Proposed Schedule UTP Disclosure Requirements Striking a Nerve

Proposed Schedule UTP Disclosure Requirements Striking a Nerve

Proposed uncertain tax position disclosure requirements, first enunciated in Announcement 2010-9 last January, are better defined now that the Service has rolled out Schedule UTP.  Now potentially affected taxpayers are getting even more testy in challenging the integrity of the proposed reporting regime.  Since 2010-9 came out, Commissioner Shulman and others at the Service have offered "Rose Garden" speeches to calm the waters. But, whatever the merits, taxpayer objections are strong and pushback will likely intensify as the June 1st comment period deadline approaches.

In fairness, 2010-9 principles may very well pan out to be a model of integrity. No one can know for sure until the Service begins executing these principles. But at the most abstract level, taxpayer expectations at this point are grounded in an irrefutable precept: The Service seeks more collectible tax dollars, not less. It isn't hard for taxpayers to leap from this foundation to conclude that any new idea coming out of the Service is draconian and nefarious.  Taxpayers prone to being in a defensive posture in dealing with uncertain tax positions are naturally inclined to push panic buttons, viewing the new 2010-9 layer and Schedule UTP as yet another ominous compliance layer.

Schedule UTP is raising taxpayer concerns about the burden of proof. As reported today by Tax Analysts®, J. Richard "Dick" Harvey, senior adviser to the IRS commissioner, has tried to address these worries. Try as Dick Harvey might to allay such fears, the devil is in the details, and taxpayers are wont to being apprehensive about Schedule UTP.  Essentially, the question taxpayers will be wrestling with is: What issues reported on Schedule UTP is the Service likely to challenge - and why? The answer to this question is not a function of reserve amounts taxpayers assign to each position issue because the Service has no way of knowing which positions have large reserves, and which ones small.

Testing the waters on these and other 2010-9 points of pain is really impossible at this point, and for all intents and purposes we will just have to wait to see how 2010-9 principles are managed in practice - both by the Service and by taxpayers.