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Deloitte Tax Comments on Proposal to Require Reporting of Uncertain Tax Positions

MAY 28, 2010

Deloitte Tax Comments on Proposal to Require Reporting of Uncertain Tax Positions

DATED MAY 28, 2010
DOCUMENT ATTRIBUTES

 

May 28, 2010

 

 

HAND DELIVERY

 

 

CC:PA:LPD:PR (Announcement 2010-9)

 

Courier's Desk

 

Internal Revenue Service

 

1111 Constitution Avenue, NW

 

Washington, DC 20044

 

 

Re: Comments on Announcement 2010-9, Announcement 2010-17, and Announcement 2010-30, Regarding Reporting Uncertain Tax Positions

Dear Sirs or Madams:

Deloitte Tax LLP ("Deloitte Tax") is pleased to respond to your requests for comments on Announcement 2010-9, Uncertain Tax Positions ("UTPs") -- Policy of Restraint; Announcement 2010-17, Extension of Time to Submit Comments on Announcement 2010-9 Regarding Reporting Uncertain Tax Positions, Draft Schedule, and Implementation Date; and Announcement 2010-30, Draft Schedule ("UTP Schedule") and Instructions ("UTP Instructions") for Uncertain Tax Positions Proposal (referred to collectively below as the "UTP Proposal"). These comments incorporate the views of Deloitte & Touche LLP, the Deloitte audit firm in the United States. Deloitte Tax and Deloitte & Touche LLP (hereinafter "Deloitte") are separate and distinct subsidiaries of Deloitte LLP, the U.S. member firm of Deloitte Touche Tohmatsu ("DTT").

The UTP Proposal is aimed at improving tax administration by making audit selection more focused and federal tax examinations more efficient. We understand and appreciate these policy goals. We believe that certain significant modifications must be made to the UTP Proposal in order to ensure that it is properly tailored to achieve its policy goals, while giving due regard to taxpayers' fairness and burden concerns. In its current form, unless modified, the UTP Proposal imposes a burden on the taxpayer community that far exceeds the benefit to tax administration.

The UTP Proposal has generated a spirited, substantive and highly productive dialogue between the Internal Revenue Service ("IRS" or the "Service"), taxpayers and the tax advisory community. We have seen positive steps undertaken by the IRS in response to early questions raised by stakeholders, and we hope to see additional further modification of the UTP Proposal in response to valid concerns expressed by stakeholders during the comment period.

The Service has expressed an interest -- both in the announcements themselves and during government officials' public appearances -- in receiving feedback that addresses specific aspects of the UTP Proposal. We have organized this comment letter to respond to that request; we present our specific comments first (Part I), and then present our general comments second (Part II). We have focused our specific comments in Part I on the aspects of the UTP Proposal that we believe must be modified. These include but are not limited to:

  • a definition of uncertain tax return position that appears to include non-federal tax positions within its scope;

  • the definition of unit of account and the requirement to report UTPs at that level;

  • the absence of an explicit materiality limitation regarding which UTPs need to be reported;

  • the requirement that UTPs be disclosed even in instances when no reserve is recorded with respect to that UTP (the "expect to litigate" and "administrative practice" UTPs);

  • the requirement that a specific maximum tax liability be reported for each UTP;

  • the requirement that taxpayers' description of each UTP include the "rationale for the position" and the "reasons for determining the position is uncertain"; and

  • the requirement for taxpayers to report UTPs from prior years' tax returns.

 

Part II discusses tax administration and policy concerns raised by the UTP Proposal, and recommends alternatives. Part II also discusses our concerns regarding the examination and enforcement issues that are likely to arise if the UTP Proposal is implemented, and our concerns about the implications of the UTP Proposal for tax return preparers.

I. Comments in response to specific aspects of the proposal

Our comments below address five specific aspects of the UTP Proposal: (a) the definition of uncertain tax position, (b) the reporting of maximum tax liability, (c) the concise description requirement, (d) the reporting of UTPs from prior years' returns, and (e) the application of the UTP Proposal to other business taxpayers.

 

a. Definition of uncertain tax position

 

Because our comments regarding the elements of the definition of uncertain tax position require some foundational discussion regarding financial accounting standards, this section is organized as follows: First, we outline how the UTP Proposal describes uncertain tax positions; second, we present an overview of financial accounting standards relevant to the definition, recognition, and measurement of uncertain tax positions; third, we present specific comments and recommendations regarding the elements of the description of uncertain tax positions in the UTP Proposal.
i. UTP Proposal
The UTP Proposal does not contain a specific definition of the term "uncertain tax position." However, Announcement 2010-9 identified three categories of tax positions that would be required to be disclosed on the UTP Schedule:

(1) Positions "for which the taxpayer or a related entity has recorded a reserve in its financial statements." These will be referred to below as "Category One" or "Reserve Position" UTPs.

(2) Positions "for which a taxpayer or a related entity has not recorded a reserve because the taxpayer expects to litigate the position." These will be referred to below as "Category Two" or "Expect to Litigate" UTPs.

(3) Positions "for which a taxpayer or a related entity has not recorded a reserve because the taxpayer has determined that the Service has a general administrative practice not to examine the position." These will be referred to below as "Category Three" or "Administrative Practice" UTPs.

The UTP Instructions contain several definitions that clarify the three categories of UTPs. As to all three categories, the UTP Instructions define a "tax position taken on a tax return" as a tax position that "would result in an adjustment to a line item on that tax return (or would be included in a section 481(a) adjustment) if the position is not sustained." Regarding Reserve Position UTPs, the UTP Instructions define "record a reserve" as either an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset or an increase in a deferred tax liability. The UTP Instructions further provide that positions must be reported based upon a "unit of account," which it defines as "the level of detail used in analyzing a tax position, taking into account both the level at which the taxpayer accumulates the information to support the tax return and the level at which the taxpayer anticipates addressing the issue with the IRS." For U.S. GAAP and modified U.S. GAAP taxpayers, the "unit of account" used for UTP tax reporting purposes "must be the same unit of account used by the taxpayer for U.S. GAAP or modified U.S. GAAP;" for taxpayers reporting under International Financial Reporting Standards ("IFRS") or other reporting standards, the unit of account must be a level of detail that is consistently applied and reasonably based on the items of income, gain, loss, deduction or credit.

Regarding Expect to Litigate UTPs, the UTP Instructions clarify that this category includes --

 

a tax position for which a reserve was not recorded in the audited financial statement after the taxpayer or related party determines that, if the IRS had full knowledge of the tax position it is unlikely a settlement could be reached. For this purpose, a settlement is unlikely if the probability of settlement is less than 50%.

 

Regarding Administrative Practice UTPs, the UTP Instructions clarify that this category includes --

 

a tax position for which a reserve would have been recorded in the audited financial statement but for a determination that, based upon past administrative practices and precedents of the IRS in dealing with the tax position of the taxpayer or similar taxpayers, the IRS has a practice of not challenging the tax position during an examination.

 

ii. Financial Accounting Standards
To lay a foundation for a discussion of these three UTP Categories, it is necessary to describe, at a basic level, the financial accounting standards that govern how corporations analyze their uncertain tax positions. The key concepts are introduced below, with more detail provided in the attached Appendix A.
1. U.S. GAAP and FIN 48
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, ("FIN 48")1 requires a two-step process for analyzing tax positions taken or expected to be taken in a tax return that directly or indirectly affect amounts reported in financial statements. The first step is recognition and the second step is measurement. The recognition and measurement requirements of FIN 48 require that an entity recognize a tax position if it is more likely than not based on the technical merits that the position would be sustained upon examination (including the resolution of any related appeals or litigation process) and measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

Recognition. An entity must first determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position meets the more-likely-than-not (a likelihood of greater than 50%) recognition threshold, the entity should presume that the position will be examined by a taxing authority that has full knowledge of all relevant information. The recognition threshold has been met if it is more likely than not that the taxpayer will sustain the tax benefit if the taxpayer takes the dispute to the court of last resort. When the past administrative practices and precedents of the taxing authority in its dealings with the entity or similar entities are widely understood, for example, by preparers, tax practitioners and auditors, those practices and precedents shall be taken into account.2 The recognition assessment must be performed for each "unit of account."3 The determination of the unit of account is a matter of judgment based on the individual facts and circumstances of the position being evaluated in light of all available evidence. When making that determination, one should consider (1) the manner in which the entity supports and documents its income tax return and (2) the approach the entity anticipates the taxing authorities will take during an examination.4 The unit of account should be consistently applied to similar positions from period to period unless a change in facts and circumstances indicates that a different unit of account is more appropriate.5

Measurement. Tax positions that meet the more-likely-than-not recognition threshold are then measured to determine the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The measurement would incorporate information about potential settlements with taxing authorities.6 Generally, the taxpayer and the taxing authority negotiate a settlement to avoid the costs and hazards of litigation. As a result, the measurement of the tax position is based on management's best judgment of the amount the taxpayer would ultimately accept in a settlement with taxing authorities. FIN 48 points out that relatively few disputes are resolved through litigation, and very few are taken to the court of last resort.7

