Both require subjective evaluation and expression that would be extraordinarily difficult to capture in a way that the government could expect to receive with the Schedule UTP. We acknowledge the IRS attempts to clarify this issue through the three examples contained in the draft instructions. While these examples infer some additional calibration for what the IRS would consider adequately “concise,” much ambiguity remains about what precisely would be required in order to make an adequate disclosure. Absent consistency in the data and its meaning, the IRS will be unable to effectively sort by this information. Therefore, we believe the IRS should only request the “rationale for the positions” and “the reasons for determining…the [uncertain] position…,” upon its selection of the taxpayer for examination.
Announcement 2010-17 requested comments on three questions, as detailed below.
There are a number of forms or schedules that the Service requires taxpayers to utilize for varying reasons for disclosure purposes. These include Schedule M-3 for corporate, partnership, and S corporation taxpayers, Form 8886 for reportable transactions, the Form 8275 disclosure statement, and the Form 8275-R regulation disclosure statement. We are concerned that the IRS is not currently utilizing these disclosure statements sufficiently; effective use of these forms and schedules would alleviate the need for triggering the disclosure of (in many cases) the same information which would likely be disclosed under a proposed uncertain tax position disclosure statement.
If the IRS made better use of the array of disclosure forms and schedules currently required by the Service (without reliance on a new uncertain tax position disclosure regime), it could significantly mitigate needless and burdensome influences on decisions made for financial reporting purposes and reduce unnecessary friction between companies and their auditors.