George Hani Comments on Uncertain Tax Position FAQs in Tax Notes Today
"IRS Releases Limited FAQs on Uncertain Tax Positions"Tax Notes Today
George Hani discusses the seven FAQs recently released by the IRS regarding the uncertain tax position reporting requirements. Hani said that FAQ 2, regarding eliminated reserves, "is potentially important," especially for taxpayers in the compliance assurance process (CAP) program. While practitioners would have preferred to have it address a situation in which the reserve was reported on an interim financial statement but reversed before the final audited financial statement, the guidance is still useful, he said. Because a quarterly review of reserves is performed, but in a form that is not considered an audited financial statement, "CAP taxpayers may post a reserve in the first quarter and then resolve the issue with the IRS in the third quarter and remove the reserve," Hani said, adding, "I don't think that should be on Schedule UTP, and I think you can infer from this FAQ that it should not be on the Schedule UTP, but I would have been happier if the FAQ addressed that situation directly."
Hani said that the question on net operating losses (NOLs) makes clear that it is the year of generation that matters for purposes of the transition rule. If the NOL is generated before the 2010 tax year but used in 2010 or later, no UTP reporting will be triggered, no matter when the reserve is recorded. If the NOL was generated and used after 2009, the UTP reporting will be required if there is a reserve, he said.