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
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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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