The Internal Revenue Service is backing off of a plan to require companies to list their maximum tax liability and identify all tax-saving transactions. The purpose of the requirement was to help the agency identify issues for possible audits.
The IRS now says it will phase in the new rules over five years, although the largest companies will start immediately. Orange County tax attorneys note that the rationale given by the Service is that giving potential audit information will save time and money for the IRS and the companies involved.
IRS Commissioner Doug Shulman said at a recent tax lawyers' meeting that the IRS revised its plan after receiving numerous comments from companies that the proposed requirements were too intrusive.
Shulman said that auditors "need to realize that tax positions are uncertain sometimes because the law is uncertain or our guidance is uncertain. Just because there's an uncertain tax position on a return doesn't mean that's an appropriate position that has to get set up for audit."
Rather than list a dollar figure, companies will be required to rank their tax positions based on their size without giving actual dollar amounts. The agency also relaxed a rule that would have required companies to report transactions the IRS typically hasn't challenged, such as those involving small amounts of tax liability.
The IRS said it will phase in the plan by requiring companies with assets of $100 million or more to file the new form for the 2010 tax year.
The IRS has instructed employees to use a "policy of restraint" in deciding which "uncertain tax positions" to examine. Many companies fear auditors will audit every issue on the list rather than selecting only the most contentious ones.
Source: Bloomberg "IRS Trims Demand for Corporate Tax-Shelter Lists" 9/24/2010