Materiality. It is universally understood that there is a materiality limitation built into financial statement preparation and disclosures under U.S. GAAP. The FASB noted in Concept Statement 2 that the omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.8 Concept Statement 2 provides the conceptual framework of qualitative characteristics of accounting information and highlights that materiality is a pervasive concept. Concept Statement 2 states that "a decision not to disclose certain information may be made, say, because investors have no need for that kind of information (it is not relevant) or because the amounts involved are too small to make a difference (they are not material)." This concept is further evidenced by the fact that many pre-codification FASB standards included a statement that the guidance would not need to be applied to immaterial items. Materiality judgments are based on quantitative and qualitative considerations and the individual facts and circumstances surrounding the entity from the perspective of the information contained in the financial statements being useful.9

2. IFRS
Under the International Financial Reporting Standards ("IFRS"), income taxes are accounted for in accordance with IAS 12, Income Taxes. However, IAS 12 currently does not specifically address accounting for uncertain tax positions. Because IAS 12 contains no explicit guidance on tax contingencies, many practitioners refer to the guidance in IAS 37, Provision, Contingent Liabilities and Contingent Assets. It is important to note that efforts have been underway by the International Accounting Standards Board ("IASB") to revise accounting for UTPs under IFRS, and thus, the current accounting for UTPs under IFRS may change significantly.10
iii. Comments regarding definition of "tax position taken in a tax return"
As mentioned above, the UTP Instructions define "tax position taken in a tax return" as "a tax position that would result in an adjustment to a line item on that tax return (or would be included in a section 481(a) adjustment) if the position is not sustained." The UTP Instructions also contain several illustrative examples (Examples 6-8) suggesting that "adjustment to a line item" includes both adjustments that are adverse to the taxpayer and adjustments that are favorable to the taxpayer. Thus, in Example 7, where there is an uncertainty regarding whether a deduction can be taken in Year 1 versus being taken over 5 years, it is suggested the "tax positions taken on a tax return" encompass both the inclusion of the deduction in Year 1, and the non-inclusion of partial deductions in the following years. We believe this definition is counterintuitive and apt to cause confusion, in that it may create the erroneous impression that, for pure timing issues, UTP reporting must be made in all years, including the later years in which any adjustment would be favorable to the taxpayer. While Example 9 of the UTP Instructions clearly states that UTP reporting would not be required in the later years for pure timing issues, we believe that any potential confusion on this point could be eliminated by simply refining the definition of "tax position" to include only those positions for which, if a challenge was sustained, the position would be adjusted in a manner that either increases taxable income or gain or reduces a deduction, loss or credit with respect to that item.

More importantly, there is a clarification to the definition of tax position that should be made in order to ensure that that the UTP reporting requirement is tailored to its stated purpose of assisting the IRS in its selection and examination of federal tax issues. The definition should be modified to make clear that "a tax position" refers only to "a U.S. federal income tax position." The current definition could be interpreted as inadvertently encompassing state or local and foreign tax positions, or positions taken on federal non-income tax returns, in that these are positions "taken in a tax return" that, if not sustained, could result in an adjustment to a line item on a federal tax return. As a very simple example, all of a taxpayer's uncertain state tax positions could, if challenged and not sustained, result in adjustments to the state tax deduction line item on the federal income tax return. There are many other examples of how adjustments to state, foreign, estate or other non-income tax items on other returns could result in an adjustment to a line item on a federal return. We do not believe it is the Service's intent to require disclosure of these positions -- all of which are outside the scope of any federal income tax examination -- on the UTP Schedule.

iv. Comments regarding Reserve Position UTPs (Category One)
The UTP Instructions are helpful in clarifying the mechanics and timing of the reporting of Category One UTPs as originally described in Announcement 2010-9. There are additional clarifications and modifications that we believe would improve reporting of these items, as discussed below. Even as clarified, and even if the recommended modifications discussed below are adopted, reporting of Category One UTPs will remain a burden for taxpayers. However, we recognize that the IRS is committed to pursuing disclosure of uncertain tax positions, and among the possible alternatives that exist, we believe that the least invasive and least burdensome approach is one based -- as Category One is -- strictly on positions for which taxpayers have recorded reserves.

As far as modifications and clarifications to the Reserve Position UTP category, we recommend as follows:

(1) Rules regarding Unit of Account
As mentioned above, the UTP Instructions define the unit of account as "the level of detail used in analyzing a tax position, taking into account both the level at which the taxpayer accumulates the information to support the tax return and the level at which the taxpayer anticipates addressing the issue with the IRS." The UTP Instructions further provide that for U.S. GAAP and modified U.S. GAAP taxpayers, the "unit of account" used "for reporting a tax position" on the UTP Schedule must be the same unit of account used for financial statement purposes. Thus, the UTP Instructions appear to attempt to further define "tax position" on an issue-by-issue basis corresponding to a "unit of account." We believe that this method of tying the reporting of UTPs to the "unit of account" will result in inconsistency and confusion, and in some instances may result in UTP tax positions that are too detailed, both from the taxpayer's and the IRS' perspective. We therefore recommend a more flexible approach.

FIN 48, unlike the UTP Instructions, does not provide a specific definition of the term "unit of account." Rather, FIN 48 states that the determination of the unit of account is a matter of judgment based on the individual facts and circumstances of the position evaluated in light of all available evidence, and shall consider the manner in which the entity prepares and supports its income tax return and the approach the entity anticipates the taxing authority will take during an examination.11 Thus the criteria used to define unit of account in the UTP Instructions is only one of potentially many considerations in determining the unit of account under FIN 48. So, as a threshold matter, there is a significant problem because the UTP Instructions, while requiring that a taxpayer match its UTP units of account to its financial statement units of account, provide an independent definition of "unit of account" that does not completely correspond to how that term is used for FIN 48 purposes.

However, even if the independent definition of "unit of account" were removed from the UTP Instructions leaving only the requirement that the taxpayer's units of account for UTP reporting purposes correspond to its units of account for FIN 48 purposes, there would still be a problem with the level of detail this might entail. Given the flexibility of the unit of account concept for financial reporting purposes, and the variation in practice in the level of detail and granularity of units of account used by taxpayers for FIN 48 purposes, there would be variation among taxpayers as to the detail and granularity of their UTP disclosures. For some taxpayers, this may lead to a large number of detailed UTPs that would be unduly invasive while far exceeding what would be helpful to the Service. For example, one line item for a research credit under Internal Revenue Code ("IRC") § 41 on a taxpayer's tax return could give rise to hundreds of UTPs, depending on the size of the taxpayer, the number of research projects and the scope of those projects. For some taxpayers, disclosing UTPs at a unit of account level could amount to the equivalent of having to disclose their tax accrual workpapers.

As an illustration of the problems that could arise from a strict rule requiring UTP disclosures to follow the units of account for FIN 48 purposes, assume the fact pattern utilized in Example 14 of the draft instructions, which provides one UTP concise description for a transaction cost item:

 

The corporation investigated and negotiated several potential business acquisitions during the tax year. One of the transactions was completed during the tax year, but all other negotiations failed and the other potential transactions were abandoned during the tax year. The corporation deducted costs of investigating and partially negotiating potential business acquisitions that were not completed, and capitalized costs allocable to one business acquisition that was completed. The issue is the allocation of costs between failed acquisitions and the successful acquisition.

 

This example demonstrates that the "uncertain tax position" -- i.e., the level of detail of interest to the IRS -- is the deduction taken for transaction costs and the issue of allocation of costs. However, in this example, the level of detail analyzed as a unit of account for FIN 48 purposes could be significantly more granular. For example, the corporation may have considered the following:
  • Whether the potential business acquisitions were mutually exclusive

  • Whether any of the fees are success-based costs

  • Bright-line date for determining the amount of costs considered non-facilitative

  • Amount of costs such as debt-related costs and employee costs covered by special rules

 

Given the flexibility of the "unit of account" concept, some taxpayers may have treated each of these sub-issues as a "unit of account" for FIN 48 purposes. If those taxpayers' UTP disclosures were required to match these units of account, each of these sub-issues would have to be separately reported as an uncertain tax position on the UTP Schedule. This could result not only in an extremely invasive and burdensome level of reporting, but also in the IRS receiving an avalanche of details that could detract from the purpose and functionality of the UTP Schedule.

To address the problems identified above, we recommend that the term "unit of account" be removed from the UTP Instructions, and that the instructions merely provide guidance on the level of detail required in separately reporting uncertain tax positions on the UTP Schedule. In that regard, we recommend that such guidance offer U.S. GAAP taxpayers some flexibility in the level of detail to report tax positions on the UTP Schedule. For some taxpayers, the preferred method to delineate UTPs might be to cross-reference the level of detail used for FIN 48 recognition and measurement purposes; for others, the preferable approach might involve a level of detail that is less granular than was used for financial statement purposes, in order to appropriately identify issues on the UTP Schedule as contemplated in the examples provided in the UTP Instructions. So as to provide this necessary flexibility, the UTP Instructions should provide that U.S. GAAP taxpayers have the option to adopt a method similar to that which is available to IFRS taxpayers, one based on a "level of detail that is consistently applied and reasonably based on the items of income, gain, loss, deduction or credit."

