Creates new tension among and between taxpayers, tax advisors, and the IRS, and alters
the current self-assessment system;
Produces complexity and results in distortions that will impede the stated IRS goals;
Disproportionately impacts small businesses; and,
Calls for taxpayer reporting at a higher level than mandated by Congress.
Rather than mandating a new disclosure regime – with all the problems inherent in the current design – we strongly urge the IRS to focus its immediate attention and resources on dramatically improving its use and management of the significant amount of disclosed information it already possesses. Before being required to provide a substantial amount of new information, taxpayers should be confident that the IRS will be at least as diligent in analyzing and utilizing the disclosed data as taxpayers are in developing and reporting it.
Announcement 2010-9 sought comments on a proposed change in the reporting requirements for certain business taxpayers’ uncertain tax positions for the purpose of improving tax compliance and administration. Announcement 2010-9 stated that the IRS was developing a schedule which would be submitted by filers of Form 1120, or by other business taxpayers, with total assets in excess of $10 million if the taxpayer has one or more uncertain tax positions of the type required to be reported on the schedule. The announcement also requested responses to eight questions centering on implementation of a new disclosure schedule.
Announcement 2010-17 raised additional questions regarding the new disclosure schedule, the scope and implementation of the proposal to report UTPs, and the proposal’s application to pass- through entities and tax-exempt organizations.
On April 19, 2010, in Announcement 2010-30, the IRS released the draft Schedule UTP, Uncertain Tax Position Statement, and accompanying draft instructions. Unlike Announcements 2010-9 and 2010-17, the draft Schedule UTP and instructions indicate that, initially, only taxpayers filing Forms 1120, 1120-F, 1120-L, or 1120-PC will be required to disclose uncertain tax positions on Schedule UTP. We commend the IRS for narrowing the initial universe of required filers and we strongly encourage it not to expand the requirement to partnerships, tax- exempt organizations, and other types of business taxpayers. As described below, we believe the IRS will meaningfully reduce overall taxpayer burden if it further narrows the scope of those required to file the Schedule UTP.
Lastly, if this proposal is implemented, we recommend that it be done with a specific sunset date, such as at the expiration of a three-year period. The IRS should commit to an analysis and public disclosure of the benefits and costs associated with the requirement to complete the Schedule UTP. Unless by the end of the sunset period the IRS can demonstrate clear and verifiable improvements in compliance or efficiency, the program should be eliminated.