Daily Tax Update - January 26, 2010

IRS COMMISSIONER ANNOUNCES NEW REPORTING INITIATIVE FOR UNCERTAIN TAX POSITIONS: Today, in a speech to the New York State Bar Association Taxation Section, IRS Commissioner Doug Shulman discussed a new corporate reporting proposal released today. On the issue of transparency regarding business tax issues, Shulman said, “Several months ago, I announced that the IRS was studying these changes and was exploring ways to improve transparency regarding material tax issues so that we can achieve the three objectives of certainty, consistency, and efficiency for us and taxpayers. The IRS is taking a major step towards transparency that I want to announce today related to changes we are proposing to reporting requirements regarding business taxpayers’ uncertain tax positions. The Announcement we are issuing today does two things. First, it describes proposed reporting requirement at the ‘time-of-filing.’ Second, it highlights specific areas where we are requesting public comment and thus serves to further our continuing dialogue with practitioners, business taxpayers, and others regarding how to improve tax administration and compliance regarding many of our nation’s business taxpayers.” Shulman continued, “Let me explain the Announcement and what it means to business taxpayers. Reporting uncertain tax positions would be required at the time a return is filed by certain business taxpayers: those who have both a financial statement prepared under FIN 48 or other similar accounting standards reflecting uncertain tax positions and assets over $10 million. Under the Announcement, these taxpayers would be required to annually disclose uncertain tax positions in the form of a concise description of those positions and the maximum amount of US income tax exposure if the taxpayer’s position is not sustained. By concise, we mean a few sentences that inform us of the nature of the issue, and not pages of factual description or legal analysis.” Shulman added, “Just to be clear again, this proposal would not require that taxpayers disclose how strong or weak they regard their tax positions or report to us the amounts they reserved on the books regarding those positions. And as part of this proposal, the IRS would otherwise retain its longstanding policy of restraint as it applies to tax accrual workpapers.” Comments are due by March 29. 

  • On the international front, Shulman hailed the IRS's increased international enforcement and detection efforts to combat offshore tax evasion. Shulman also stated that the IRS is going to try some new approaches in the international area. Shulman mentioned the development of a protocol to conduct joint audits with treaty partners. Shulman also said the IRS intends to "change the way we do business" in the area of transfer pricing, including the establishment of a Transfer Pricing Practice within its Large and Mid-Size Business operating division to strategically and systematically administer transfer pricing issues.
  • The Commissioner’s remarks can be accessed here
  • Announcement 2010-09 explains the potential content of a schedule that will require certain business taxpayers to report uncertain tax positions on their tax returns and invites public comments on the Internal Revenue Service’s approach.
  • For additional information, contact Philip R. West - pwest@steptoe.com or Matthew D. Lerner - mlerner@steptoe.com

PRESIDENT PREPARES FOR STATE OF THE UNION ADDRESS: President Obama will hold his first State of the Union Address tomorrow night. According to the White House, among the key initiatives in his address “include creating good jobs, addressing the deficit, changing Washington, and fighting for middle class families.” Part of the President’s plan is proposing a three-year freeze on Federal funding except for defense spending. The President will propose several policy initiatives designed to help middle class families, including:

  • Nearly doubling the child and dependent care tax credit for families making under $85,000
  • Limiting a student's federal loan payments to 10 percent of his/her income
  • Creating a system of automatic workplace IRAs
  • Expanding tax credits to match retirement savings
  • Expanding support for families balancing work while caring for elderly relatives.
  • House Ways and Means Committee Chairman Charles Rangel said that he supported the President’s middle class proposals. Rangel said, “Middle-class families are the backbone of our economy and Congress stands ready to work with President Obama and Vice President Biden to reduce their tax burden. The [American Recovery and Reinvestment Act] made a significant investment in job creation and relief for middle-class families and these efforts will continue to be the focus of our efforts in the coming year. Rangel added “The cornerstone of the recommendations outlined today—expanding the child care tax credit and improving incentives to help workers save for retirement—demonstrate our underlying commitment to help middle-class families rebuild the economic security they lost in the financial downturn. The Ways and Means Committee has been at the forefront of our economic recovery efforts and we look forward to expanding on the recommendations made today to provide relief to millions of hardworking families.”
  • Ranking Committee member differed, “What will help middle-class families most is creating jobs and reducing the unemployment rate, but these proposals won't do either. Moreover, if these proposals are coupled with higher taxes or more mandates on small businesses, the president's plan could end up making it tougher for middle-class families to find a job.”

HOYER CITES POSSIBLE OPTIONS FOR HEALTH CARE BILL: Today, House Majority Leader Steny Hoyer outlined four potential options for the health care reform bill. Hoyer said Congress could pass a "smaller" version of bills than the versions passed by the House and Senate that would provide "some very modest improvements for Americans," passing the Senate bill without changes or passing that bill with an understanding that both chambers would pass another bill that bridges differences in funding and other areas. Hoyer said the fourth option is "to not pass a bill." Hoyer added, “All of these choices have pluses and minuses. Democratic leaders have taken time to talk to our Members about what they’re hearing from their constituents and to digest with some clarity the message that voters in Massachusetts were sending. So there are no easy choices.”

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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