(2) Materiality Thresholds
As mentioned above, it is universally understood that there is a materiality limitation built into financial statement preparation and disclosures under U.S. GAAP.12 Therefore, by operation of the financial accounting standards, a taxpayer's recorded reserves -- and hence its UTP Category One disclosures -- incorporate a materiality limitation.13 This means that some or many relatively small uncertain tax return positions will not be required to be disclosed on the UTP Schedule. This is an extremely important limitation in terms of limiting the burden on taxpayers in complying with the UTP disclosure requirements. Given the importance of this limitation, we recommend that the UTP Instructions explicitly provide what is implicit in the operation of the UTP disclosure rules -- if a taxpayer does not record a reserve with respect to a tax position based upon a determination that the position is not material for financial statement purposes, the taxpayer is not required to disclose information related to that position on the UTP Schedule. While the Service has at times resisted the notion of requiring materiality for the lack of definitional precision, it is notable that the IRS Compliance Assurance Process ("CAP") program requires "full disclosure of information concerning [taxpayers'] completed business transactions and their proposed return treatment of all material issues."14 Such a standard could be easily adopted during the promulgation of the UTP rules.
v. Comments regarding Expect to Litigate and Administrative Practice UTPs (Categories Two and Three)
In conjunction with issuing and providing guidance regarding the UTP Proposal, public officials made two important policy statements. First, IRS Commissioner Douglas Shulman, in his speech introducing the UTP Proposal, characterized it as a FIN 48-based proposal, under the reasoning that tax compliance analysis that was coextensive with FIN 48 analysis could be neither invasive nor burdensome because such analysis was already required by FIN 48.15 In a later statement, IRS Chief Counsel William J. Wilkins stated that the UTP Proposal originated from developments in financial accounting, namely, the introduction and implementation of FIN 48.16 We will refer to this below as the "FIN 48 Policy Rationale."

In addition, the UTP Proposal was introduced with the statements in Announcement 2010-9 that "[t]he proposal does not require the taxpayer to disclose the taxpayer's risk assessment or tax reserve amounts, even though the Service can compel the production of this information through a summons," and that the Service intends to retain the existing policy of restraint for requesting tax accrual workpapers during the course of examinations. IRS Commissioner Shulman stated in his speech introducing the proposal that --

 

We have taken what I believe is a reasonable approach. We could have asked for more . . . a lot more . . . but chose not to. We believe we have crafted a proposal that gives us the information we need to do our job without trying to get in the heads of taxpayers as to the strengths or weaknesses of their positions.17

 

Commissioner Shulman also stated publicly that the IRS "is determined to honor the policy of restraint."18 In other public statements, IRS officials reinforced the Service's intention to continue its policy of self-restraint, and characterized the UTP Proposal itself as an exercise in self-restraint by the Service (hereinafter, "Self-Restraint Rationale").19

We believe that Category Two and Category Three UTPs, the Expect to Litigate and Administrative Practice UTPs, are inconsistent with both the FIN 48 Policy Rationale and the Self-Restraint Rationale. As discussed below, because these UTP categories cannot be reconciled with the policy justifications for the UTP Proposal, we believe that both categories should be eliminated from the UTP reporting requirement. Unlike Category One disclosures, these two categories of disclosures relate to positions for which no reserve was recorded by the taxpayer. In preparing the UTP Schedule, taxpayers will be forced in many instances to go beyond their financial statement analysis to (a) determine, for each position that was not subject to a reserve, the exact rationale for why a reserve was not recorded when such a decision may have been supported by multiple, overlapping rationales, and (b) determine, for each of their non-reserved positions that can be classified as Category Two or Category Three UTPs, what the maximum tax liability is associated with each, which is a computation that would not have been required for purposes of the FIN 48 recognition and measurement analysis. This is a significant burden beyond what is required for purposes of FIN 48, and requires new disclosures regarding non-reserved items that generally are not the subject of any specific disclosure. The burden and invasiveness of these two UTP categories cannot be squared with the FIN 48 Policy Rationale.

Further, the invasiveness of Category Two and Category Three UTP requirements cannot be reconciled with the IRS' Self-Restraint Rationale. With its explicit references in Announcement 2010-9, the IRS recognized the importance of the Self-Restraint Rationale to its overall mission of improving tax administration. In a system of self-assessment that requires voluntary compliance by taxpayers, it is critical that stakeholders in the system perceive the taxing authority as fair.20 Recognizing this fairness concern, despite having the ability under United States v. Arthur Young21 to obtain an auditor's tax accrual workpapers, the IRS adopted its policy of self-restraint with respect to tax accrual workpapers.22 The IRS policy of self-restraint has been advantageous to the IRS in avoiding potential legislative challenges to the IRS' ability to summons tax accrual workpapers, as well as challenges by other regulators or stakeholders. The IRS' self-restraint has also helped it avoid court challenges and obtain favorable rulings from courts, including from the Supreme Court in Arthur Young.23 Thus, in introducing a sweeping new initiative such as the UTP Proposal, the IRS should be concerned that its actions are perceived as fair and reasonable in order to ensure the highest level of voluntary compliance, to minimize challenges to the proposal by taxpayers or other stakeholders and to ensure that the UTP regime would be viewed favorably in the context of any challenge to the regime. As its statements above indicate, the IRS recognizes that the Self-Restraint Rationale is critical to the success of the UTP Proposal.

Assuming arguendo that the IRS is legally entitled to obtain information regarding UTP Categories One, Two and Three,24 it can only demonstrate meaningful self-restraint by limiting itself within those three categories -- that is, limiting the UTP Proposal to Category One UTPs. Merely forbearing from requesting issue-by-issue contingency analysis, when courts have imposed significant obstacles to the IRS obtaining that information,25 will not be perceived by the taxpayer community as true self-restraint. By requesting disclosure of Categories Two and Three, the IRS goes beyond what would be perceived as abiding by the spirit of the IRS policy of self-restraint. We can understand why the IRS might have an interest in UTP Categories Two and Three, but it is precisely that interest that gives its policy of self-restraint substance and meaning. For the reasons discussed below, there are significant countervailing interests to balance against the IRS' interest in UTP Categories Two and Three. If the IRS follows its Self-Restraint Rationale, it will consider those countervailing interests, exercise self-restraint and limit the UTP Proposal to items for which taxpayers have recorded reserves.

1. Countervailing considerations regarding Expect to Litigate UTPs (Category Two)
The Expect to Litigate UTP category is problematic because these UTPs are defined in a way that is inconsistent with FIN 48, and disclosure of these UTPs would reveal too much regarding how a taxpayer has assessed and evaluated its tax positions.

Definition of Category Two UTPs. The first item to note about Category Two UTPs is that the definition in the UTP Proposal does not correspond to the terms of FIN 48. The UTP Instructions provide that the Expect to Litigate Category includes tax positions "for which a reserve was not recorded in the audited financial statement after the taxpayer or related party determines that, if the IRS had full knowledge of the tax position it is unlikely a settlement could be reached. For this purpose, a settlement is unlikely if the probability of settlement is less than 50%." This definitional language does not track or tie in to the language in FIN 48. For purposes of financial accounting, an expectation of litigation becomes relevant during the measurement phase, in which management must exercise its "best judgment of the amount the taxpayer would ultimately accept in a settlement with taxing authorities."26 If a tax position that has met the more-likely-than-not recognition requirement based on the technical merits and management therefore believes it would prevail in litigation, and in its best judgment there could be -- for a variety of reasons -- no "settlement with taxing authorities" regarding that position, this could be a scenario in which management would determine not to record a reserve based upon an expectation of litigation. Rather than simply cross-referencing the FIN 48 language, the UTP Instructions establish a non-overlapping, and therefore confusing, independent definition of Expect to Litigate UTPs. For example, the 50% probability threshold determination of likelihood of settlement provided for in the UTP Instructions has no corresponding determination for purposes of FIN 48. Thus, as mentioned above, the definition of Category Two UTPs is inconsistent with the FIN 48 Policy Rationale and the Self-Restraint Rationale, because it requires analysis that is not performed under FIN 48, and also adds to the burden and confusion of complying with the UTP regime.

Invasiveness of Category Two UTPs. Even if Category Two is clarified so that its definition matches the terms of FIN 48, it is unavoidable that requiring disclosure of Category Two UTPs is overly invasive, because classification of a UTP as fitting within Category Two always involves a subjective judgment on the part of the taxpayer's management regarding the possibility of settlement. This judgment could reflect the taxpayer's own intentions regarding settlement, the taxpayer's evaluation of the IRS' intentions regarding settlement, or both. This is precisely the type of subjective judgment that was the focus of the IRS' policy of restraint regarding tax accrual workpapers; the IRS recognized that it was unfair and against public policy to routinely obtain access to documents revealing these types of subjective assessments by taxpayers. Whether the IRS receives this information by requesting documentary evidence contrary to the policy of self restraint or by requiring affirmative disclosure on a tax return, the sensitive nature of the information is thereby disclosed. Requiring it as part of the UTP Proposal is not consistent with the Self-Restraint Rationale.

2. Countervailing considerations regarding Administrative Practice UTPs (Category Three)
Administrative Practice UTPs are problematic because, like the Category Two UTPs, their definition does not match the terms of FIN 48. Even if clarified to correspond to the terms of FIN 48, this category would still be problematic because it does not fall within the spirit and purpose of the UTP Proposal. The purpose of the UTP Proposal is to uncover, both for audit selection and examination purposes, positions that were previously unknown to or overlooked by the IRS.27 By contrast, positions that are recognized under FIN 48 as supported by an IRS administrative practice must be "widely understood,"28 and thus are by definition already known to the IRS. Regardless of the interest the IRS might have in this information, there is no reason why the IRS must pursue this interest as part of this UTP proposal. Given that the UTP Proposal is imposing an entirely new set of considerations and burdens upon taxpayers, the IRS should take caution not to add to the burden and confusion by addressing collateral matters such as IRS administrative practice as part of this new proposal.

