TAX NEWS - June 2010

Response to the uncertain tax positions filing requirements

On 26 January the IRS announced its intention to require certain business taxpayers to disclose their uncertain tax positions as part of their US tax filing requirements. The IRS has issued a draft schedule and instructions/guidance for its completion on which comments were invited. Ernst & Young recently filed their comments thereon. Our comments acknowledge the fundamental impact this proposal will have on tax return examinations and suggest a number of changes to the proposed requirements, including delaying implementation to allow for further development of the reporting requirements.

In simple terms, any group owning one or more US entities with a US federal tax filing obligation will have to address the proposals. What is more, under the proposals, all potential US tax exposures, regardless of where they are recognised in the group financial statements, must be disclosed to the IRS. Based on the IRS guidance taxpayers are required to disclose the maximum tax exposure at risk, and not the amount for which a reserve has been recognised. Groups will need to be able to record and track maximum exposures and the tax at stake period by period to fulfil the reporting obligation to the IRS.

The proposals could potentially represent a shift in the way that taxpayers interact with the IRS and they will create an increased compliance burden for those impacted. Other tax authorities are looking with interest at the US proposals. Even if other authorities do not adopt similar provisions in the short term, there is also a real likelihood that those other fiscal authorities could obtain the information contained on the new schedule through information sharing arrangements, for example as part of the IRS' participation in the Joint International Tax Shelter Information Centre.