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Oct 20

Many concerns over reporting uncertain tax positions

Posted by Stephen Taub in uncertain tax positionsTaxRiskIRSFIN 48

Stephen Taub

Executives have a number of concerns as they gear up to comply with the Internal Revenue Service's new disclosure requirement regarding their uncertain tax positions (UTPs).

According to a survey conducted by KPMG's Tax Governance Institute (TGI), 44 percent of the respondents said their biggest concern was providing the concise description for a disclosed UTP. The IRS defines a UTP as a federal income tax position for which a taxpayer or related party has recorded a reserve in an audited financial statement or for which no reserve was recorded because of an expectation to litigate.

Other major concerns cited centered on the IRS's ability to effectively administer the UTP program (20 percent) and on the scope of taxpayers required to file UTPs under the new rule (15 percent).

In addition, nearly half (47 percent) expect the UTP requirements to create tensions among or between their audit firm, tax advisors and tax department. Never mind that audit standards have not changed.

Last January the IRS announced a proposal to require large corporations to disclose UTPs. In April it released to the taxpaying community a draft form and instructions requesting comments on the overall proposal and the specifics of the draft. In September, the IRS released its final Schedule UTP and related announcements and guidance on the disclosure of UTPs.

Initially, just companies with at least $100 million in assets must report uncertain tax positions reflected in their financial statement income tax reserves under the Financial Accounting Standard Board's Interpretation Number (FIN) 48 or other country-specific accounting standards.  For these companies, Schedule UTP would be required for returns relating to the 2010 calendar year and fiscal years that begin in 2010.

There is a five-year phase-in for smaller companies with fewer assets.

In the survey of of more than 1100 members of the Tax Governance Institute-including board and audit committee members, chief financial officers and tax directors-when asked which elements need additional clarification in Schedule UTP, there was little consensus. Some 20 percent cited "a concise description," 18 percent said "multi-year positions," and 17 percent each pointed to "ranking of reserves" and "expectation to litigate" positions.

Also, 39 percent of respondents said their company had already started the necessary analysis and documentation for complying with Schedule UTP, while 33 percent said that it had not. Another 27 percent said the topic has already been elevated to the attention of their board of directors.

Interestingly, nearly half (48 percent) of the participants in the survey do not believe any steps were necessary to be taken to reduce the uncertainties that will have to be reported on their 2010 Schedule UTP.

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