Definition of Category Three UTPs. Announcement 2010-9 defines Category Three UTPs as positions "for which a taxpayer or a related entity has not recorded a reserve because the taxpayer has determined that the Service has a general administrative practice not to examine the position." The UTP Instructions provide that UTP Category Three includes positions that "based upon past administrative practices and precedents of the IRS in dealing with the tax position of the taxpayer or similar taxpayers, the IRS has a practice of not challenging the tax position during an examination." This definition does not correspond to the standard used for financial accounting purposes, which requires past administrative practices and precedents of the taxing authority in its dealings with the entity or similar entities that are "widely understood." The non-overlapping nature of these definitions is sure to create confusion by taxpayers and, like Category Two UTPs, will create additional burden beyond what is required for FIN 48 purposes.

It may be that, in defining Administrative Practice UTPs more broadly than they are defined in FIN 48, the Service was attempting to identify tax positions that are taken based upon an IRS administrative practice that is not "widely understood" -- based upon the "concern over [a possible] disconnect between what industry might view as administrative practice and what the IRS does."29 However, the definition will only serve to cause confusion, because under FIN 48 a decision not to reserve cannot be based upon an IRS administrative practice unless that practice is widely understood. No definition of Administrative Practice UTPs that is based upon financial accounting standards will uncover tax positions that are based merely on the subjective, anecdotal view of the particular taxpayer regarding IRS administrative practice.

Balance of Considerations Regarding Administrative Practice UTP Category. If the definition of Administrative Practice UTPs is intended to correspond to the terms of FIN 48 and covers only Administrative Practice UTPs that are widely understood, then the rationale for including this category would be to discover which issues are widely understood not to be subject to challenge by the IRS agents in the field. We do not believe that this rationale justifies the inclusion of this problematic category in the UTP Proposal. If the IRS is concerned that its agents are not consistently applying administrative practice, it could address this problem internally rather than imposing an additional burden on taxpayers in the context of the UTP Proposal.

In evaluating whether to include Category Three UTPs as part of the UTP Proposal, the IRS should carefully weigh the burden of complying with the reporting requirement against the benefit derived by the IRS in receiving such information. Balanced against the questionable rationale discussed above for including this category of disclosure within the UTP Proposal is the burden and difficulty of complying with the requirement to disclose Administrative Practice UTPs. Even apart from the definitional uncertainty discussed above, complying with this requirement would be extremely burdensome for taxpayers because many of these issues are smaller dollar issues that would fall under the materiality threshold and thus would not be required to be quantified under FIN 48. Taxpayers will have to spend significant additional time and resources tracking these positions, determining why they were not reserved for (some decisions not to reserve may be based upon materiality rather than upon the administrative practice provision under FIN 48), and quantifying the maximum tax liability for each of these positions. This would be particularly difficult for taxpayers whose tax positions might be subject to reserve analysis for purposes of several different financial statements -- for example when the taxpayer has prepared financial statements both under U.S. GAAP and IFRS, or when the taxpayer has a related entity preparing financial statements under modified U.S. GAAP. It would be a tremendous burden for these taxpayers to determine and track whether their tax positions were analyzed under an administrative practice exception under non-U.S. GAAP standards in several different financial statements or by numerous related entities. This additional burden is not consistent with the FIN 48 Policy Rationale discussed above, and certainly outweighs the collateral benefit to the IRS of receiving this information.

 

b. Reporting of maximum tax liability

 

Announcement 2010-9 provides that taxpayers will be required to disclose, for each uncertain tax position, the "maximum amount of potential federal tax liability attributable to . . . [that] position (determined without regard to the taxpayer's risk analysis regarding its likelihood of prevailing on the merits)." Announcement 2010-9 further provides that this would require disclosure of the "entire amount of United States federal income tax that would be due if the position were disallowed in its entirety on audit," which would be "the maximum tax adjustment for the position reflecting all changes to items of income, gain, loss, deduction, or credit if the position is not sustained."

The UTP Instructions accomplish some clarification of the meaning of "maximum tax adjustment" ("MTA") as it is described in Announcement 2010-9. It is clear that the IRS carefully considered the informal feedback provided by taxpayers and other stakeholders regarding the MTA and made correlative clarifying adjustments. Although these clarifications to the MTA definition improve the workability of calculating MTAs, we believe the MTA itself is a problematic concept that should be reconsidered. In public comments since the release of Announcement 2010-9, the IRS has indicated that the purpose of the MTA is to permit the IRS to prioritize the issues disclosed on the UTP Schedule.30 However, as will be discussed below, the MTA will not offer a sound basis to prioritize issues during examinations, nor will it enable an apples-to-apples comparison among taxpayers for audit selection purposes.

The UTP Instructions make the following clarifications regarding the MTA:

  • MTA is an "estimate"

  • MTA is determined "on an annual basis"

  • MTA does not include interest and penalties

  • MTA does not include effects on state, local or foreign taxes

  • MTA is calculated as 35% of total amount of items of income, gain, loss or deduction, or 100% of total amount of credits

  • Each MTA item is determined separately and may be offset only against other such items relating to that tax position

  • For an affiliated group, the MTA is determined at the group level and must take into account all items with respect to the tax position for all members of the affiliated group

  • MTA determinations are not required for valuation or transfer pricing tax positions; for these positions, there is a special rule requiring only a ranking of positions

 

One significant problem with the MTA is that, contrary to IRS Commissioner Shulman's suggestion in his speech introducing the UTP Proposal,31 the MTA is not a calculation that is performed for purposes of determining reserves under FIN 48 or other accounting standards. Pursuant to FIN 48, for a tax position meeting the recognition threshold, an entity recognizes the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement considering the amounts and probabilities of the outcomes that could be realized upon settlement. There is no specific requirement to identify and quantify every possible outcome or the high and low end of the range of possible outcomes for each uncertain tax position. The only measurement requirement is to quantify the greatest amount of tax benefit that is greater than 50% likely of being realized upon settlement.

If the MTA is interpreted to mean the amount of the position that is not certain or highly certain, then the IRS must clearly define that threshold. Even with a clear definition of that threshold, quantifying the MTA would be extremely burdensome and potentially costly as taxpayers would be required to make incremental and in some cases duplicative efforts to quantify both the amount that is more-likely-than-not for U.S. GAAP purposes (or equivalent requirement under other accounting standards) and the amount that is certain or highly certain and meets the threshold to be excluded from the MTA amount.

The burden in estimating MTAs will be significant for taxpayers, and the information generated from this burdensome exercise will be unhelpful in many instances in reflecting the size and significance of a particular issue. With respect to timing differences, the MTA number will be almost meaningless. Also, in some instances the actual potential largest exposure, even apart from any specific risk adjustment, would be significantly less than the maximum tax liability. For example, for a $1000 deduction, there may be uncertainty about whether 50% of the deduction will be allowed, but almost absolute certainty that at least 50% of the deduction would be allowed. In that circumstance, even apart from any specific risk adjustment (e.g., a 15% disallowance would be the most likely scenario), the actual potential largest exposure is $175 ($500 x 35%). However, under the MTA methodology, taxpayers would have to report an MTA of $350 ($1000 x 35%). Variations on this example will be common, thus giving rise to many distorted MTA amounts, and it will be difficult, if not impossible, for the Service to distinguish the distorted MTA amounts from those that more accurately reflect actual potential exposure.

Some specific examples may be helpful in illustrating how difficult estimating MTAs will be, and how unhelpful and distortive they may be:

  • One-year timing difference. Taxpayer implemented an incentive compensation plan in 2010. The terms of the plan remained the same through 2012. In 2010, the taxpayer computed a plan liability of $1 million. The amount was paid to employees within 2 1/2 months of year end and was deducted on the 2010 tax return filed on September 15, 2011. In January 2011 the taxpayer included a reserve in its financial statements related to this deduction because it believed that if examined the IRS might assert the liability was not fixed as of year-end. For 2011, the company computed another liability of $1 million that was paid within 2 1/2months of year end and was deducted on its 2011 tax return. Because the amount was the same, the taxpayer retained the same amount of reserve on its 2011 financial statements. In 2012, due to an upturn in business, taxpayer computed a liability of $1.2 million under the plan which was paid within 2 1/2 months and deducted on the 2012 tax return. Taxpayer added to the total amount of reserve due to the increase in incentive compensation amount subject to the same risk identified in 2010. Under the current MTA rules, it appears that the taxpayer would be required to report the maximum tax adjustment each year on the UTP Schedule (tax effect of $1 million for both 2010 and 2011 and tax effect of $1.2 million for 2012) even though if the IRS proposed an adjustment as a method change in 2012 or after, only one year would be adjusted with a section 481(a) adjustment. This creates an annual, recurring item on the taxpayer's UTP Schedule that overstates the real dollar value of the issue (an interest charge) by a significant amount. This overstatement is exacerbated to the extent this item is allocated to inventory under the uniform capitalization rules for a taxpayer using the Last-In-First-Out inventory method that also is entitled to a section 199 deduction, to the extent these calculations are not made for each UTP.

