Reporting Uncertain Tax Positions

The Internal Revenue Service (the “Service”) is considering requiring businesses to report “uncertain tax positions”  if they are “a business taxpayer with total assets in excess of $10 million…. [or] a taxpayer who prepares financial statements, or is included in the financial statements of a related entity, so long as that taxpayer or related entity determines its United States federal income tax reserves under FIN 48, or other accounting standards relating to uncertain tax positions involving United States federal income tax.”

For this unlucky group, the new schedule will require extensive information, including a concise description of each uncertain tax reserved in its financial statements and the maximum amount of potential federal tax liability attributable to each uncertain tax position (determined without regard to the taxpayer’s risk analysis regarding its likelihood of prevailing on the merits).

If you aren’t scared by now, you should be.  Although not yet detailed, the Service expects to have penalties and sanctions for those taxpayers that fail to make adequate disclosure of uncertain tax positions.

Is it reasonable to require taxpayers to notify the Service whenever they may have done something wrong, disclosing the value of the wrongdoing?  If the value is high enough, it seems that all those positions that were possibly wrong, will, all of a sudden, become definitely wrong.

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Roger Royse

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
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