Strategies for Resolving Uncertain Tax Positions

Jul 05, 2011   

As the deadline nears for reporting Uncertain Tax Positions (“UTPs”) to the IRS, practitioners and organizations continue to protest the lack of guidance on various disclosures. Speaking in a webcast on June 28, a PricewaterhouseCoopers representative relayed that the firm is specifically concerned with what it means to record a reserve and how to treat non-GAAP taxpayers. Similarly, the Tax Executives Institute recently called on the IRS to address issues like filing requirements and transfer pricing. Amid all of this uncertainty, we present pre-filing strategies”as suggested by BNA”for resolving future uncertain tax positions.

Read our recent posts here and here for a full explanation of what it means to have a reportable “uncertain tax position.”

Ideally, a company achieving greater tax certainty will benefit from resolving issues more efficiently and by recording lower unrecognized tax benefit liability, which translates into less accrued interest expense. A company under the watch of the IRSs Large Business and International Division has a number of pre- and post-filing tools available to settle UTP issues expediently.

Pre-filing options include:

  • Industry Issue Resolutions (IIR). This program presents an opportunity for business taxpayers, industry associations, and other interested parties to negotiate with the IRS for over a frequently disputed or burdensome tax issue. Upon reaching a resolution, the IRS will typically issue formal guidance memorializing it as such.
  • Pre-Filing Agreements (PFA). Eligible taxpayers can use the PFA program to request that the IRS examine a completed transaction or event that has not yet been reported. The underlying issue must be primarily factual rather than legal.
  • Advance Pricing Agreements (APA). These binding agreements between a taxpayer and the IRS are targeted at resolving complex transfer pricing issues. Read more about recent APA initiatives here.
  • Compliance Assurance Programs (CAP). Under this growing program, participants work with IRS coordinators to review transactions occurring throughout the year, conferring more certainty about their tax returns before filing.

Post filing programs are referred to in the Internal Revenue Manual (IRM) as “alternative dispute resolution programs.” The developing programs are designed to ease the examination process by using collaborative procedures, limiting examinations to narrow issues, where possible, and to fast-track the settlement and resolution processes. According to the IRM, these post-filing methods will be considered in all examinations and implemented where appropriate.

The attorneys at Fuerst Ittleman are experts at resolving complex tax and regulatory issues. If you have a taxing matter on your hands, email us at contact@fidjlaw.com.