  • Small asset expenses. Taxpayers often follow a capitalization threshold policy for financial reporting purposes which is also followed for tax reporting purposes. For example, a company with gross receipts of $2 billion may have a policy not to capitalize any asset that costs under $2,000 for both book and tax. To the extent this qualifies as an administrative practice or precedent that the IRS will allow this tax accounting, this item could result in an uncertain tax position that must be reported on the UTP Schedule. Such a calculation will be an undue administrative burden for taxpayers. This amount is not tracked either in the financial statements, general ledger or in tax records. The quantity of items (all under $2,000 in the example) could range in the thousands or higher with different amounts. Further, the measurement of the potential maximum exposure for each such instance can be wildly misleading. For example, if the taxpayer has 10,000 of these assets deployed in the United States, the potential exposure is $20,000,000. This could result in the IRS agents spending a substantial amount of time on areas which are considered as acceptable filing positions and significantly waste taxpayer time.

 

Some obvious alternatives to requiring the reporting of a specific MTA would include (a) requiring a ranking, as is provided for transfer pricing and valuation issues, based on size or importance or (b) requiring that each UTP be identified to be within a specific range or grouping, with the classifications based either on total dollars of maximum adjustment or some ratio of the dollar value of the maximum adjustment to a metric reflecting the size of the taxpayer. These alternatives have been discussed and generally viewed as less burdensome (although still burdensome) to taxpayers. The problem with these alternatives is that they are just as imprecise and potentially distortive in terms of correctly sizing the relative importance of the issue. This begs the question why taxpayers should be required to undertake the burden to analyze, calculate and then report what could very well end up being superfluous data. Before this burden is imposed on tens of thousands of taxpayers, and prior to IRS reliance on imprecise and distortive data to hone the audit selection process, the Service should at the very least establish a pilot program to determine the type of data that would be received and the best use of that data.

We would recommend that, in lieu of requiring a quantification of each UTP, that the Service simply require that for each UTP the taxpayer provide the form and the line number that is affected by the UTP, similar to what is required on Forms 8275 and 8275-R. This information, together with the other granular information provided as part of the concise description (e.g. code section, timing versus permanent, effect on basis), should provide significant assistance to the Service in prioritizing issues both for audit selection and examination purposes. To further enhance the efficiency of the examination process, the Service could place more specific focus on methods that its agents can employ to prioritize the UTPs that are disclosed. This meets the IRS' stated goals of identifying the issues during examinations that are relevant,32 and also closely parallels the CAP program. The Service could issue a detailed set of guidance to both taxpayers and IRS agents that would allow the parties, at a very early point in the examination (or on a pre-filing basis), to discuss and prioritize the UTPs. In terms of making audits more efficient, which is the stated purpose of the UTP Proposal, procedural guidance to agents and taxpayers directly responds to that goal, while the MTA requirement is basically a shot in the dark.

 

c. Reporting of concise UTP description

 

Announcement 2010-9 provides that the UTP Schedule will require a "concise description" of each UTP "in sufficient detail so that the Service can determine the nature of the issue." The Announcement further states that "[a]s currently contemplated, this concise description will include the rationale for the position and a concise general statement of the reasons for determining that the position is an uncertain tax position." The UTP Instructions confirm that this information is required, and also identify the following as necessary elements of the concise description: (1) a statement that the position involves an item of income, gain, loss, deduction or credit, and (2) a statement whether the position involves a determination of the value of any property or right or a computation of basis. The UTP Instructions state that "[i]n most cases, the description should not exceed a few sentences."

We believe that a general description of the position and the issue is all that should be required, and that the UTP Instructions go too far in requesting the "rationale for the position" and the "reasons for determining that the position is an uncertain tax position." Taxpayers should be free to craft a one- or two-sentence general description of the position based upon the above-described guidance regarding what elements should be in the description. Because issues vary tremendously, there should not be a specific formula; rather, a general description of the position should be all that is required. Together with the other information required in the UTP Schedule such as the code section and the timing codes, a general description would provide the IRS with the information it needs to understand the issue. And, we believe strongly that the "rationale" and "reasons" requirements are inappropriate in that they require taxpayers to divulge their subjective evaluation and assessment of their positions. Requesting this information directly contradicts the Self-Restraint Rationale that is part of the UTP Proposal, as discussed above. The elimination of the "rationale" and "reasons" requirements would align the UTP proposal closer to the IRS' stated goal of staying out of "the heads of taxpayers."33

 

d. Reporting of UTPs from prior years' tax returns

 

Part II of the draft UTP Schedule requires the taxpayer to list UTPs taken in a prior year's tax return if the decision whether to record the reserve was made at least 60 days before filing the tax return to which the UTP Schedule relates. We are pleased that the Service's transition rules for the UTP Schedule do not require the reporting of UTPs taken prior to 2010. Notwithstanding the exclusion of pre-2010 UTPs, we recommend that the prior year reporting requirement be eliminated for the reasons discussed below.

The proposed prior year reporting requirement on the UTP Schedule is at odds with the traditional role of a tax return, which is to report and calculate current year tax liability. By requiring taxpayers to report a tax position from a prior year without a relationship to the return with which the UTP Schedule is being filed, the Service is using the return to gather information about past years' tax liability, which is something more appropriate for an examination. By requiring information about prior years' UTPs to accompany the filing of a current tax return, the IRS comes close to the exercise of its IRC section 7602 examination authority during the compliance process.

While we can understand the Service's desire for information on prior year tax positions that the taxpayer has since determined are uncertain, we think such inquiry is more appropriately conducted through the examination process with respect to the prior years. After the transition period expires, the IRS could devise a standard information document request to obtain information about prior year UTPs for which the taxpayer has created a reserve during the tax year(s) under examination that have not been previously reported on the UTP Schedule. Collecting such information during the examination process would be more in keeping with the Code and historical practice, and will be less burdensome to the taxpayer than requiring a yearly accounting for such positions.

 

e. Application of UTP Proposal to Other Business Taxpayers

 

In Announcement 2010-17, the Service requests comments on what UTPs should be reported by pass-through entities and tax-exempt entities. We appreciate the Service's decision to delay the implementation of the UTP Proposal for these other business taxpayers. Pass-through entities, tax-exempt entities and other types of business taxpayers may present particular complexities in the reporting of UTPs that are best addressed after the Service has had an opportunity to receive and consider comments on the general UTP reporting regime. Our recommendations with respect to these taxpayers are below.

Although many pass-through entities prepare U.S. GAAP financial statements and are subject to FIN 48 reporting, they generally do not have income tax reserves themselves because their income is not subject to tax at the entity level. Therefore, we agree with the recommendation of the New York State Bar Association that pass-through entities not be subject to the UTP reporting regime unless such entities have UTPs for which they are primarily liable, e.g., if there is uncertainty regarding their status as a partnership.34 The reporting of any UTPs stemming from the pass-through entity's activities should take place at the partner level, as the draft schedule appears to contemplate. Parts I and II of the UTP Schedule ask the corporation to identify whether a UTP relates to a tax position of a pass-through entity and to identify that entity by its EIN. We agree with this approach and recommend that the Service clarify the extent of the partner's responsibility to report such UTPs. For example, U.S. GAAP may require a partner to analyze a tax position of a pass-through entity if it is material to the partner's financial statements. In that situation, the partner may have to contact the partnership to obtain information on those material positions in order to determine whether to establish reserves for those positions. We recommend that the IRS clarify that partners are not required for UTP reporting purposes to obtain any information beyond what they already would have obtained for FIN 48 purposes.

Tax-exempt entities can be subject to FIN 48 if they have UTPs with respect to their unrelated business taxable income or if they are uncertain of their tax-exempt status.35 If such tax-exempt entities are required to report UTPs at some point in the future, those tax-exempt entities with UTPs should be subject to the same reporting thresholds as for-profit corporations. We recommend that the Service confirm that tax-exempt entities would be required to file the UTP Schedule only if they prepare audited financial statements, meet the $10 million threshold, and have UTPs that would impact tax assessable on the tax-exempt entity's own return.

II. General comments and policy concerns regarding the proposal

Beyond our primary recommendations described above, we also wanted to raise our most significant policy concerns, and potential remedies, even if the UTP Proposal is implemented with the modifications recommended above. Those concerns are discussed in the ensuing sections.

