Executives Anxious About IRS Reporting Requirements for Uncertain Tax Positions Schedule, KPMG Survey Reveals

Companies Also Concerned about UTP Program's Administration and Scope

Oct 20, 2010, 10:37 ET from KPMG LLP

NEW YORK, Oct. 20 /PRNewswire/ -- Almost half of senior executives polled are most concerned about the prospect of providing a concise description of their uncertain tax positions (UTPs) in order to comply with a new, much-discussed Internal Revenue Service disclosure requirement, according to a survey conducted by KPMG's Tax Governance Institute (TGI).

According to the survey of 1100 business leaders conducted in early October, 44 percent of respondents said their biggest concern was providing the concise description for a disclosed UTP, defined by the IRS 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).

Commenting on the survey results, Hank Gutman, KPMG tax principal and director of the Tax Governance Institute, and former chief of staff of the U.S. Congressional Joint Committee on Taxation, said: "While the IRS went to considerable lengths to ease corporate taxpayer concerns about specific elements of the original Schedule UTP proposal, and incorporated many of the suggestions offered in comments submitted during the public comment period, the implementation of this new disclosure regime will invariably produce practical questions and issues. It is not too early to begin an analysis of the potential impact of the Schedule."

When asked which elements need additional clarification in Schedule UTP, respondents had mixed viewpoints. 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.

The IRS last January announced a proposal to require large corporations to disclose UTPs and followed up in April 2010 by releasing to the taxpaying community a draft form and instructions requesting comments on the overall proposal and the specifics of the draft. On Sept. 24, the IRS released its final Schedule UTP and related announcements and guidance on the disclosure of UTPs.

Under the final schedule, only businesses with $100 million or more in assets would be required, in the near term, to report uncertain tax positions reflected in their financial statement income tax reserves as determined 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 would be a five-year phase-in for smaller companies with fewer assets.

"The IRS's decision to first require the new Schedule for larger companies with more resources will help establish 'best practices' for the new process," Gutman added, "which could help to make the eventual rollout across the entire corporate community considerably smoother."

Preparations Underway

In the TGI survey, 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. Twenty-seven percent said the topic has already been elevated to the attention of their board of directors.

The survey also revealed that 48 percent of those polled 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.

Additionally, 29 percent of respondents said that Schedule UTP will increase their interest in pre-filing treatments to achieve certainty around their uncertain tax positions, such as pre-filing agreements, advanced pricing agreements, and the compliance assurance process. Some 40 percent said they were undecided whether Schedule UTP would increase such interest.

Among other key findings:

  • Some 28 percent of those surveyed feel IRS examining agents will use the schedule to propose audit adjustments without discussion, while 25 percent feel there will be an increase in IRS audits.
  • Based on the expanded policy of restraint included in IRS Announcement 2010-76, 45 percent of respondents are uncertain about how UTPs might impact privilege, but are confident in their ability to resolve the issue with appropriate IRS personnel. Forty-two percent said the announcement does not remove their concern that IRS agents will demand information which may impinge on privilege.
  • Forty-seven percent of respondents expect the UTP requirements to create tensions among or between their audit firm, tax advisors and tax department, while 22 percent said they did not expect this to occur and 30 percent were not certain. (It should be noted that audit standards have not changed.)

The TGI executive survey reflects the responses of more than 1100 members of the Tax Governance Institute – including board and audit committee members, chief financial officers and tax directors – who participated in the Institute's Oct.  6 video Webcast, "A Conversation with the Chief Counsel of the IRS: Disclosing Uncertain Tax Positions to the Internal Revenue Service—Part II."

"It is clear from our survey responses that there are still some concerns and issues regarding Schedule UTP within the business community," Gutman added. "Affected taxpayers should not hesitate to communicate their continuing concerns to the IRS."

The Tax Governance Institute (www.taxgovernanceinstitute.com), part of the KPMG Institute Network, provides opportunities for board members, corporate management, stakeholders, government representatives, and others to share knowledge regarding the identification, oversight, management, and appropriate disclosure of tax risk. Visit the KPMG Institute Network (www.kpmginstitutes.com) for insight and thought leadership on emerging industry trends, new compliance and regulatory issues, and the evolving relationship between business and government.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries.

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