IRS Toning Down Tax Disclosure Demands

September 27, 2010 Taxation in USA

Douglas Shulman, Chair of the OECD’s Forum on Tax AdministrationThe US Internal Revenue Service has given in to corporate protest and conceded to reduce the amount of disclosure required by businesses, concerning their use of tax-saving transactions.

In a media statement made prior to a meeting of the American Bar Association in Toronto last week Doug Shulman, Internal Revenue Service (IRS) Commissioner, revealed that the IRS will begin an incremental phase-in process for its controversial new disclosure requirements for large companies. In April 2010 it was announced that under provision of the IRS’s Large Business and International Division from the beginning of the 2010 fiscal year companies would be required to reveal any potentially uncertain tax positions they have taken in the form of tax benefits or tax-saving transactions, along with documentation backing the decisions. It was intended that the requirements would ease efforts of tax investigators and auditors in assessing whether a particular company is eligible for its elected tax benefits, correct in their overall tax position, or have overstepped legislation in their behavior.

However, the IRS received far reaching comment on the new regulations, with many companies, tax industry analysts, and corporate tax preparers claiming that the mandatory documentation and filing requirements were implemented too suddenly for smaller businesses who would have difficulty complying. Originally, it was announced that any firm with USD 10 million or more in assets would need to file a the new declaration, however, according to Doug Shulman, this year the rule will only be imposed on businesses with assets in excess of USD 100 million. In 2012 the regulation would be expanded to companies with USD 50 million in assets, and USD 10 million from 2014 onwards. The IRS has also removed one of the original filing requirements which instructed firms to specify the monetary amount which they have reserved in the case of a particular tax decision being found to be invalid. Instead, the tax position will now be ranked in order of the monetary influence they hold on a companies’ final tax liability.

Douf Shulman explained that while the revised filing requirements were more relaxed, they still provided “…a principled and balanced approach that will improve tax administration concerning our largest and most complex taxpayers.”

Photo by OECD