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We also question why the Service has requested disclosure of tax positions where there is an administrative practice of accepting the tax position. Disclosure of these tax positions does not seem to be relevant for the Service’s expressed objectives of determining where to focus its limited resources. If the Service is concerned that its agents have misunderstood IRS positions and incorrectly or inconsistently decided not to challenge certain positions, there are several more efficient ways of addressing this issue than to attempt to identify these issues as line-item taxpayer disclosures. Before imposing this disclosure requirement on all taxpayers, the IRS could enlist its agents along with industry and professional groups to help identify areas in which taxpayers believe the IRS has established an administrative practice to accept or decline to challenge certain positions. Given that the financial statement analysis often does not sharply focus on these types of administrative practices, the burden could be substantially mitigated if the IRS took this approach in lieu of the currently proposed requirement.

If the Service retains the concept of maximum tax adjustment and all the additional work that comes with the concept, we recommend that it at least allow taxpayers to report the results of the calculation in ranges. To require a specific amount for each item, as the draft schedule currently does, implies a misleading degree of precision. Furthermore, once the “maximum” number is determined, it will bear no accurate relationship to the actual risk of the position. On its face, many such calculations will often serve to mislead the IRS on the actual riskiness of the position, thereby almost certainly requiring extra work on the part of the taxpayer to ensure that the IRS does not misinterpret and misuse the data.

As detailed in our response to Question 5 posed in Announcement 2010-9, we recommend the following revisions, should the Service implement the UTP disclosure regime:

  • Announcement 2010-9 states that the schedule will require the reporting of uncertain tax positions beyond those for which a reserve is required under FIN 48 or other accounting standards, for example, disclosures related to litigation of a position. The scope should be narrowed to exclude positions for which the taxpayer clearly has the intention of litigating.

  • Notwithstanding Announcement 2010-9, the scope of the disclosure regime should not include any position for which the IRS has a general administrative practice of not examining a position (e.g., expensing of low-cost assets). To require reporting of these positions is contrary to the Service’s position that such transactions or tax reporting is either immaterial in relation to the return or is not effective to pursue.

  • Disclosure should not be required for those items that have an immaterial effect on the

federal tax liability or are related to timing differences.

Announcement 2010-9 has the potential to inject a new dynamic into the judgment exercised within the financial reporting process for tax uncertainties, particularly with respect to the


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