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On January 26, 2010, the Internal Revenue Service announced that it will be requiring certain filers to provide detailed information about their “uncertain tax positions” that affect their income tax liability. Initially, this disclosure will be required by corporations, partnerships and other business entities with total assets in excess of $10m.

The disclosure to be required by the Service will have to include a description of each uncertain tax position in sufficient detail so that the Service can determine the nature of the issue. To be sufficient, the description will have to include disclosure of:

1. The section(s) of the Internal Revenue Code potentially implicated by the position;

2. The tax year or years to which the position relates;

3. Whether the position involves an item of income, gain, loss, deduction or credit against tax;

4. Whether the position involves a permanent inclusion or exclusion of any item, the timing of that item, or both;

5. Whether the position involves a determination of the value of any property or right; and

6. Whether the position involves a computation of basis.

In addition, the IRS will require a taxpayer to specify for each uncertain tax position the entire amount of U.S. federal income tax that would be due if the position were disallowed in its entirety on audit.

The Service is currently in the process of finalizing its requirements for disclosure, so the ultimate contours of the requirement remain unclear. Due to the sweeping nature of their application, the new requirements, once finalized, will likely be codified in the form of Temporary Treasury Regulations.

Currently unclear are several matters that will affect how wide-ranging an effect these new requirements will have. In particular, it is unclear how, under the new requirements, assets will have to be valued for purposes of the requirements’ application. Also, it is unclear how an “uncertain tax position” is to be defined, and what the penalties will be for failure to make disclosure.

There is little doubt, however, that the new requirements will increase scrutiny of small businesses, including family partnerships formed for estate planning purposes.