The U.S. Internal Revenue Service scaled back its requirement that companies begin listing all tax-saving transactions to help the agency identify issues for possible audits.
The IRS dropped a requirement that companies list their maximum tax liability and said it will phase in the new rules over five years, although the largest companies will start immediately. The IRS earlier this year called on companies to provide potential audit information, saying it would save the agency and companies time and money.
IRS Commissioner Doug Shulman said in an interview he is trying to change the relationship between the agency and taxpayers from one that’s “very adversarial to one that’s more transparent.”
Even as it seeks more information upfront from companies, he said, the agency is asking more from its own employees.
Auditors “need to realize that tax positions are uncertain sometimes because the law is uncertain or our guidance is uncertain,” Shulman said. “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.”
Shulman told a tax lawyers’ meeting in Toronto today that the agency revised its plan after receiving numerous comments from companies that the proposed requirements were too intrusive, according to a text of his speech.
‘Listened Carefully’
Eli Dicker, chief tax counsel of the Tax Executives Institute, said in an e-mail the changes show that “the IRS listened carefully to the comments it received from the business tax community.” The Washington-based group is an association of tax officials from Fortune 1000 companies.
Shulman said the agency decided to drop the requirement that companies list their maximum possible tax liability after companies expressed concern that, in most cases, it would exceed any realistic tax bill that might result from an audit or settlement.
Instead of listing 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 agency typically hasn’t challenged, such as those involving small amounts of tax liability.
Phase In
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. More than 24,500 corporations met that threshold in 2007, according to the most recent IRS data available. About 11,000 companies with assets of between $50 million and $100 million must begin filing the form for 2012, and 64,000 more with assets of at least $10 million must comply starting in 2014.
“The biggest companies start immediately,” said Eric Solomon, director of the national tax department at the accounting firm Ernst & Young LLP, one of many firms and companies that criticized the plan after it was announced in May.
Others included the clothing company Abercrombie & Fitch Co. and the National Rural Electric Cooperative Association.
Shulman said the IRS rejected requests from the largest companies that the rule be delayed a year. He said most already collect the information for financial reporting purposes.
“We don’t think it’s a tremendous burden and we thought we should get the ball rolling,” Shulman said. “The taxpayers had a whole year of notice.”
‘Uncertain Tax Positions’
The IRS also issued rules to employees today on how to process new forms that report what it terms “uncertain tax positions.” The agency instructed employees to use a “policy of restraint” in deciding which of those issues to examine.
The IRS plan piggybacks on a four-year-old accounting rule that requires publicly traded companies to disclose to shareholders details of “uncertain tax positions,” or money- saving deductions, credits and transactions that might raise a red flag for an auditor. The IRS wants more information, including a rationale for each position.
The form would require information on common matters including cross-border transactions designed to minimize taxes and judgment calls over which expenses can be fully deducted in a single year rather than spread over a number of years.
Solomon, a former top tax policy official at the Treasury Department, said many companies feared auditors would audit every issue on the list rather than select only the most contentious ones.
He said that while companies may be pleased with some of the changes, “the IRS is generally sticking with the program. There’s still the obvious question of whether or not the overall program will achieve the goal of making our tax system work better.”
To contact the reporter on this story: Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net
To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
http://jodnet.blogspot.com
The IRS dropped a requirement that companies list their maximum tax liability and said it will phase in the new rules over five years, although the largest companies will start immediately. The IRS earlier this year called on companies to provide potential audit information, saying it would save the agency and companies time and money.
Even as it seeks more information upfront from companies, he said, the agency is asking more from its own employees.
Auditors “need to realize that tax positions are uncertain sometimes because the law is uncertain or our guidance is uncertain,” Shulman said. “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.”
Shulman told a tax lawyers’ meeting in Toronto today that the agency revised its plan after receiving numerous comments from companies that the proposed requirements were too intrusive, according to a text of his speech.
‘Listened Carefully’
Eli Dicker, chief tax counsel of the Tax Executives Institute, said in an e-mail the changes show that “the IRS listened carefully to the comments it received from the business tax community.” The Washington-based group is an association of tax officials from Fortune 1000 companies.
Shulman said the agency decided to drop the requirement that companies list their maximum possible tax liability after companies expressed concern that, in most cases, it would exceed any realistic tax bill that might result from an audit or settlement.
Instead of listing 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 agency typically hasn’t challenged, such as those involving small amounts of tax liability.
Phase In
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. More than 24,500 corporations met that threshold in 2007, according to the most recent IRS data available. About 11,000 companies with assets of between $50 million and $100 million must begin filing the form for 2012, and 64,000 more with assets of at least $10 million must comply starting in 2014.
“The biggest companies start immediately,” said Eric Solomon, director of the national tax department at the accounting firm Ernst & Young LLP, one of many firms and companies that criticized the plan after it was announced in May.
Others included the clothing company Abercrombie & Fitch Co. and the National Rural Electric Cooperative Association.
Shulman said the IRS rejected requests from the largest companies that the rule be delayed a year. He said most already collect the information for financial reporting purposes.
“We don’t think it’s a tremendous burden and we thought we should get the ball rolling,” Shulman said. “The taxpayers had a whole year of notice.”
‘Uncertain Tax Positions’
The IRS also issued rules to employees today on how to process new forms that report what it terms “uncertain tax positions.” The agency instructed employees to use a “policy of restraint” in deciding which of those issues to examine.
The IRS plan piggybacks on a four-year-old accounting rule that requires publicly traded companies to disclose to shareholders details of “uncertain tax positions,” or money- saving deductions, credits and transactions that might raise a red flag for an auditor. The IRS wants more information, including a rationale for each position.
The form would require information on common matters including cross-border transactions designed to minimize taxes and judgment calls over which expenses can be fully deducted in a single year rather than spread over a number of years.
Solomon, a former top tax policy official at the Treasury Department, said many companies feared auditors would audit every issue on the list rather than select only the most contentious ones.
He said that while companies may be pleased with some of the changes, “the IRS is generally sticking with the program. There’s still the obvious question of whether or not the overall program will achieve the goal of making our tax system work better.”
To contact the reporter on this story: Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net
To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
http://jodnet.blogspot.com
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