In Announcement 2010-9, the U.S. Internal Revenue Service (the "Service") proposed requiring certain entities that file a U.S. tax return to include a new schedule in their return to report their "uncertain tax positions" and their total potential tax exposure for these positions. The significance of this proposal is demonstrated by its announcement by the Commissioner of the Service at the annual meeting of the Tax Section of the New York State Bar Association, one of the largest gatherings of tax lawyers in the U.S.

If enacted under its current form, the requirement to file the proposed schedule will apply only to entities that are required to file a U.S. tax return. In addition, it will only apply to corporations that have in excess of $10 million of assets and that prepare financial statements that are subject to FASB Interpretation No. 48 ("FIN 48") or a similar industry or country-specific generally accepted accounting standard requiring them to disclose "uncertain tax positions". (It was precisely this potential consequence that was a major concern during the adoption of FIN 48.) The information required would include a brief description of the position and the maximum potential amount of taxes that would be paid if the taxpayer's position is not sustained. The taxpayer would not be required to disclose its argument for or against the position, however, or the strength of their belief in the merits of their position. Additionally, the taxpayer would not be required to disclose the amount of any reserves taken with respect to each position on its financial statement.

Essentially, the proposal is designed to give the IRS the benefit of knowing a) what uncertain positions the taxpayer is already reporting on its financial statements, and b) how much money is at stake so that the IRS can determine if the issue might be worth pursuing.

The Service requested comments on the proposal by the end of March, and there are significant questions that will need to be answered before the proposal will be implemented. The resulting schedule likely will undergo significant revision before any implementation.

Depending on the final scope of the proposed schedule, it may become even more important for non-U.S. investors who invest in the U.S. to isolate U.S. tax return filing requirements in "blocker" subsidiary entities.

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