AICPA, Others Ask IRS to Withdraw UTP Reporting Plan

The AICPA and other accounting, legal and business groups called upon the IRS to withdraw its proposed requirement that businesses above a $10 million asset threshold report their uncertain tax positions. The groups responded to the IRS' request for comments on its three announcements earlier in the year (2010-9, 2010-17 and 2010-30), with the latest unveiling a draft Schedule UTP that would be attached to the returns of affected taxpayers. For previous JofA coverage of the initiative, see "Tax Matters," July 2010, page 52; May 2010, page 73; and April 2010, page 51; also "AICPA Positions on Recent IRS Proposals," May 2010, page 30. All of the comments and the letter (tinyurl.com/292qk4p) signed by Alan Einhorn, chair of the AICPA's Tax Executive Committee, said that barring withdrawal of the proposal, the IRS should substantially revise it. The letter outlined a half-dozen broad policy concerns and offered numerous specific criticisms and suggested changes. Similar critiques were submitted by the Tax Executives Institute (TEI), the American Bar Association's Section of Taxation and an ABA standing committee, as well as a number of accounting and legal firms and practitioners. Under the proposal, business taxpayers with total assets of more than $10 million would be required to file new Schedule UTP, Uncertain Tax Position Statement, if they have one or more uncertain tax positions. Starting with 2010 tax years, the proposal would require affected taxpayers that file Forms 1120, l120-F, 1120-L or 1120-PC to disclose details about each uncertain tax position. Uncertain tax positions include tax positions for which the taxpayer or a related entity has recorded a reserve in its audited financial statements under FASB Interpretation no. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, (now codified under ASC Topic 740) or other accounting standards, and tax positions taken by a corporation in a tax return for which a reserve has not been recorded by the corporation or a related party based on an expectation that the position will be litigated or that IRS administrative practice is not to examine the position. Taxpayers will also be required to disclose the maximum amount of potential federal tax liability attributable to each uncertain tax position (determined without regard to the taxpayer's risk analysis regarding its likelihood of prevailing on the merits). Pass-through and tax-exempt entities are excused from the Schedule UTP filing requirement for 2010, but in announcements 2010-9 and 2010-17 the IRS raised the possibility of requiring such organizations to file Schedule UTP in the future. In the comment letter, the AICPA said the proposal is counterproductive to its stated purpose of enabling the Service to more efficiently and profitably target its examinations. It oversteps statutory standards for taxpayer reporting and increases complexity and costs and other burdens for taxpayers--disproportionately so for small businesses, the AICPA said. It introduces "new tension" between and among taxpayers, tax advisers and the IRS and would unduly influence the process of preparing financial statements. If the IRS nonetheless goes ahead with the proposal, the MCPA recommends that it should raise the reporting threshold to include only taxpayers with both assets exceeding $50 million and annual gross receipts above $100 million. …

Field of study: Business