OUR THOUGHTS ON:

FIN 48 - Uncertain Tax Positions and the Internal Revenue Service

State and Local Tax

By Jack Stewart

Recently, the Internal Revenue Service has released IRS Announcement 2010-09 regarding uncertain tax positions. In an attempt to improve transparency and conduct audits more efficiently, the IRS is considering requiring some business taxpayers to file an additional schedule reporting uncertain tax positions and the maximum amount of federal tax that would be due if the uncertain position could not be sustained. Currently, Form 990 filers must include a copy of their financial statement footnote disclosure relating to uncertain tax positions with their return.

Starting with the 2010 tax year, the requirements of the new schedule will apply to business taxpayers who have financial statements prepared under FIN 48 or similar accounting standards with over $10 million in assets and one or more uncertain tax positions. The schedule will require the taxpayer to write a concise description of each uncertain position for which the taxpayer or related entity has recorded a reserve and other tax positions for which they have not recorded a reserve because the taxpayer expects to litigate the position, or the taxpayer has determined that the IRS has a general administrative practice not to examine the position.
By concise, the IRS means a few lines that describe the nature of the issue. Specifically, it should include:

  • the code sections at issue,
  • the tax year or years to which the position relates,
  • whether it involves income, gain, loss deduction or credit against tax,
  • whether it involves a permanent inclusion or exclusion of any item, the timing of that item or both,
  • whether the position involves a determination of the value of any property, and
  • whether the position involves a computation of basis.

Taxpayers will not be required to list reserve amounts or the basis of their positions. In addition to the uncertain positions, taxpayer will have to list the maximum amount of federal tax due if the position was denied in its entirety.

The Internal Revenue Service said that it will continue with its policy of restraint for requesting tax accrual papers, but reserves the right to consider additional modifications as appropriate to ensure the obtaining of complete and accurate information.

The Internal Revenue Service is inviting comments regarding the proposals in this Announcement; all comments are due by March 29, 2010.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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