Announcement 2010-9: A New IRS Approach to Transparency for Uncertain Tax Positions

IRS Announcement 2010-9 advances uncertain tax position reporting requirements under standards broader than Financial Accounting Standards Board Interpretation No. 48 (FIN 48) parameters. Affected taxpayers are concerned that the Schedule required with annual return filings could create a roadmap for audits and cause them to reveal otherwise privileged information about advice of counsel regarding the strength of a specific tax position.

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The Schedule is almost certainly broader than what is required by... [FIN 48]... Under 2010-9 standards, disclosure is required for certain uncertain tax positions for which no reserve is required to be recorded because it is expected that the taxpayer will litigate the position or because the taxpayer has determined that the IRS has a general administrative practice not to examine the position.

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2010-9 does not precisely define "uncertain tax position." It makes clear that an "uncertain tax position" includes disclosure of U.S. federal income tax positions that are included in a tax reserve that the taxpayer is required to establish for accounting purposes under FIN 48 or other generally accepted accounting standards. It is noted that there are potential differences in accounting standards between different international jurisdictions.

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2010-9 states that the proposal does not require a taxpayer to disclose its risk assessment or tax reserve amounts, but cautions that the IRS has the ability to issue a summons requiring the production of this information. The IRS has indicated that it intends to retain its policy of restraint (articulated in IRS Announcement 2002-63) as it relates to requests for tax accrual work papers.

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However, commentators have questioned the significance of retaining the policy of restraint, given the amount of information disclosure that would be required in the Schedule.

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FIN 48 seemingly applies only to entity level taxes. Consequently, 2010-9 could certainly apply to an issue relating to a publicly traded partnership's entity level taxation. However it is unclear whether 2010-9 could apply to an uncertain tax position that would impact only a partners' tax return, which would be the case for the majority of tax positions taken by private investment funds. If so, it is not clear whether this would be required to be disclosed in the partnership tax return or the partner's tax return.

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2010-9 is part of a larger trend in both the United States and Europe towards greater disclosure of uncertain tax positions. This is entirely consistent with the goal of better global tax law enforcement. However, significant concerns draw attention to whether 2010-9 disclosure... Ultimately, the fairness and effectiveness of 2010-9 will be a function of how these issues are addressed.

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