The Service has stated that its primary goal in implementing the UTP Proposal is to increase transparency and audit efficiency. Enhanced transparency has been a policy goal of the Service for many years. In December 1991 regulations were issued regarding disclosure of positions contrary to a regulation for purposes of the negligence or disregard penalty.36 Regulations regarding the new tax shelter disclosure rules were issued in February 2003,37 At that time the IRS stated that "the tax shelter industry relies on taxpayers not being audited, tax shelter issues not being raised, and IRS settling issues for less than the tax benefits. Effective disclosure addresses this, though it will not eliminate it."38 In 2004 the Service introduced Schedule M-3,39 stating that these disclosures "will help us target our examination efforts on high-risk areas thereby improving and speeding the audit process."40 Taxpayers invested significant time and money in developing processes and procedures to comply with these provisions, and the IRS also committed significant resources to implement these rules. In the end, it appears that the Service's policy goals were never met. The Service now wants to impose the additional burden of UTP disclosures on taxpayers. We would urge the Service to delay the effective date of the UTP Proposal in order to carefully consider all of the commentary it will receive, review its use of existing disclosure provisions, and take the appropriate steps to ensure that the proposal is tailored to achieve the stated policy goals. We would also support (a) implementing a pilot UTP program or a phased implementation schedule, as some stakeholders have proposed,41 and (b) an exemption from the UTP Proposal for certain classes of taxpayers, such as CAP program taxpayers or Coordinated Industry Case ("CIC") taxpayers, as some other stakeholders have proposed.42

 

a. Duplication and redundancy of reporting obligations should be reduced

 

In Announcement 2010-30 and in the draft UTP Instructions, the Service states that the taxpayer will be treated as having filed a Form 8275 (Disclosure Statement) or Form 8275-R (Regulation Disclosure Statement) for positions that are reported on a UTP Schedule. Announcement 2010-30 also states that "the Service is reviewing the extent to which the proposed UTP Schedule duplicates other reporting requirements," including the Form 8886 (Reportable Transaction Disclosure Statement) and the Schedule M-3. We applaud both the Service's determination with respect to the Forms 8275 and 8275-R, as well as the Service's intention to consider and eliminate other possible redundancies in taxpayers' information reporting. We would recommend that, in addition to the considerations mentioned in Announcement 2010-30, the Service would also consider issuing guidance stating that any information reporting requirement developed in connection with the economic substance penalty provision, IRC section 7701(o) be deemed satisfied by disclosures on the UTP Schedule. We would also recommend that the Service consider exempting from disclosure on the UTP Schedule any positions that are separately identified and described as part of other information reporting, such as positions described on Forms 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) and 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business).

 

b. Detailed guidance must be provided to IRS revenue agents in the examination of UTPs

 

Given the large volume of new information the UTP Proposal will provide to revenue agents, the Service must issue detailed guidance to its agents that outlines how the UTP information should be used during an examination. We believe that almost all of our clients, particularly clients that are CIC taxpayers, have a trusting, productive relationship with their IRS audit teams. We have heard the concern from these clients that the productive interactions they have developed over time with their exam team could be undermined by the UTP Schedule. We would hope that any training that IRS agents receive starts with a recommendation to preserve all of the positive methods and interactions that they presently employ with their CIC taxpayers, as the same issues that would be required to be disclosed on the UTP Schedule are already disclosed and discussed with these examination teams.

Taxpayers are particularly concerned that there will be a default position whereby items on the UTP Schedule will be adjusted. IRS Commissioner Shulman has sought to dispel this notion, stating that "the schedule of uncertain tax positions is not intended as a list of issues for which deficiencies will always be established. It is entirely consistent with the spirit of this initiative that there are issues for which the correct examination outcome is 'no change.'"43 However, guidance is necessary to ensure that Commissioner Shulman's intentions are carried through in the form of specific rules governing the behavior of agents in the field.

Another taxpayer concern is that the positions disclosed in the UTP Schedule will become a new "tiered issue" structure and that revenue agents will not be able to make decisions about such positions without national coordination. As IRS officials have acknowledged, taxpayers feel that the tiered issue system has resulted in significant delay in resolving issues during exams.44 Therefore, we further recommend that local IRS agents retain general decision-making authority with respect to positions disclosed on the UTP Schedule. Consistency in judgment as between agents regarding the UTP Schedule would be provided based upon our suggestion of detailed guidance and protocols provided to the agents as described above.

 

c. Policy of restraint regarding tax accrual workpapers should be affirmed and strengthened

 

Announcement 2010-9 states that the Service intends to maintain its policy of restraint for requesting tax accrual workpapers during examinations. We think that with the advent of the UTP Schedule, the policy of restraint should not only be maintained, but strengthened. As noted above, the IRS' Self-Restraint Rationale supports the public perception of the Service as generally fair and reasonable. Taxpayers are understandably concerned about the burden the UTP Schedule creates and wary of the potential difficulties the UTP Schedule will create for them during the examination process. To ease such taxpayer concerns, the Service should generally refrain from requesting tax accrual workpapers for any tax position disclosed on the UTP Schedule. Such a strengthening of the policy of restraint will help assure taxpayers that the IRS is not attempting to discover the taxpayer's risk assessment or other information potentially subject to taxpayer privileges.

As a corollary to expanding the policy of restraint, the Service should also affirm that the information disclosed on the UTP Schedule will not be considered to be a waiver by the taxpayer of any applicable confidentiality privilege, and that claims of privilege with respect to UTPs may continue to be asserted as permitted under current law. Other stakeholders have suggested that the information required to be disclosed on the UTP Schedule may include information that would otherwise be subject to taxpayer privileges.45 We agree with other commentators that the IRS should make clear that disclosure on the UTP Schedule would not adversely affect taxpayer confidentiality privileges, so that taxpayers and tax return preparers can fulfill their duty to complete the UTP Schedule without the concern that there may be a potential waiver of client privileges resulting from disclosures on the UTP Schedule.

 

d. There is no need for new penalties to enforce UTP disclosure requirements

 

It is unclear whether as part of the UTP Proposal the IRS intends to seek new penalties for the enforcement of the disclosure requirements.46 To the extent the Treasury Department and IRS are considering such a proposal, we do not agree with this approach. Creating a new penalty in connection with the UTP Proposal will further exacerbate the tensions the proposal has created between taxpayers and the Service. The current legislative climate may cause legislators to focus more on revenue-raising and strict liability rather than on formulating a penalty appropriate to the noncompliance situation, and we would recommend against pursuing a new penalty at this time, especially before all the details of the UTP Proposal are finalized and the taxpayer and tax advisory community has had a chance to measure the effects of the new reporting regime.

There is no reason to assume that taxpayers that meet the parameters required to file the UTP Schedule will not comply with the new requirements, especially given their size and potential status as publicly traded companies.47 We believe, in the overall context of a new proposal offered by the IRS in the spirit of self-restraint and cooperation with the taxpayer community, that enforcement should be based more on carrots than on sticks.48 The stick approach seems unnecessary given the strong suggestion, in the overall context of the UTP Proposal, that there will be a high level of compliance. At the same time the carrot approach makes sense because, as discussed in the next section, there are many potential taxpayer benefits that could reasonably be offered by the IRS in conjunction with the UTP Proposal.

If the Service takes the position that the penalties for failure to file a return and for negligence or intentional disregard of rules and regulations under IRC sections 6651 and 6653, respectively, could apply, it should issue guidance regarding how it would assert such penalties. With respect to taxpayers that may file the schedule in a manner that the Service asserts is either incomplete or inaccurate, we recommend that the Service implement a penalty grace period for such circumstances and provide the taxpayer the opportunity to correct the schedule before the Service attempts to assert any penalty for failure to file. Such a grace period should extend at least during the first year that the UTP Schedule is required to be filed, so that a clear understanding of the information the Service expects to receive may be communicated to the taxpayer community. The IRS should also endeavor to educate taxpayers and the tax advisory community regarding the sufficiency of the disclosures it receives prior to making a determination to assert existing penalties or to seek new penalty legislation.

 

e. UTP disclosure requirements must be accompanied by reciprocal commitment by IRS to reduce time and burden of federal tax audits

 

The IRS must, consistent with the policy rationales offered in support of the UTP Proposal, make the reciprocal commitment to reduce the time and burden of federal tax audits. We are hopeful that the UTP Proposal has the potential to reduce the number of taxpayers under continuous audit, and encourage the IRS to make a general commitment to such a reduction as part of the UTP Proposal. To those taxpayers that are selected for audit, the IRS should make commitments to reduce the time and burden of their audits.49 For example, if UTPs are disclosed as part of the tax return process, their disclosure should eliminate the need for many of the exploratory information document requests ("IDRs") that have been routinely issued during audits. With the benefit of UTP disclosures and the ability to discuss those disclosures with the taxpayers under audit, the need for IDRs should be substantially reduced. Further, if as Commissioner Shulman stated 25% of audits are spent identifying the issues that would under the UTP Proposal be disclosed on the tax return,50 the IRS should feel comfortable committing to a reduced cycle time for taxpayers. All of these benefits could be offered as contingent upon taxpayers making complete and accurate UTP disclosures -- thus creating the carrot that would, more effectively than any new penalty, encourage voluntary compliance with the UTP regime. Finally, the Service should greatly expand the availability of the CAP program. Doubling the size of the program in 2011 is probably not sufficient.

 

f. The Service should reaffirm return preparers' ability to rely on taxpayers' information in the context of UTP schedule preparation and review

 

If the UTP Proposal is adopted, we would expect the tax preparer community to seek additional guidance to ensure compliance with IRC section 6694 and Circular 230 in relation to the UTP Schedule. We would expect that any such guidance reaffirm tax preparers' ability to rely on taxpayers' information as provided in Treas. Reg. § 1.6694-1(e)(1) in the context of the preparation and review of any UTP schedules.

III. Conclusion

We are pleased to have had the opportunity to comment on the UTP Proposal and appreciate your consideration of our comments. If you have questions or would like to discuss our comments further, please contact Alan Einhorn at (202) 879-4966.

