IRS Drive for Reporting Transparency Portends Tax Practice Changes

With the release of Announcement IR-2010-9,the IRS has sent a clear message to the tax profession. The Service no longer intends on discovering and analyzing issues based on their own efforts. Instead, they now want corporate taxpayers to disclose any uncertain federal tax position. IRS Commissioner Doug Shulman further articulated this position and the reasons behind it, addressing the New York State Bar Association Taxation Section Annual Meeting on January 26th. See IR-2010-13.

While the IRS has indicated over the past few years that the Service will continue to exercise the self-imposed policy of restraint in regards to tax accrual workpapers (except for taxpayers deemed to be naughty for having participated in unseemly tax shelters), clearly this policy is not generating sufficient results. But rest easy, tax profession: The IRS only wants you to tell them that you have reserved an issue and provide “a few sentences that inform us of the nature of the issue.” Does anyone really take this seriously?

In Commissioner Shulman’s speech announcing the new initiative, he did correctly state that the IRS has been placed in the role of administering the ever growing social agenda of our nation which for some reason continues to grow and expand in the Internal Revenue Code. But taxpayers will be expected to hand over the map at the start of an audit. Can we expect the auditor, who is graded based on the amount of assessments generated, NOT to pursue each and every issue set forth in the tax reserves?

The disclosure of the tax reserve basically writes the Notice of Proposed Adjustment for the agent. All that will happen is that the ever increasing workload on the Appeals branch of the IRS and the courts will continue to expand. Maybe if IRS agents were evaluated by amount of tax assessments ultimately sustained, or heaven forbid collected, then perhaps such an initiative would lead to true transparency.