Tax Practitioners Raise Concerns with IRS Proposal on FIN 48 Disclosures

Commissioner of Internal Revenue Douglas Shulman Jan. 26 unveiled a proposal for a tax schedule that would require large business taxpayers, for the first time, to proactively report their uncertain tax positions and the associated dollar amounts at the time they file their returns.

The proposal will change the landscape of disclosure and provide tax authorities with sharply increased information as they select returns and issues for the auditing of filings, practitioners told BNA in a series of interviews in late January.

Lawrence Hill, Dewey & LeBoeuf LLP, New York City, said the plan would have a sweeping and immediate effect. "This is an historic proposal," he told BNA Jan. 26. "Clearly the most significant, comprehensive disclosure proposal involving corporate taxpayers, bar none. Corporate taxpayers will now be required to provide a detailed road map to the IRS of all uncertain tax positions at the time they file their corporate tax returns. This is going to affect who the IRS audits, what issues they audit, and what resources are attached to the audit."

"The breadth of the disclosure on this is something we have to carefully evaluate," Charles Egerton, chair-elect of the
American Bar Association Section of Taxation, told BNA Jan. 29. "We have a lot of clients who are upset about this. The question is whether this is a reasonable expansion of the service's requests for transparency. We have to decide where we think the line should be drawn."

Christopher Rizek, a practitioner with Caplin & Drysdale Chartered, Washington, D.C., said that, in his view, if the proposal is implemented in its current form, "they don't need a policy of voluntary restraint on tax accrual work papers. If they get what they're asking for, what else is there? What they've sort of done is eviscerate the voluntary restraint policy."

Speaking to BNA Jan. 28, John Barrie, a partner at Bryan Cave LLP, Washington, D.C., said he believes the proposal is a progression in IRS's efforts to secure more transparency from large corporate taxpayers, pointing to the Schedule M-3, which required big companies to reconcile book-tax differences.

Barrie said that based on the "announcement itself, the general description of positions IRS is seeking is  "probably
not unreasonable on its face." He said the debate will be over "whether it's good tax policy" to require taxpayers to disclose uncertain tax positions.

On one hand, he said, there is the possibility of improving the audit process and making it more efficient, while on the other, there is the question of whether taxpayers will be placed at a disadvantage in terms of resolving issues once the IRS has identified them.

"On the business end, there's going to be a lot more time spent on how you determine an uncertain tax position and how you fill out the form," he told BNA. "Once you go from something that's internal to something that's disclosed to a government agency, I would expect taxpayers to spend more time on how that is actually phrased."