Sincerely,

 

 

Alan R. Einhorn

 

Chief Quality Officer

 

Deloitte Tax LLP

 

Washington, D.C.

 

cc:

 

 

The Honorable Douglas Shulman

 

Commissioner

 

Internal Revenue Service

 

Room 3000 IR

 

1111 Constitution Avenue, NW

 

Washington, DC 20224

 

 

The Honorable William J. Wilkins

 

Chief Counsel

 

Internal Revenue Service

 

Room 3026 IR

 

1111 Constitution Avenue, NW

 

Washington, DC 20224

 

 

Deborah A. Butler

 

Associate Chief Counsel (Procedure and Administration)

 

Internal Revenue Service

 

Room 5503 IR

 

1111 Constitution Avenue, NW

 

Washington, DC 20224

 

 

Heather Maloy

 

Commissioner, Large and Mid-Size Business Division

 

Internal Revenue Service, Mint Building

 

801 Ninth Street, NW, M4-313

 

Washington, DC 20001

 

 

Steven T. Miller

 

Deputy Commissioner for Services and Enforcement

 

Internal Revenue Service

 

Room 3308 IR

 

1111 Constitution Avenue, NW

 

Washington, DC 20224

 

 

Ronald J. Schultz

 

Senior Adviser to the Deputy Commissioner (Services and Enforcement)

 

Internal Revenue Service

 

1111 Constitution Avenue, NW

 

Washington, DC 20224

 

 

Lon B. Smith

 

National Counsel to the Chief Counsel for Special Projects

 

Internal Revenue Service

 

Room 3206 IR

 

1111 Constitution Avenue, NW

 

Washington, DC 20224

 

 

Kathryn Zuba

 

Special Counsel

 

Office of Associate Chief Counsel (Procedure and Administration)

 

Internal Revenue Service

 

1111 Constitution Avenue, NW, Room 5512 IR

 

Washington, DC 20224

 

 

Bryon Christensen

 

Deputy Tax Legislative Counsel (Legislative Affairs)

 

Office of Tax Legislative Counsel

 

Department of Treasury

 

1500 Pennsylvania Avenue, NW

 

Washington, D.C. 20220

 

Appendix A: Financial Accounting Standards

 

 

U.S. GAAP and ASC 740

 

 

FASB Statement 109, Accounting for Income Taxes, ("FAS 109") was issued in February 1992 and established financial accounting and reporting standards for the effects of income taxes that result from an entity's activities during the current and preceding years. FAS 109 contained no specific guidance on how to address uncertainties in accounting for income tax assets and liabilities. As a result, diverse accounting practices developed resulting in inconsistency in the criteria used to recognize, derecognize and measure benefits related to income taxes. This diversity in practice resulted in noncomparability in reporting income tax assets and liabilities, and led to the June 2006 issuance of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").

In July 2009, FAS 109 and FIN 48 were codified into Accounting Standards Codification ("ASC") 740 -- Income Taxes.The ASC is the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP.

Because of the difficulty of defining an uncertain tax position, the FASB decided that all tax positions are subject to FIN 48.51 FIN 48 requires a two-step process for analyzing tax positions taken or expected to be taken in a tax return that directly or indirectly affect amounts reported in financial statements. The first step is recognition and the second step is measurement. The recognition and measurement requirements of FIN 48 related to tax positions require that an entity recognize a tax position if it is more likely than not based on the technical merits that the position would be sustained upon examination (including the resolution of any related appeals or litigation process) and measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.52

Recognition. An entity must first determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The level of evidence that is necessary and appropriate to support an entity's assessment of the technical merits of a tax position is a matter of judgment that depends on all available information.53 In evaluating whether a tax position meets the more likely than not (a likelihood of greater than 50%) recognition threshold, the entity should presume that the position will be examined by the taxing authority that has full knowledge of all relevant information.54 The recognition threshold has been met if it is more likely than not that the taxpayer will sustain the tax benefit if the taxpayer takes the dispute to the court of last resort.55 Two concepts that are related to the recognition step and are highlighted in the draft UTP Schedule are unit of account and administrative practices and precedents.

  • Unit of Account: As indicated in the implementation guidance in ASC740-10-55, a prerequisite to the recognition assessment is determining the unit of account. Identifying the appropriate unit of account for determining what constitutes an individual tax position and whether the more-likely-than-not recognition threshold is met for a tax position is a matter of judgment based on the individual facts and circumstances. ASC 740-10-25-13 states that to determine the unit of account, one should consider (1) the level at which the entity supports and documents its income tax return and (2) the approach the entity anticipates the taxing authorities will take during an examination. The unit of account should be consistently applied to similar positions from period to period unless a change in facts and circumstances indicates that a different unit of account is more appropriate.

  • Administrative Practices and Precedents: FIN 48 paragraph B35 provided that in the Board's redeliberations of FIN 48, it became aware of certain administrative practices and precedents under which taxing authorities do not object to a limited number of tax positions that may be deemed technical violations of the tax law. The Board understood that those administrative practices and precedents are broadly understood by preparers, tax practitioners and auditors. ASC 740-10-25-7b states that when the past administrative practices and precedents of the taxing authority in its dealings with the entity or similar entities are widely understood, for example, by preparers, tax practitioners and auditors, those practices and precedents shall be taken into account.

 

Measurement. Tax positions that meet the more-likely-than-not recognition threshold are then measured to determine the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The measurement would incorporate information about potential settlements with taxing authorities. Generally, the taxpayer and the taxing authority negotiate a settlement to avoid the costs and hazards of litigation. As a result, the measurement of the tax position is based on management's best judgment of the amount the taxpayer would ultimately accept in a settlement with taxing authorities. ASC 740 (FIN 48) points out that relatively few disputes are resolved through litigation, and very few are taken to the court of last resort.

Materiality. It is universally understood that there is a materiality limitation built into financial statement preparation and disclosures under U.S. GAAP. ASC 205-10-S99-2 refers to the SEC literature regarding materiality, noting that SEC Regulation S-X Rule 4-02 indicates that "if the amount which would otherwise be required to be shown with respect to any item is not material, it need not be separately set forth." ASC 250-10-S99-1 refers to Staff Accounting Bulletin Topic 1. M. Assessing Materiality which provides extensive SEC staff views on materiality. Prior to codification, FIN 48 and many pre-codification FASB standards provided that "[t]he provisions of this Interpretation need not be applied to immaterial items." The FASB's October 2, 2009 Notice To Constituents About the Codification further addressed the concept of materiality and the broad applicability, as follows: "Over the years, various standards have included language stating that a standard is applicable if an item is material. Retaining such individual materiality references in the Codification could lead users to believe that materiality applies to one set of standards, but not another. To provide greater consistency, the Codification excludes individual materiality references. Instead, the Codification solely provides the standards of accounting and reporting." The Notice to Constituents also made clear that the codification was intended to merely codify and not change existing U.S. GAAP, so that the concept of materiality for identifying and assessing tax positions that was explicitly provided in FIN 48 continues to apply after the effective date of the ASC.

The FASB noted in Concept Statement 2 that the omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.56 Concept Statement 2 provides the conceptual framework of qualitative characteristics of accounting information and highlights that materiality is a pervasive concept. In particular, judgments about the materiality of information are necessary and made from the perspective of a decision maker (e.g. investor). Concept Statement 2 states that "a decision not to disclose certain information may be made, say, because investors have no need for that kind of information (it is not relevant) or because the amounts involved are too small to make a difference (they are not material)." This concept is further evidenced by the fact that many pre-codification FASB standards included a statement that the guidance would not need to be applied to immaterial items. Materiality judgments are based on quantitative and qualitative considerations and the individual facts and circumstances surrounding the entity from the perspective of the information contained in the financial statements being useful.57

 

IFRS

 

 

Under IFRS, income taxes are accounted for in accordance with IAS 12, Income Taxes. However, IAS 12 currently does not specifically address accounting for uncertain tax positions. Because IAS 12 contains no explicit guidance on tax contingencies, many practitioners refer to the guidance in IAS 37, Provision, Contingent Liabilities and Contingent Assets. Because income taxes are not part of the scope of IAS 37, reliance on the standard is based more on principle than direct application.

IAS 37.14 states (in part) that contingent tax liabilities should be recognized when "it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation." An outflow of resources or other event is regarded as probable if the event is more likely than not to occur, i.e., the probability that the event will occur is greater than the probability that it will not.58

If the probability and outflow of resources thresholds are met, the entity would measure the potential impact of the uncertain tax position, in other words, the entity's best estimate of the amount of the tax benefit that will be lost.59

Where there are a number of similar obligations, the probability that an outflow will be required in settlement may be determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognized.60

It is important to note that efforts have been underway to revise accounting for UTPs under IFRS. In March 2009, the IASB issued an exposure draft containing proposals for an IFRS that would replace the current guidance under IAS 12. The IASB received a considerable amount of criticism from constituents leading to an indefinite deferral of the project. As an alternative, the IASB decided to limit the scope of the project to specific, less controversial practice issues. One of the items currently within the scope of the IASB's limited project is UTPs.61 Thus, the current accounting for UTPs under IFRS may change significantly.

 

FOOTNOTES

 

 

1 In July 2009, FASB Statement 109, Accounting for Income Taxes, ("FAS 109") and FIN 48 were codified into Accounting Standards Codification ("ASC") 740 -- Income Taxes.

