Reporting “Uncertain Tax Positions" by Albert Y. Lin, LLM, CPA

Continuing a trend towards increasing detailed taxpayer disclosures (which tax-exempt healthcare providers have seen through the recently re-vamped Form 990), the Internal Revenue Service (IRS), in Announcement 2010-9, 2010-7 (Jan. 26, 2010) (Announcement), set forth the IRS's development plans for a new schedule to be attached to certain taxpayers' annual tax returns. The proposed tax form schedule is said to be applicable to “business taxpayers with total assets in excess of $10 million, if the taxpayer has one or more uncertain tax positions of the type required to be reported on the new schedule.” The IRS is soliciting comments to this Announcement by March 29, 2010, and the new schedule is anticipated to be required for tax returns filed for the years following the year the actual schedule is finalized.

The Announcement marks a fundamental change in the philosophy of tax compliance - the IRS has never before required substantial disclosures with respect to decision-making processes in tax departments. It will put pressure on tax departments, small and large, to expend additional efforts in drafting schedule responses to sensitive matters. Tax counsel may need to be employed to assist in reviewing issues for which outside return preparers and internal staff cannot adequately assess and disclose exposure or a sufficient legal basis for a position. Tax-exempt organizations will need to monitor this Announcement to see if it adds an additional complication to an already burdensome revised Form 990, which requires disclosure of only FIN 48-related footnotes.

This development is not unexpected. Technological advancements and IRS focus on its internal information technology have accelerated to the point where the mathematical and data compilation aspects of tax compliance will eventually be so efficient, the healthcare organization can expect future IRS efforts to be far more focused on legal issues as opposed to calculation problems and/or recordkeeping.