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As part of the IRS’s commitment to transparency, it’s proposing to require certain businesses to disclose specific details about their uncertain tax positions. The goal of the new proposal is to make tax administration and compliance more efficient—for the IRS and the taxpayer.

Whether the proposal will actually meet its goal is unclear. It does create a host of questions. The proposal is now in its comment period, and the IRS is soliciting letters from businesses, accounting firms, and other affected parties.

Would My Business Be Affected?
If your business has total assets exceeding $10 million and you have one or more uncertain tax positions that are reported for financial reporting purposes (under U.S. GAAP or other similar accounting standards), you would be affected if the proposed rules go into effect. The proposed requirements would affect taxpayers who prepare financial statements as well as those included in a related entity’s financial statement.

How Would My Business Tax Return Need to Change?
The IRS is developing a new schedule, to be filed along with Form 1120 (or other business tax return), in which you’d be required to list your uncertain tax positions, along with concise descriptions and corresponding maximum tax liability for each position. A “concise description” is described as the rationale for the position and a general statement of the reasons for determining it is an uncertain tax position. To be sufficient, the description would have to contain:

• The code sections potentially implicated by the position
• A description of the taxable year or years to which the position relates
• A statement that the position involves an item of income, gain, loss, deductions, or credit against tax
• A statement that the position involves a permanent inclusion or exclusion of any item, the timing of that item, or both
• A statement indicating whether the position involves a determination of the value of any property or right
• A statement indicating whether the position involves a computation of basis

What Would Happen If I Fail to Disclose the Information Requested?
The IRS is still evaluating its options for applying penalties for noncompliance. It may seek a legislative solution, asking Congress to pass a law that imposes fines or other sanctions on any business that fails to adequately disclose its uncertain tax positions.

Is There Anything I Need to Do Now?
Not necessarily. The proposal is just that—a proposal. It hasn’t gone into effect, and until it does you don’t need to change your financial reporting methods or your federal tax returns. Unofficially, the IRS has indicated that the requirement would not be effective for tax year 2009 returns.

However, the IRS has opened the proposal for comments, and from now through March 29 you have the opportunity to raise issues specific to your business.

Conclusion
At Moss Adams, we’re closely evaluating the consequences and implementation issues of the proposed change to determine whether we, as a CPA firm, will provide comments to the IRS. We realize you might have questions, and we invite you to contact your Moss Adams tax professional to discuss the proposed rule and learn more about how it could affect your business in the future.

The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, or tax advice or opinion provided by Moss Adams LLP. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by professionals, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Moss Adams LLP assumes no obligation to provide notification of changes in tax laws or other factors that could affect the information provided