2 ASC 740-10-25-7, para. (b).

3 As discussed infra, the term "unit of account" does not have a specific definition in the financial accounting standards. Instead, it is referenced as a determination based upon facts and circumstances.

4 ASC 740-10-25-13.

5 ASC 740-10-55-89.

6 ASC 740-10-30-7.

7 ASC 740-10-55-4.

8 Paragraph 132 of FASB Concept Statement 2.

9See generally FASB Concept Statement 2.

10See www.iasb.org.

11ASC 740-10-25-13.

12 See supra Part I.a.ii.1 and Appendix A.

13 IRS officials have acknowledged this materiality limitation. See Jeremiah Coder, IRS Open to UTP Changes, Officials Say, TAX NOTES TODAY, 2010 TNT 82-1 2010 TNT 82-1: News Stories (April 29, 2010) (citing statement by Ronald J. Schultz, Senior Adviser to the IRS Deputy Commissioner, Services and Enforcement). This materiality limitation would also apply to UTP Category Two and UTP Category Three disclosures, which are discussed below.

14 Announcement 2005-87; 2005-50 IRB 1144 (December 12, 2005) (emphasis added).

15 Prepared Remarks of IRS Commissioner Douglas Shulman to the New York State Bar Association Taxation Section Annual Meeting in New York City, IRS News Release, IR-2010-13 (January 26, 2010) ("We do not believe we will be adding substantial new work or burden on taxpayers. These taxpayers are already required to establish tax reserves for uncertain tax positions in determining their financial statement income under US or foreign accounting standards, such as FIN 48. So the work is already being done.") (hereinafter, "Shulman January Speech").

16 Amy S. Elliott, Wilkins Says Changes to Accounting Rules Fueled Uncertain Tax Position Disclosure Initiative, TAX NOTES TODAY, Doc. 2010-4833; 2010 TNT 44-2 2010 TNT 44-2: News Stories (March 8, 2010).

17 Shulman January Speech, supra note 15.

18See Prepared Remarks of Commissioner of Internal Revenue Douglas H. Shulman before the Tax Executives Institute 60th Mid-Year Meeting, April 12, 2010, reprinted at BNA 69 DTR G-7.

19 See Amy S. Elliott, Wilkins Describes Uncertain Tax Positions Under New Requirements, TAX NOTES TODAY, Doc. 2010-5171, 2010 TNT 47-1 2010 TNT 47-1: News Stories (March 11, 2010).

20See American Institute of Certified Public Accountants, Report on Civil Tax Penalties: The Need for Reform, (August 28, 2009) p. 1, available at: http://www.aicpa.org/Press/PressReleases/2009/DownloadableDocuments/AICPA-report-civil-tax-penalty-reform.pdf; Commissioner's Executive Task Force on Civil Penalties, Internal Revenue Service, Report on Civil Tax Penalties, (February 28, 1989) p. 1, available at TAX NOTES TODAY, Doc. 89-1586, 89 TNT 45-36 89 TNT 45-36: IRS Publications.

21 465 U.S. 805 (1984).

22See I.R.M. § 4.10.20; Announcement 2002-63; 2002-27 IRB 1 (June 17, 2002).

23 465 U.S. at 820-21 ("Recognizing the intrusiveness of demands for the production of tax accrual workpapers, the IRS has demonstrated administrative sensitivity to the concerns expressed by the accounting profession by tightening its internal requirements for the issuance of such summonses.").

24 We believe that the work product doctrine imposes limits on what information can be obtained regarding the three categories of UTPs, but we believe that the American Bar Association, attorneys and law firms are in a better position to provide comment on privilege and work product issues.

25See, e.g., U.S. v. Deloitte & Touche USA LLP, 623 F.Supp.2d 39 (D.D.C. 2009); Regions Financial Corp. v. U.S., 2008 U.S. Dist. Lexis 41940 (May 8, 2008). See also U.S. v. Roxworthy, 457 F.3d 590 (6th Cir. 2006); U.S. v. Adlman, 134 F.3d 1194 (2nd Cir. 1998).

26 ASC 740-10-55-4.

27 Jeremiah Coder, Desire for Efficiency Drives UTP Proposal, Official Says, TAX NOTES TODAY, Doc. 2010-10180, 2010 TNT 88-2 2010 TNT 88-2: News Stories (May 7, 2010).

28 ASC 740-10-25-7, para. 7(b).

29See Jeremiah Coder, Wilkins Reiterates Administrative Rationale Behind Uncertain Tax Position Reporting, TAX NOTES TODAY, Doc. 2010-9176, 2010 TNT 79-1 2010 TNT 79-1: News Stories (April 26, 2010) (quoting IRS Chief Counsel William Wilkins).

30See, e.g., Jeremiah Coder, Maloy Tells Tax Executives to End Skepticism of Uncertain Tax Position Reporting, TAX NOTES TODAY, Doc. 2010-8155, 2010 TNT 71-2 2010 TNT 71-2: News Stories (April 14, 2010).

31See Shulman January Speech, supra note 15 ("We do not believe we will be adding substantial new work or burden on taxpayers . . . the work is already being done").

32See Shulman January Speech, supra note 15.

33 Shulman January Speech, supra note 15.

34See Report on Announcement 2010-9, New York State Bar Association Tax Section, available at Tax Analysts, Doc. 2010-6957, p. 48-49.

35 ASC 740-10-55-225.

36 T.D. 8381, 1992-1 C.B. 374.

37 T.D. 9046, (2/28/03), 2003-12 I.R.B. 614.

38 Brant Goldwyn, Disclosure Termed Key to Combating Abusive Tax Shelter Schemes, Official Says, Daily Tax Rep. (BNA) No. 120, at G-4 (June 21, 2002)(quoting Deputy Chief Counsel-Designate for Operations Emily Parker).

39See Treasury and IRS Propose New Tax Form for Corporate Tax Returns, TAX NOTES TODAY, Doc. 2004-1796, 2004 TNT 19-16 2004 TNT 19-16: Treasury News Releases (January 28, 2004).

40 Kurt Ritterpusch, Corporate Taxes: IRS Rolls Out New Schedule M-3 for Reporting Book-Tax Differences, Daily Tax Rep. (BNA) No. 130, at G-5 (July 8, 2004) (quoting IRS Commissioner Mark Everson).

41See Report on Announcement 2010-9, New York State Bar Association Tax Section, available at Tax Analysts, Doc. 2010-6957, p. 22-23.

42See, e.g. Comments on Announcement 2010-9, Steptoe & Johnson, LLP, available at Tax Analysts, Doc. 2010-7710, p.4; Comments on Announcement 2010-9, Crowell & Moring LLP, available at Tax Analysts, Doc. 2010-8094.

43See Prepared Remarks of Commissioner of Internal Revenue Douglas H. Shulman before the Tax Executives Institute 60th Mid-Year Meeting, April 12, 2010, reprinted at BNA 69 DTR G-7.

44 Michael Joe, Uncertain Tax Position Proposal Requires New Audit Approach and Timely Guidance, Shulman Says, TAX NOTES TODAY, Doc. 2010-8038, 2010 TNT 70-1 2010 TNT 70-1: News Stories (April 13, 2010).

45See Report on Announcement 2010-9, New York State Bar Association Tax Section, available at Tax Analysts, Doc. 2010-6957, p.25-27.

46 Announcement 2010-9 states that the Service is evaluating additional options for penalties or sanctions, including seeking legislation imposing a penalty for failure to file the schedule or to make adequate disclosure. However, more recent comments by IRS officials have focused on the existing penalties for failure to file a return. See, e.g., Jeremiah Coder, Desire for Efficiency Drives UTP Proposal, Official Says, TAX NOTES TODAY, Doc. 2010-10180, 2010 TNT 88-2 2010 TNT 88-2: News Stories (May 7, 2010).

47See Marie Leone, Tax Sticklers, Not Schemers, CFO Magazine (May 26, 2010) (survey of nearly 500 CFOs and controllers from U.S.-based companies finds that "a sizable majority of corporate tax departments are less concerned with aggressive tax planning than with 'timely and accurate tax return and financial reporting.'").

48See generally Pamela Olson, Announcement 2010-9: Can This Marriage Be Saved?, BNA Tax Management Memorandum, unpublished draft of April 29, 2010.

49 IRS Commissioner Shulman has identified the goal of "creat[ing] certainty sooner for taxpayers" as one of the primary goals of the UTP Proposal, and acknowledged that the IRS "cannot spend the same amount of time, and we cannot ask for the same information we have in the past." See Prepared Remarks of Commissioner of Internal Revenue Douglas H. Shulman before the Tax Executives Institute 60th Mid-Year Meeting, April 12, 2010, reprinted at BNA 69 DTR G-7.

50 Shulman January Speech, supra note 15.

51 ASC 740-10-55-101.

52 ASC 740-10-25-6.

53 ASC 740-10-25-6.

54 ASC 740-10-25-7, para. (a).

55 ASC 740-10-55-3.

56 Paragraph 132 of FASB Concept Statement 2.

57See generally FASB Concept Statement 2.

58 IAS 37, para. 23.

59 IAS 37, para. 36.

60See IAS 37, para. 24.

61See www.iasb.org.

 

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